UBS Global Property Securities Fund. Quarterly investment report to 31-Dec-17

Transcription

1 UBS Global Property Securities Fund Quarterly investment report to 31-Dec-17

2 Performance Comments Before fees and expenses, the portfolio rose by 5.90% over the quarter, outperforming its benchmark. % Return (Gross) Fund 1 Benchmark* Difference 3 months years years (0.47) 5 years Calendar Year to Date Since inception (09/05) Performance figures are gross of ongoing fees and expenses. * FTSE EPRA/NAREIT Developed Net Total Return Index (hedged in AUD) After fees and expenses, the portfolio rose by 5.65% over the quarter, outperforming its benchmark. % Return (Net) Fund 2 Benchmark* Difference 3 months years years (1.48) 5 years (0.41) Calendar Year to Date Since inception (09/05) Performance figures are net of ongoing fees and expenses. * FTSE EPRA/NAREIT Developed Net Total Return Index (hedged in AUD) Performance can be volatile and future returns can vary from past returns. The benchmark does not incur these costs. The performance figures quoted are historical, calculated using end of month redemption prices and do not allow for the effects of income tax or inflation. The calculations also assume that all income distributions have been reinvested. Performance has been prepared in accordance with 2016 GIPS standards. UBS Asset Management 2

3 Stock Contributors & Detractors (%) Company name Return Contribution Over / underweight Country Garden OW Big Yellow OW Unite OW Capitaland Commercial Trust OW Welltower (8.16) 0.22 UW Total of top 5 Contributors 1.76 DDR (0.13) (0.13) OW Link REIT (0.16) UW Prologis 2.46 (0.18) OW Avalonbay Communities 0.87 (0.18) OW Vonovia (0.19) UW Total of top 5 Detractors (0.84) Note: Position at quarter-end, which may be different to the position during the quarter. Country Attribution (%) Portfolio Positioning Active Positions by Stock (%) Top 5 Overweights Top 5 Underweights Prologis 3.56 Vonovia (1.63) Country Garden Holdings 3.47 CK Asset Holdings (1.59) AvalonBay Communities 2.67 Welltower (1.57) Big Yellow 2.55 Link REIT (1.38) Simon Property 2.49 Unibail-Rodamco (1.19) Active Positions by Country (%) Top 5 Overweights Top 5 Underweights Spain 3.67 United States (8.37) China 3.47 Hong Kong (2.94) United Kingdom 3.24 France (2.26) Germany 2.22 Sweden (1.48) Netherlands 1.44 Switzerland (0.96) Note: Position at quarter-end, which may be different to the position during the quarter. Company name Contribution Over / underweight China 0.62 OW United Kingdom 0.54 OW Netherlands 0.16 OW Singapore 0.10 UW Canada 0.09 UW Total of top 5 Contributors 1.50 Austria (0.04) UW France (0.08) UW United States (0.16) UW Spain (0.18) OW Hong Kong (0.34) UW Total of top 5 Detractors (0.81) Note: Position at quarter-end, which may be different to the position during the quarter. 3 UBS Asset Management

4 Market Review Global real estate stocks increased by +1.8% in December, in line with global stock markets which rose +1.4%. The US S&P500 rose +1.1% while the European STOXX returned +1.5%. Equity markets were buoyed by US tax cuts, strong economic indicators in Europe, and easing BREXIT concerns. In relation to real estate markets, North America returned +0.3%, Developed Europe returned +4.9% and Asia Pacific delivered +2.3%. During 2017, real estate has delivered +15.0% versus the World Index (Equities) of +23.1% with large regional variations as Developed Europe (+29.1%) and Asia Pacific (+26.8%) outperformed North America (+4.6%). This was aided by most currencies strengthening against the USD. Emerging markets were the standout performer, with the Emerging real estate index rising +52.4% during 2017, led by India at % and China at +89.4%. North American real estate stocks increased by +0.3% in December. The US REIT market was flat (0.0%) while Canadian REIT stocks rose +4.4%. During the 2017 calendar year, the US REIT market rose +3.9% while Canadian REITs increased +10.1% in local dollar terms and +17.9% in USD terms. Among the US-REIT sectors in December, the best performer was the Retail REITs at +3.7%, while Healthcare REITs fell -2.9%. French property group Unibail- Rodamco SE (UL.NA) has agreed to buy shopping mall owner Westfield (WFD.AU) for $16bn, to create "the world's premier developer and operator of flagship shopping destinations". Westfield owns and operates 35 malls in the US and UK, with almost 70% of its revenue from the US. GGP Inc. (GGP.US) has rejected Brookfield s $15bn offer to acquire the company. According to REIS, US retail real estate vacancies hit 10% in the fourth quarter of Mall vacancies have been climbing as retailers, hurt by competition from online retail, have been closing stores and filing for bankruptcy. Kmart saw the most closings in the quarter, with more companies including Walgreens Boot Alliance, Toys R Us and GAP expected to downsize further in Office vacancy rate in the US increased to 16.3% in the fourth quarter of 2017, compared to 16.1% a year earlier. A Blackstone subsidiary has entered into an agreement to acquire a 2.2m square feet industrial portfolio from Cabot Industrial Value Fund IV for approximately US$1.8bn. The portfolio consists of 146 industrial properties concentrated in Chicago, Dallas, and Washington DC. The Scion Group, a joint venture between GIC and Canada Pension Plan Investment Board (CPPIB), has completed the acquisition of a 22-property student housing portfolio from Harrison Street for approximately US$1.0bn. The portfolio comprises of 12,000 beds across 20 universities and 18 states. Blackstone Real Estate Core Plus fund has a contract to buy 49% of One Liberty Plaza in Manhattan from Brookfield Property Partners, valuing the tower at around US$1.5bn. Cominar REIT (CUF-U.CN) has entered into an agreement for the sale of its entire non-core market portfolio to Slate Acquisitions for C$1.1bn. The assets being sold include 97 properties located in the Greater Toronto Area, the Atlantic Provinces and in Western Canada. European real estate stocks increased by +4.9% in USD terms over December. Austria and the UK were the strongest markets at +13.0% and +8.2% respectively, while Italy was the weakest at -2.6%. Most European REIT markets witnessed positive performance over the past twelve months in local dollar terms, with USD returns boosted by a stronger Euro. Italy was the best performer for the year at +67.1% while the Netherlands returned +12.7%. UK REITs delivered +23.4% in 2017, a solid recovery post the -23.3% return in IQ Student Accommodation has acquired Pure Student Living from LetterOne for 870m. LetterOne s portfolio comprises of 3,644 rooms across 11 sites in London, Edinburgh, York, Bath and Brighton. KPMG has exchanged contracts to sell and lease back its London headquarters in Canary Wharf, London with Kingboard Investments for around 400m. Frasers Centrepoint (FCL.SP) announced the 257 million cash acquisition of a portfolio of six crossdock facilities in Germany. GEG German Estate Group has signed a contract for the purchase of the Japan Center in Frankfurt from Commerz Real for approximately 280m. UBS Asset Management 4

5 Outlook & Strategy We remain positive on global property stocks, given the general low interest rate and low inflation environment, plus strong capital demand for the product. While we are positive on a gradually improving US economy, we believe that US REIT valuations will be impacted by rising rates as some investors switch to growth opportunities. We remain positive on the Euro-zone given improving economic data, and we remain overweight the UK (London) as Brexit concerns ease. We remain positive on Japan with improving real estate fundamentals, while we are hesitant towards Hong Kong and Singapore given macro headwinds. attracted offshore capital. The attractiveness is aided by further M&A/corporate activity. Despite the strong performance, we remain cautious on the outlook for emerging markets, especially those with large current account deficits and political uncertainty. Many secondary banks remain under pressure and it is expected that these markets will continue to display enormous volatility. In North America, fundamentals should strengthen in line with better economic prospects, however, rising rate environments tend to be relatively negative for defensive asset classes. There has been solid rental growth in multifamily apartments and self-storage, while office REITs have benefitted from strong demand for space in Manhattan and on the West Coast. Industrial trends are positive while the retail sector records modest growth. The general negative sentiment towards retail stocks given the threat of e-commerce and store closures in the US has led to potential M&A opportunities, thus providing pricing support. While we are slightly underweight US property stocks given the expectation of further interest rates rises, we have been overweight quality mall operators on valuation grounds. We are underweight Canada where expensive house prices and slowing demand for commodity exports have impacted economic growth and user demand. We remain positive on UK and European property stocks. We remain overweight Euro-zone property due to easing measures and the continuation of a low interest rate and low inflation environment that augurs well for yield investments. The favourable funding environment for investors should continue for some time yet. We are overweight London-focused companies, given the relative valuations and constant demand for trophy assets. In Japan strong efforts by Prime Minister Abe's government to boost the economy, the BOJ JREIT purchase program, and infrastructure spending related to the Olympics, will support the real estate market. This is further aided by negative interest rates. Longer-term concerns include Japan s falling population and high public debt-to-gdp ratio. Despite these risks, we hold a slight overweight on Japanese property as the recovery continues. The economic outlook for Australia remains uncertain, with a weaker housing and resource market impacting growth. Despite sluggish rental growth, the relatively high yields, mid-cycle rental growth and the low cost of finance have 5 UBS Asset Management

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