The Fund returned 1.14% for the month compared to the benchmark of 0.47%, generating an outperformance of 0.67%. Key contributors to outperformance included our holdings in Charter Hall Group (+5.0%), Lifestyle Communities (+8.9%), and NEXTDC Ltd (+7.5%).
The Fund returned 1.14% for the month compared to the benchmark of 0.47%, generating an outperformance of 0.67%. Key contributors to outperformance included our holdings in Charter Hall Group (+5.0%), Lifestyle Communities (+8.9%), and NEXTDC Ltd (+7.5%).
As we head into June 2021 reporting season, the market has anticipated a recovery in earnings as property conditions began to normalize in the first six months of 2021. However, with the resurgence of COVID-19 cases in late June, and with half of Australian major cities currently in lockdown, the recovery is now likely to be pushed out for at least another six months.
For retail assets, the first casualty of this is GPT Group, which has a 40% exposure to retail assets, and withdrew its guidance for FY21. We expect other retail landlords to follow suit and hold off on providing FY22 guidance given the uncertainty in relation to the duration and impact of the lockdowns. The earnings impact is expected to be less severe versus June 2020 with a tighter threshold applied to small and medium-sized businesses. The impact will be on cash collections as negotiations remain ongoing for those tenants affected by the lockdowns. This will provide further pressure on leasing spreads and occupancy of the centres. The recovery this time around is not expected to bounce back like it did in the initial national lockdown in 2020 due to (1) household income being unlikely to lift with less government stimulus (2) a lot of the discretionary goods spending being already pulled forward (i.e. home offices have already been set up). Our Fund is relatively protected with its retail exposure being in defensive retailing, and having more than 60% exposure to supermarkets and essential services.
Turning to the office sector, the economic recovery and jobs growth in the past six months have generated positive net absorption in Sydney (for the first time since the pandemic) despite increasing adoption of working from home. However, the recent lockdowns have put heightened risks around the timing and pace of the recovery. Our preferred exposure is in metro offices, with more than 20% exposure to government tenants, and prime offices, offering state of the art facilities (air filtrations and wellness) and sustainability credentials, as we believe tenants are likely to reduce their office space but look to upgrade to higher quality space to accommodate more collaborative working.
This reporting season also highlights the divergence in earnings growth between pure retail and office REITs versus fund managers and developers. With a lower for longer interest rate environment, there is strong demand from both offshore and domestic investors (particularly in unlisted wholesale) for logistic and office assets, driving record low cap rates and low IRRs (internal rate of returns). This makes it harder for pure REITs to acquire assets that are accretive compared to a fund manager that can partner with wholesale capital to grow earnings through acquisitions and developments. We favour fund managers that have development capabilities and exposure to assets with favourable thematic drivers such as logistics and alternative assets.
The portfolio remains positioned to offer both defensive and growth exposures, focusing on good management, strong balance sheets, and strong free cashflows.
Portfolio Manager
Investment Specialist
A Property Fund focussed on capital security, income yield, and sustainable growth.
The Fund believes each security has an underlying or intrinsic value and that securities become mispriced at times relative to their value and each other.
The Fund seeks to exploit such market inefficiencies by employing an active, value based investment style to capture the underlying cashflows generated from real estate assets and/or real estate businesses.
The Fund believes that responsible investing is important to generate long term sustainable returns. Incorporating ESG factors along-side financial measures provides a complete view of the risk/return characteristics of our property investments.
The Fund is benchmark unaware. All positions are high conviction and assessed on a risk-reward basis, resulting in a concentrated portfolio of 10-20 securities.
1. Net performance figures are shown after all fees and expenses, and assume reinvestment of distributions. The Fund incepted on March 11th 2020. Index performance calculations include a complete month’s performance for March 2020. No allowance has been made for buy/sell spreads. Please refer to the PDS for information regarding risks. Past performance is not a reliable indicator of future performance, the value of investments can go up and down.
2. Inception 11 March 2020.
3. Annualised standard deviation since inception.
4. Relative to S&P/ASX 300 A-REIT TotalReturn Index.
* For further information regarding fees please see the PDS available on our website.
