Profile OVERWEIGHT POSITIONS ACTIVE % Valad Property Group +4.8 Macquarie Office Trust +4.0 Macquarie CountryWide Trust +3.5 Macquarie Infrastructure Group +3.0 Dexus Property Group +2.7
The Macquarie satellites largely underperformed this month, as did other geared A-REITs, as investors became a little more risk averse. A number of these entities have added significant relative value to the portfolio since March of this year and a little unwinding of these gains at some stage was always on the cards. Encouragingly, there was little negative news flow of note from these entities during the month and we continue to see significant value in the underlying property exposures of Macquarie CountryWide (supermarkets and shopping centres in Australia, New Zealand and the U.S.), Macquarie Office (high grade office buildings in Australia, the U.S., Europe and Japan) and Macquarie Infrastructure (toll roads in Australian and globally).
Valad Property Group is another leveraged A-REIT that has added significant value over the past nine months but gave back some ground this month. Again, there was no negative news during the month. Indeed, the companys AGM was relatively upbeat as the firm confirmed its strategy to improve earnings through growing revenue and reducing debt importantly, the recent capital raising has given the firm the time and means to pursue this goal.
Outlook
Despite lacking some direction over the past two months, we continue to believe that the significant structural improvements that A-REITs have implemented post the global financial crisis have positioned the sector very favourably going forward, particularly against global REIT peers. A-REITs have reduced debt significantly and refocused on traditional rental streams. As a result, A-REITs are poised to produce strong margin expansion once revenue growth returns. While shorter term vacancy issues and higher interest costs remain hurdles to negotiate, the lack of new supply should support the sector in the medium term.
As a measure of future expected relative outperformance, we remain buoyed by the high level of dispersion in our portfolios expected return relative to the wider A-REIT market. At present we observe around four times higher than normal return to fair value between our fund and the market. Opportunity at the stock level remains high. This should produce above normal portfolio returns and leads us to be very optimistic about the portfolios medium term return prospects.
VPG Price at posting:
$2.40 Sentiment: Hold Disclosure: Held
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