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Antares Listed Property Fund - July 2017

The Antares Listed Property Fund delivered a return of 0.0% (net of fees) for the month of July, outperforming its benchmark by 0.1%.

The listed property market was virtually flat in July, with the S&P/ASX 200 A-REIT Accumulation Index falling just 0.1% and marginally underperforming the broader share market that was flat over the month. Industrial REITs (+1.1%) outperformed, along with Retail (+0.6%), whilst Diversified (-1.4%) and Office REITs (-4.7%) were relatively weak. Calendar year-to-date, the REIT sector is down 6.1%, underperforming the broader share market by 7.0%.

Vicinity Centres (VCX) outperformed strongly, rising 7% in the month. Management announced an earnings accretive share buy-back (5% of the REIT), commencing after its 17 August earnings report. Asset revaluations also increased VCX’s net tangible assets to $2.82 per share from $2.73 in December 2016. Asia Pacific Data Centre Group (AJD) fought off an attempt by 360 Capital (TGP) to replace the responsible entity of APDC and was then the subject of competing takeover offers from NEXDC (NXT) and TGP. NXT had acquired an 18.6% stake in AJD and then offered to pay $1.85 cash per security for the remainder of the company which was subsequently upgraded to $1.87. TGP offered $1.80 cash per security. The matter remained unresolved at month-end.

Charter Hall Group (CHC) announced it is having exclusive discussions with Westpac about the sale of global infrastructure business Hastings Management Proprietary. Westfield Corporation (WFD) continued to be negatively impacted by concerns about the retail environment in the US following an earnings report from a US shopping centre REIT that included a reduction in earnings guidance.

In our most recent quarterly reports we have stressed our concern over the sector’s “expensive” valuation, noting that despite solid fundamental characteristics, it looked vulnerable to any increases in bond yields. This scenario is what appears to be playing out at the moment, with the sharp fall in the REIT sector over the end of June and start of July being accompanied by a jump in long bond yields. The sector’s circa 10% fall has seen it return to a much more reasonable level. In our view the A-REITs are now priced around fair value. In the upcoming profit reporting season we will be paying particular attention to the key characteristics of each REIT – namely gearing levels, distribution payout ratios, growth strategies and governance levels.

We currently hold a concentrated 14 stock portfolio. Our biggest overweight positions are in large cap stocks that represent attractive value based on our bottom-up stock valuations – being Westfield Corporation, Iron Mountain, Scentre Group and Goodman Group. We have also maintained our holdings in a select group of small cap REITs such as Asia Pacific Data Centres Group, Abacus Property Group and Carindale Property Trust. The Portfolio’s other key overweight positions are Sydney Airport, and small-cap residential developer Peet.

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