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Transcription of Finance News Network Interview with Antares Listed Property Fund Portfolio Manager, Richard Colquhoun
Lelde Smits: Hello I’m Lelde Smits for the Finance News Network and joining me from the Antares Listed Property Fund is Portfolio Manager, Richard Colquhoun. Richard, welcome to FNN.
Richard Colquhoun: Thank you.
Lelde Smits: Can you start by introducing us to the Antares Listed Property Fund?
Richard Colquhoun: The Antares Listed Property Fund is an actively managed investor in Australian Listed Property Securities, but also property like securities. It’s low turnover and tax aware, and aims to deliver better than benchmark returns over the medium term, but at a low cost.
Lelde Smits: The Fund invests in listed property and listed property securities. What do you look for in the securities and how do you determine value?
Richard Colquhoun: Firstly, our primary valuation tool is the dividend discount model. This is really value in the income stream that comes from the property securities. We also use net asset value, which is a way of capturing the value of the actively managed portion of some of the companies, which are involved in other activities, such as property management and property development. So by this way, we cut to the income stream and also the underlying value of the businesses as well.
Lelde Smits: Do you only invest in Australian property?
Richard Colquhoun: Only Australian Listed Property Securities and property like securities, because we do have some flexibility around the benchmark. The primary reason for that is because we are interested in attracting Australian investors that are looking for an Australian dollar income, rather than a global property exposure.
Lelde Smits: Investors were scared off leveraged listed property placed during the GFC. How has the listed property sector changed in recent times?
Richard Colquhoun: Well firstly it really had to change. There was way too much leverage and payout ratios were way too high, coming into the 2006/2007 period. This was after a period of sustainable bullishness and low credit costs. In terms of their leverage in the sector that really improved in 2010, there was a large amount of capital raising which fixed the balance sheets. The next stage was for new management to come in and also Board renewal.
So over the preceding couple of years we’ve had quite a lot of new management teams coming in to the market. So far some of them are still proving their worth, but by and large that process of renewal is largely complete. We call it the rehabilitation of the sector if you like.
Lelde Smits: Looking closer at the Fund’s positions - Stockland (ASX:SGP) has recently released its interim results, what was your assessment?
Richard Colquhoun: We thought it was a strong result. The result overall was up five per cent, the residential result up 39 per cent and a member of Stockland is an owner of property as well as a developer of broad acre residential. In terms of what we look at is the leading indicator of the residential performance, the deposits on land blocks were up by 41 per cent. That was a very strong result, an indication that the market has really turned around. One issue that the stock has had, traditionally with the market is that the residential sector really drives sentiment towards the stock.
Lelde Smits: While still on Stockland, what do you believe is the likelihood of their proposed takeover of Australand Property Group (ASX:ALZ) being successful?
Richard Colquhoun: As it stands they’ve made a conditional proposal at $4.20 value, that’s been rejected by Australand the target. Our view is we would not like to see them pay much more than that; in fact we’re very skeptical about merger and acquisition activity in the REIT sector. Often this is because the major benefits touted by management teams in achieving scale and EPS growth, are either often not realised, or come at the cost of higher gearing and longer term performance.
Lelde Smits: Finally Richard, can you give us an overview of your portfolio and a snapshot of some of your largest positions?
Richard Colquhoun: Certainly, some of our larger positions are most definitely in the big cap stocks. So amongst those, Westfield Group (ASX:WDC) rather than Westfield Retail Trust (ASX:WRT) and also Stockland, which we mentioned the result of previously. And also Goodman Group (ASX:GMG), which is a global developer of industrial property. And we have a very favourable view of industrial property globally, at the moment.
In terms of the small cap stocks, Asia Pacific Data Centres which we see as akin to an industrial property owner of the future, in that it hosted data centres that big enterprises use to effectively mind their own data and run their whole server operations from. Also Peet (ASX:PPC) which is – although it’s a small cap company, is very big in the residential sector and certainly has a very large pipeline of broad acre residential development.
Lelde Smits: Richard Colquhoun, thank you for the introduction to the Antares Listed Property Fund.
Richard Colquhoun: Thank you.
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