Strategic investing in property stocks

Interviews

Transcription of Finance News Network Interview with Antares Listed Property Fund Portfolio Manager, Brett McNeill
 
 
Lelde Smits: Hello I’m Lelde Smits for the Finance News Network and joining me from Antares Listed Property Fund is Portfolio Manager, Brett McNeill. Brett, welcome to FNN.
 
Brett McNeill: Thank you Lelde, great to be here again.
 
Lelde Smits: How has the listed property market performed against the broader share market this year?
 
Brett McNeill: The listed property sector in Australia has continued its great run. I mean if we go back to 2014, the sector delivered a return of 27 per cent for investors, which was well ahead of the broader share market at six per cent. And that’s really continued on in the calendar year to date. So we’ve seen the sector up 11 per cent till the end of May, which is a great start to the year. And that compares to the broader share market’s return of nine per cent. So some good outperformance for the sector once again, but also a very good absolute return too.
 
Lelde Smits: How has the Fund performed relative to the benchmark over the past 12 months, and which stocks have buoyed your performance?
 
Brett McNeill: The Antares Listed Property Fund has delivered a return of 34 per cent over the last 12 months, which is really good in an absolute sense. Slightly behind the benchmark, which has delivered a 35 per cent return, over the same 12 month period. And I’d say that’s really due to our more defensive positioning, where we’re taking a conservative stance. Especially in recent times, as the sectors had a very good run up. After delivering such great performance, it’s caused us to be quite conservative in our stock selection.
 
In terms of the main contributors to the Fund, Westfield Corporation (ASX:WDC) has been by far and away our best performing stock. And that’s delivered a great return since the company underwent its big restructure, halfway through last year. And it’s delivered well over 30 per cent return, in just the nine months since then. So that’s been a really great contributor for the Fund, which has been very pleasing. And some of the other main contributors to the Fund’s performance, have been our holdings in Goodman Group (ASX:GMG) and Sydney Airport Holdings Limited (ASX:SYD).
 
Lelde Smits: Looking closer at some stocks, Federation Centres Limited (ASX:FDC) and Novion Property Group (ASX:NVN) are set to merge. How was the Fund impacted by this transaction?
 
Brett McNeill: The Federation Novion merger has created a really big meaningful property stock. So the stock’s now a $12 billion market cap company. And that makes it the third largest Australian property trust, listed on the Australian Stock Exchange, behind Scentre Group Limited (ASX:SCG) and Westfield Corporation (ASX:WDC). So the merger’s just completed. We thought overall the deal was OK. We didn’t think the benefits were over compelling, from a financial or a strategic point of view, but we think it stacked up OK.
 
So we’ve just maintained our holding through the merger process. We haven’t added to it and that kind of reflects our view that we’re typically, against consolidation amongst the large cap Australian REITs. Typically, we don’t think there’re fantastic benefits for shareholders. And a lot of merger and acquisition activity, is probably driven by a bit more of a growth for growth, say point of view. But we’re prepared to hold our view on the Federation Novion merger, given it’s such early stages. So we’ll see how it performs over the coming year, to get a really good feel for the analysis.
 
Lelde Smits: Sydney Airport Holdings has reported strong traffic growth this year. What is your exposure to the company and outlook for the stock?
 
Brett McNeill: You’re right; Sydney has had a really good solid start to the year, in terms of its traffic performance. So overall traffic has grown 2.2 per cent at Sydney airport, for the period to the end of April 2015, which is their last reported traffic announcement. And that’s pretty much in line with our forecast. Long-term we expect traffic to grow at the airport in the range of about 2.5 per cent. And this flows through really well into the other businesses that Sydney airport runs.
 
So only about half the revenue at the airport is aeronautical revenue. The other half is more traditional, what we think of as property trust activities.So the retail shopping centre within the airport, car parking and ground transferral, as well as the property development and ownership business. So things are tracking really well at the airport and the stock started the year, at a price of $4.71. And it’s closed recently more in the range of $5.20. So it’s been a really pleasing contributor again to the Fund’s performance.
 
Lelde Smits: Finally Brett. How did property stocks fair over the last reporting season, and what’s your outlook for the sector?
 
Brett McNeill: It was another really good profit reporting season for the Real Estate Investment Trust, the REITs, in the most recent results season. And really that’s the avoidance of any big disasters, as well as just the stocks themselves delivering some really good profit results, where we’ve seen the earnings backed by good quality numbers. And that’s crucial, because that forms the basis for the distributions that the REITs pay out that we then, pass on to our investors.
 
And that’s the key reason; we really think the investors are in the sector and in our Fund. For the good quality income distributions that we think can grow over time. And everything that the REITs have been saying overall in the reporting periods, gives us confidence that these income payments can grow over time. And that’s really the continuation I think, of a pretty strong theme the last few years, where the REITs have delivered good quality results, with good income growth expected.
 
Lelde Smits: Brett McNeill, thank you for the update from Antares Listed Property Fund.
 
Brett McNeill: Thanks very much.
 
Lelde Smits:
 
 
Ends