Investment Matters

Reporting season: property wrap-up

This week's W&D focuses on the property allocation (apologies to those without this allocation, stay tuned for next week...).

The property allocation achieved its objective in FY15 - providing a good income stream, as well as some capital gains (to hedge inflation).  The allocation provided strong diversification benefits in FY15, as the equity market reminded us that it can be volatile at times.

However, through FY15, and continuing into FY16, we have become increasingly conservative in the property allocation.  As with blue chip equity stocks, the chase for yield has lead to many valuations becoming stretched.  Many REIT distributions are only sustainable while interest rates remain low.

The strong portfolio outperformance in FY14 turned to a relative underperformance in FY15, driven by this increased level of conservatism.  Meeting the objective of the allocation is more important than relative performance to the property index.  In fact, we are actually index agnostic.

Summaries are presented below for the listed REITs and property stocks.  The allocation also holds a hybrid security and some bonds (not listed).

The statutory figures for REITs are presented in the tables below, along with underlying figures - so as to provide a better indication of underlying performance.  (Specifically, all tables have underlying figures adjusted for property revaluations, changes in the fair value of derivatives and straight-lining of rental income - excluding Cedar Woods, which operates under a traditional company structure.)

The 360 Capital Industrial Fund, which is in the property allocation as a result of accepting a takeover offer for the Australian Industrial REIT (ANI), was covered in W&D 21-Aug-15.