The advantages of REITs for retail investors. Properties owned by the major REITs. Exposure to premium property assets.

Transcription

1 Professional Selection Quarterly Review Australian REITs - growing opportunities for small investors December 2015 In Australia, like much of the developed world, listed Real Estate Investment Trusts (REITs) own a large part of the commercial property market, from shopping centres and office buildings to industrial sheds and data centres. So for the small investor, REITs provide an ideal way of obtaining some commercial property exposure. In this article, Brett McNeill, the portfolio manager of the Antares Listed Property Fund, discusses the benefits of the recent increase in diversification within the REIT sector and how REITs can provide individual investors with exposure to some of the best commercial real estate in Australia. The information contained within this article is intended as factual information although we acknowledge that there is a reasonable likelihood of doubt and the information is not intended to imply any recommendation or opinion about a financial product. The advantages of REITs for retail investors Since the Global Financial Crisis (GFC) in , the quality of the stocks in the Australian Real Estate Investment Trust (REIT) sector has improved significantly as management have gone back to basics, repairing balance sheets, reducing debt levels, simplifying corporate structures and shifting their focus towards delivering returns to shareholders. This has reduced the perceived riskiness of the sector and made the REITs less complex and easier to analyse from an investment perspective. Diversification For retail investors, the improvement in the sector s fundamentals since the GFC is a significant positive development. Many people view their exposure to property as the equity in their home, but investing in listed real estate has several key advantages to offer. Firstly, it can provide significant diversification. Following a host of IPOs over the past couple of years, the investment opportunities offered by REITs now cover a broad spectrum of sectoral and geographic real estate markets. In the aftermath of the GFC, the number of REITs in the S&P/ASX 300 A-REIT Index plummeted from 51 (2009) to only 20 (2011) as the sector was forced to restructure amid excessive debt levels, unstable sources of income and unsustainably high dividend payouts. More recently, the breadth and depth of the sector has improved markedly as significant corporate restructuring and a series of good quality IPOs has lifted the number of stocks in the index to a more healthy level of 27 in December The broadening of the composition of the A-REIT sector can best be illustrated by looking at the sectoral breakdown of the market. Not only are there more stocks for investors to choose from as a result of recent IPOs, there are also more sectors represented in the index, including: retail office industrial residential estates aged care self-storage hotels and pubs childcare centres healthcare centres With the listed property market now covering a broader range of sectors, a diversified portfolio of REITs can provide small investors with high quality exposure to most areas of the Australian property market. Exposure to premium property assets REIT investments also enable smaller investors to own stakes in some of the best quality real estate in Australia. Landmark office towers such as Grosvenor Place and Australia Square are owned by REITs and so are large shopping centres such as Westfield Bondi Junction, Chadstone and Melbourne Central. Hence investing in REITs enables individual investors to gain exposure to the returns generated by these premium property assets. Properties owned by the major REITs The case studies provided on the following pages are examples of actual physical properties that are owned by Australian listed REITs. Information on capitalisation rates, total value of assets and occupancy levels is also shown so that investors can better understand the financial aspects of these properties. As a general rule, the physical properties owned by the REITs have to be valued by an external valuer at least every three years, with an internal Director Valuation undertaken every year. While each property can be valued according to a number of different valuation techniques, a commonly used and easily understood approach is the capitalisation rate methodology. In simple terms the capitalisation (cap) rate represents the net yield of the property. For example, if a property produces a net operating income of $5 million, and the valuer determines that the appropriate cap rate or yield for that property is 5.0%, then the value of the property is calculated as $5 million 5.0% = $100 million. Therefore the cap rate allows investors to easily compare the valuations of different assets and compare the valuation cap rate and the implied net operating income. The valuations in the following case studies represent the total value of the relevant assets. Quarterly Review - December

2 Australian REITs - growing opportunities for small investors Retail Retail Highpoint Highpoint Shopping Centre is located in Maribyrnong, eight kilometres north-west of the Melbourne CBD and is one of Australia s leading retail destinations. It incorporates over 500 stores and has over 140,000sqm of retail gross lettable area. Maribyrnong, VIC GPT Funds (58.33% ), GPT (16.67%), Highpoint Property Group (25%) Year Acquired/Opened n/a Total Valuation ($m) $1159m Capitalisation Rate(%) 5.3% Occupancy Rate (%) 100.0% Source: GPT 1HY15 Report, June 2015 Retail Westfield Bondi Westfield Sydney is an iconic retail destination located 6kms east of Sydney CBD. Westfield Bondi has a gross lettable area of over 127,000 sqm and 508 retailers contributing to a total of more than $1billion in annual retail sales. Sydney CBD, New South Wales Scentre Group Year Acquired/Opened 1994 Total Valuation ($m) $2461m Capitalisation Rate(%) 5.0% Occupancy Rate (%) 99.5%* * Actual centre occupancy not disclosed. Estimate is based on disclosed Australian Portfolio Occupancy Source: SCG 1HY15 Report, June 2015 Retail QueensPlaza QueensPlaza is a three-level CBD-regional shopping centre located in the heart of Brisbane s CBD. QueensPlaza has a gross lettable area of ~36,000sqm with ~600 cap park spaces on offer along with 70+ specialty stores. Brisbane CBD, QLD Vicinity Centres Year Acquired/Opened 2001 Total Valuation ($m) $670m Capitalisation Rate(%) 5.5% Occupancy Rate (%) 99.5% Source: VCX FY15 Report, June 2015 Retail DFO South Wharf DFO South Wharf is a two-level retail outlet centre located on the south-western fringe of Melbourne s CBD, adjacent to Docklands. The centre has greater than 30,000sqm of gross lettable area on offer with more than 150 tenants including Armani Outlet, Karen Milen, Country Road and Mimco. South Wharf, VIC Vicinity Centres (75%), Plenary Group (25%) Year Acquired/Opened 2010, 2014 Total Valuation ($m) $415m (100% share) Capitalisation Rate(%) 6.8% Occupancy Rate (%) 100.0% Source: VCX FY15 Report, June 2015 Quarterly Review - December

3 Australian REITs - growing opportunities for small investors Retail Cranbourne HOME Cranbourne Home has been established for 15 years and is located 50 kilometres south-east of Melbourne s CBD. The property includes an adjacent expansion site anchored by Masters Home Improvement ( Masters ) and complemented by a pad site and vacant commercial land on which five new showrooms are proposed in the future, with approximately 7,000 square metres being council approved. Cranbourne, VIC Aventus Property Group Year Acquired/Opened n/a Total Valuation ($m) $114m (100% share) Capitalisation Rate(%) 7.83% Occupancy Rate (%) 95.9% Source: AVN Prospectus, October 2015 Office Office Governor Phillip and Macquarie Tower 1 Farrer Place is regarded as Sydney s pre-eminent office building with expansive harbour views. The complex consists of 85,900 sqm of Premium Grade accommodation comprising Governor Phillip tower, a 64 level office building; Governor Macquarie Tower, a 41 level office building; Phillip Street Terraces, being five restored historic terraces; and nine levels of basement car parking for over 650 cars. Sydney CBD, NSW GPT (25%), Dexus Property Group (50%), APPF Commercial (25%) Year Acquired/Opened 1998 (DXS) Total Valuation ($m) $1,666m (100%) Valuation Date 31/12/2015 Capitalisation Rate(%) 5.3% Occupancy Rate (%) 84% (as at 30 Jun 2015) Source: DXS Valuation Update, Dec 2015 Office Deutsche Bank Place Deutsche Bank Place is a 240m 2 skyscraper in Sydney CBD. It is located at 126 Phillip Street in the north-eastern end of the CBD. With stunning views across Sydney Harbour and the Royal Botanic Gardens, this new-generation building is one of Australia s finest office towers. It features an external services side core providing column-free floor plates of 1,444sqm with total net-leasable area of 42,000 sqm. Sydney CBD, NSW Investa Office Fund (25%), ICPF (49%), Third Party (26%) Year Acquired/Opened 2012 (by IOF) Total Valuation ($m) $928m (100%) Valuation Date 31/12/2015 Capitalisation Rate(%) 5.0% Occupancy Rate (%) 93% (as at 30 Jun 2015) Source: IOF Valuation Update, Nov 2015 Office Melbourne Central Tower Melbourne Central is a landmark office and retail property located in the Melbourne CBD. Melbourne Central Tower is a 51 level, Premium Grade office tower located adjacent to Melbourne Central s retail component. It has typical floor plates of 1,480sqm with total net-leasable area of 65,600sqm. Melbourne CBD, VIC GPT Year Acquired/Opened 1999 Total Valuation ($m) $432m Capitalisation Rate(%) 6.4% Occupancy Rate (%) 96.5% Source: GPT 1HY15 Report, June 2015 Quarterly Review - December

4 Australian REITs - growing opportunities for small investors Industrial Industrial Austrak Business Park Austrak Business Park comprises approximately 99 hectares of industrial zoned land, located 20 kilometres north of the Melbourne CBD. The property offers access to one of Australia s first fully integrated inter-modal rail terminals. Property has a site of 661,000 sqm with gross lettable area of sqm. Somerton, VIC GPT (50%), Austrak (50%) Year Acquired/Opened 2003 Total Valuation ($m) $144m Capitalisation Rate(%) 7.5% Occupancy Rate (%) 80% Source: GPT 1HY15 Report, June 2015 Industrial Axxess Corporate Park Axxess corporate park is largely a business park that provides a combination of freestanding office buildings and traditional industrial office/ warehouse units fronting onto Forster and Gilby Roads. The estate provides smaller units up to 1,000 square metres plus modern office/ warehouses up to 6,000 square metres. Site has a 44% site coverage with 86000sqm of lettable area. Major tenant includes Jemena. Melbourne South East, VIC Dexus Property Group Year Acquired/Opened 1996 Total Valuation ($m) $192m Valuation Date 31/12/2015 Capitalisation Rate(%) 5.3% Occupancy Rate (%) 97% (as at 30 Jun 2015) Source: DXS Valuation Update, Dec 2015 Other Specialised Assets Data Centre S1 S1 is located in Macquarie Park, approximately 12km from Sydney s CBD. The facility has secure 20 MVA of base building power. Total ICT load is 11 megawatts. AJD owns the land and building while Next DC, the tenant, owns all the operational infrastructure. Macquarie Park, NSW Asia Pacific Data Centre Group Year Acquired/Opened 2012 Total Valuation ($m) $70m Capitalisation Rate(%) 7.8% Occupancy Rate (%) 100% Source: AJD FY15 Report, June 2015 Storage Centre Lane Cove ABP owned and managed by Storage King, this centre is located 11 km north-west of the Sydney CBD, the facility occupies over 90% of a six level strata industrial warehouse. The area is surrounded by densely populated suburbs and has good access to major transport links. Lane Cove, NSW Abacus Property Group Year Acquired/Opened N/A Total Valuation ($m) $15-20m Valuation Date 31/12/2013 Capitalisation Rate(%) 8.6%* Occupancy Rate (%) 84%* * Actual occupancy and capitalisation rate not disclosed. Estimate is based on disclosed ABP REIT Australia portfolio occupancy and capitalisation rate. Source: DXS Valuation Update, Dec 2015 Quarterly Review - December

5 Australian REITs - growing opportunities for small investors Other Specialised Assets Childcare Armadale Armadale is a premium inner eastern suburb of Melbourne, with high barriers to entry and an undersupply of quality child care. Redevelopment of an existing building, purchased in June 2014 and completed in August The building is tenanted to the operator Only About Children on a 20 year lease term. Armadale, VIC Folkestone Education Trust Year Acquired/Opened 30/06/2014 Total Valuation ($m) $6m Capitalisation Rate(%) 7.5% (yield on cost) Occupancy Rate (%) 100% Source: FET FY15 Report, June 2015 Private Hospital Epworth Freemasons Epworth Freemasons Private Hospital is located on Clarendon St, close to Melbourne CBD. It provides ancillary diagnostic and cancer services. Property has a site area of ~9,000sqm with net leasable area of 14,000 sqm and is leased to Epworth Freemasons for another 19 years with annual reviews to be higher of CPI and 3%. Melbourne, VIC Generation Healthcare REIT Year Acquired/Opened 1935, with extensions 1950s, 60s, 70s, 90s, 2007, 2014 and 2015 Total Valuation ($m) $39m Capitalisation Rate(%) 6.8% Occupancy Rate (%) 100% Source: GHC FY15 Report, June 2015 Quarterly Review - December

6 Antares market & Fund updates Below is a brief review of how the Australian sharemarket performed during the quarter as well as short commentaries on each Antares Fund, outlining their net performance and the main contributors to performance. # Australian sharemarket review The Australian sharemarket performed well in the December quarter, with the S&P/ASX 200 Accumulation Index rising 6.5%. The market was supported by further policy easing in China and Europe and stronger domestic economic data. There was a sharp divergence in sector performance, with industrials rising 9.1% whilst resources fell 9.0%. Resources were undermined by growth concerns in China and weakness in key commodity prices, particularly iron ore (-22.6%) and oil (-24.1%). BHP Billiton was particularly weak following news that a tailings dam at its 50% owned Sanmarco iron ore operation in Brazil had failed, releasing mine tailings that contaminated the water in down-river communities. Heightened expectations that BHP would revise, or possibly even abandon, its progressive dividend policy also impacted the stock. A period of market weakness ahead of the US Federal Reserve s rate rise was offset by stronger domestic data and suggestions that the Christmas sales period was stronger than expected. In this environment, consumer discretionary stocks (+13.0%) performed very well. The healthcare sector (+12.3%) also outperformed despite several prominent healthcare stocks being impacted the Federal government s recently announced plans to cut Medicare rebates for some pathology and imaging services. The bank sector (+10.4%) performed relatively well as Westpac Banking Corporation unexpectedly announced an out-of-cycle 20 basis point rise in mortgage interest rates for both investors and owner occupiers. This was followed by similar rises from the other major banks, improving the outlook for bank earnings. The battle for Asciano (AIO) continued, with Brookfield Infrastructure Group managing to increase its holding to 19.9% to challenge the Qube-led consortium that owns nearly 20% of AIO. The Qube-led consortium also announced a counter proposal, offering $9.25 per share and was granted due diligence. Australian Equities Fund The Antares Australian Equities Fund returned 5.9% (net of fees) for the December quarter, underperforming its benchmark S&P/ ASX 200 Accumulation Index return of 6.5% by 0.6%. The main contributors to performance for the Portfolio over the quarter were overweight positions in Metcash and Westpac Banking Corporation. The decision not to hold a position in CSL and an overweight position in South32 detracted from performance. Dividend Builder Antares Dividend Builder delivered a return of 7.8% (net of fees) for the quarter, underperforming the benchmark S&P/ASX 200 Industrials Accumulation Index return of 9.1% by 1.3%. The main contributors to performance for the Portfolio over the quarter were overweight positions in Tatts Group and Insurance Australia Group. The main detractors from performance over the quarter were overweight positions in Asaleo Care and BHP Billiton. Elite Opportunities Fund The Antares Elite Opportunities Fund returned 7.6% (net of fees) for the quarter, outperforming the benchmark S&P/ASX 200 Accumulation Index return of 6.5% by 1.1%. The main contributors to performance for the Portfolio were an underweight position in BHP Billiton and an overweight position in Metcash. The main detractors from performance over the quarter were overweight positions in Slater & Gordon and Medibank Private. High Growth Shares Fund The Antares High Growth Shares Fund returned 6.5% (net of fees) for the quarter, in line with its benchmark S&P/ASX 200 Accumulation Index return of 6.5%. Contributing positively to performance during the December quarter were an underweight position in BHP Billiton and an overweight position in Metcash. The main detractors from performance were overweight positions in Santos and Medibank Private. Small Companies Fund The Antares Small Companies Fund delivered a return of 12.0% (net of fees) for the quarter, outperforming the benchmark S&P/ ASX Small Ordinaries Accumulation Index return of 11.3% by 0.7%. The main contributors to performance for the Portfolio were overweight positions in APN Outdoor Group and Mantra Group. Detracting from performance were overweight positions in Slater & Gordon and Royal Wolf Holdings. Australian Shares Fund* The Antares Australian Shares Fund delivered a return of 5.4% (net of fees) for the quarter, underperforming the benchmark S&P/ ASX 200 Accumulation Index return of 6.5% by 1.1%. The main contributors to performance for the Portfolio over the quarter were overweight positions in Metcash and Westpac Banking Corporation. The decision not to hold a position in CSL and an underweight position in Commonwealth Bank detracted from performance. Listed Property Fund The Antares Listed Property Fund delivered a return of 5.4% (net of fees) for the quarter, underperforming the benchmark S&P/ASX 200 A-REIT Accumulation Index return of 6.0% by 0.6%. Positively contributing to performance during the quarter were overweight positions in Mirvac Group and 360 Capital Industrial Fund. The Fund s performance was negatively impacted by overweight positions in Westfield Corporation and Peet. # All returns are net of fees. Please refer to page 6 of the Quarterly Review for a summary of returns which are gross of fees. * Closed to new investments Quarterly Review - December

7 Antares Investment Returns Performance to 31 December Australian Equities Australian Equities Fund Inception date: 03/07/1995 Dividend Builder Inception date: 06/09/2005 Elite Opportunities Fund Inception date: 18/11/2002 High Growth Shares Fund Inception date: 07/12/1999 Small Companies Fund Inception date: 19/11/1999 Listed Property Listed Property Fund Inception date: 28/02/ mths % 1 yr % 3 yrs % p.a. 5 yrs % p.a. 10 yrs % p.a. Since Inception % p.a. Net return Gross Return Benchmark Return Net Excess Return Gross Excess Return Net return Gross Return Benchmark Return Net Excess Return Gross Excess Return Net return Gross Return Benchmark Return Net Excess Return Gross Excess Return Net return Gross Return Benchmark Return Net Excess Return Gross Excess Return Net return Gross Return Benchmark Return Net Excess Return Gross Excess Return Net return Gross Return Benchmark Return Net Excess Return Gross Excess Return Disclaimer: 1 Past performance is not a reliable indicator of future performance. Returns are not guaranteed and actual returns may vary from any target returns described in this document. 2 Investment returns are based on exit prices, and are net of management fees and assume reinvestment of all distributions. 3 Gross returns are provided to show performance against the investment objective. Quarterly Review - December

8 Get in contact Toll free: Mail: GPO Box 2007 Melbourne VIC 3001 antarescapital.com.au Important information: Antares Capital Partners Ltd ABN , AFSL ( ACP ), is the Responsible Entity of, and the issuer of units in, the Antares Professional Selection Funds. An investor should consider the current Product Disclosure Statement and Product Guide for the Funds ( PDS ) in deciding whether to acquire, or continue to hold, units in the Funds and consider whether units in the Funds are an appropriate investment for the investor and the risks of any investment. This report has been prepared in good faith, where applicable, using information from sources believed to be reliable and accurate as at the time of preparation. However, no representation or warranty (express or implied) is given as to its accuracy, reliability or completeness (which may change without notice). This communication contains general information and may constitute general advice. This report does not take account of an investor s particular objectives, financial situation or needs. Investors should therefore, before acting on information in this report, consider its appropriateness, having regard to the investor s particular own objectives, financial situation or needs. We recommend investors obtain financial advice specific to their situation. Past performance is not a reliable indicator of future performance. Returns are not guaranteed and actual returns may vary from any target returns described in this document. Any projection or other forward looking statement ( Projection ) in this report is provided for information purposes only. No representation is made as to the accuracy or reasonableness of any such Projection or that it will be met. Actual events may vary materially. Any opinions expressed by ACP constitute ACP s judgement at the time of writing and may change without notice. An investment in the Fund is not a deposit with or liability of National Australia Bank Limited ( NAB ) or any other member of the NAB group of companies ( NAB Group ) and is subject to investment risk, including possible delays in repayment and loss of income and capital invested. Neither ACP nor any other member of the NAB Group guarantees the repayment of your capital, payment of income or the performance of your investment. NAB does not provide a guarantee or assurance in respect of the obligations of ACP.