Folkestone Maxim A-Reit Securities Fund Reports Returns Of 4.1% In February 2017

The reporting season saw the majority of A-REITs performing in line with or above market expectations. As anticipated the office A-REITs delivered a solid performance, with the Sydney office market, in particular, strong due to lack of new supply and low vacancy rates whilst the retail operating environment remains challenging.

KEY TAKEAWAYS:

• Guidance for FY2017 is on track, with upside for those A_REITs that are able to grow their funds management business or grow their portfolio through development of existing assets.
• The S&P/ASX 300 A-REIT Accumulation Index returned +4.1% in February outperforming the S&P/ASX 300 Accumulation Index, which returned +2.2%.

–          However, the A-REITs are still down -0.9% on a YTD basis.

• At the end of February, the sector was trading at a 21.8% premium to NTA. The FY17 DPS yield of 5.0% represents a 229-basis point spread to 10-year bonds.
• The emerging theme in the A-REIT sector appears to be increased M&A activity. This is due to the relatively low cost of capital still on offer (both debt and equity) and the relative inability for A-REITs to acquire assets in the direct market.

Over the month, the Fund returned +4.14% (after fees, before tax) in line with the Benchmark return of +4.13%. Over the 12 month period ended 28 February, the Fund returned +12.64% (after fees, before tax), substantially outperforming the Benchmark return of +8.20% by +4.44%.

In February, positive contributions to results came from the Funds overweight exposure to Folkestone Education Trust (FET +12.4%), Rural Funds Group (RFF +4.1%) and Viva Energy REIT (VVR +6.7%).

Detracting from performance was the Fund’s zero exposures to Charter Hall Group (CHC +11.9%), Stockland Group (SGP +8.5%) and Vicinity Centres (VCX +1.0%).

At the end of February, the Fund’s investments comprised 16 ASX listed securities totalling 94.0% of the portfolio, 11 of which were constituents of the S&P/ASX 300 A-REIT Index, with the remaining 5 holdings being non-index stocks. A 0.1% exposure is held in an unlisted fund (a spin-off from the GPT), which the Fund expects to exit in due course. The balance of 5.9% of the portfolio was held in cash/liquid investments.

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