SUMMARY
A-REITs rose 1.7% and outperformed the broader equity market (S&P/ASX200 Index) for the third consecutive month in June, supported by an 11bp decline in the Australian 10-year government bond yield to 4.7%. In comparison, the Fund returned 1.5%, slightly underperforming the benchmark.
We’re pleased to share that Pengana’s High Conviction Property Securities Fund has been upgraded to a ‘Recommended‘* rating by Zenith Investment Partners. This reflects the Fund’s high-conviction positioning, disciplined valuation framework, and strong ESG integration as key differentiators.
Portfolio Manager Amy Pham recently sat down with Marketing Manager Aiden James to discuss the fund’s consistent outperformance since inception, the strong momentum across the A-REIT sector heading into reporting season, and why the proposed CGT and negative gearing reforms could prove a meaningful tailwind for the sector. Amy also shares her thoughts on the growing divergence between sector winners and losers, and what the fund’s recent Zenith ‘Recommended’ rating means for investors.
COMMENTARY
Market expectations for further monetary tightening continued to moderate, with the implied probability of a November RBA rate hike falling to approximately 21%, from around 43% at the end of the previous month. The shift in interest rate expectations was driven by easing geopolitical tensions in the Middle East and a softer-than-expected inflation outcome, reinforcing expectations that the RBA has likely reached the end of its tightening cycle.
A-REITs enter the forthcoming reporting season from a position of strength, underpinned by resilient operational earnings. Several names, including Goodman, Vicinity, GPT, Centuria Industrial REIT and GemLife, have reaffirmed FY26 guidance, while Charter Hall has upgraded earnings guidance for the third time this year. Despite ongoing macroeconomic headwinds, including geopolitical uncertainty, three interest rate hikes and inflationary pressures, the sector continues to offer resilient earnings, attractive income and sustainable growth.
FY27 earnings expectations will be heavily influenced by the interest rate outlook and its implications for funding costs and active earnings. For residential developers such as Stockland (SGP) and Mirvac (MGR), the key focus will be on sales volumes amid higher interest rates and proposed changes to the CGT discount and negative gearing. Margin resilience will also remain a key consideration, particularly given softening house price growth, elevated cost inflation and the material increase in cost pressures across Queensland due to competing infrastructure projects and the upcoming Brisbane 2032 Olympics.
We expect Goodman Group (GMG) to guide to at least 9% growth for FY27, with upside from performance fees, data centre land sales and development profits. Earnings visibility should improve as the development projects and contracted pipeline progresses over the next 12 months.
We continue to favour companies with strong free cash flow and robust balance sheets that are well positioned for a higher-for-longer rate environment, including GemLife (GLF), Region Group (RGN) and Charter Hall Group (CHC). We also remain supportive of AI infrastructure enablers with capital backing to deliver on their secured pipeline, including Goodman Group (GMG) and NextDC (NXT).