The investment approaches taken by A-REIT fund managers in a changing A-REIT sector while operating in an uncertain macroeconomic environment is a key theme among fund managers in the Australian Property – Listed sector report published by S&P Fund Services.
The S&P/ASX 300 AREIT Index shrunk in terms of both constituents and market capitalisation during 2011.
S&P fund analyst, Peter Ward said: “Overall, we find A-REIT fund managers investing in A-REITs that now have generally more conservative, real estate-focused management, stronger balance sheets, lower exposure to offshore assets, and greater reliance on rental cash flows than was the case in preceding years. In the words of one A-REIT fund manager, ‘boring is the new black’.”
“As well as focusing on the real estate opportunities that many A-REITs are well-positioned to take up, active A-REIT fund managers are looking to take advantage of other sector changes, including corporate activity, which some funds benefited from during 2011. A-REIT initiatives can also include divestment of non-core real estate assets and share buybacks to improve shareholder value,” said Mr. Ward. “Sector headwinds prevail, however, with ongoing global macroeconomic issues contributing heavily to an uncertain investment environment,” he added.
Key themes discussed in the report are:
- S&P awarded its first five-star ratings in the A-REIT sector in over five years. BT Property Investment Wholesale Fund and BT Property Securities Wholesale Fund both received five-star ratings.
- APN Funds Management, Legg Mason Asset Management, and UBS Global Asset Management all experienced significant investment team changes in the past year, while AMP Capital decided to bring the management of its global property securities capability in-house. The changes at UBSGAM and AMP Capital resulted in their respective fund ratings being placed ‘On Hold’.
- Antares Capital Partners (formerly Aviva Investors Australia) was acquired by National Australia Bank in October 2011. No rating action was taken.
- The S&P/ASX 300 A-REIT Index outperformed the broad equities S&P/ASX 300 Total Return Index by over 9% for the year to Dec. 31, 2011, but it trailed the S&P ASX 300 Accumulation Index equities by almost 13% over five years.
- The Australian property-securities sector performance over the year to Dec. 31, 2011, was disappointing, with the S&P/ASX 300 A-REIT Index reporting -1.56%.
- Benchmark-unaware funds benefited from their structural underweight positions to Westfield Group which underperformed other A-REIT stocks.