Folkestone Maxim A-Reit Securities Fund Raises $564m Capital & Outperforms the Benchmark

Over the month, the Fund returned -0.58% (after fees, before tax) outperforming the Benchmark return of -1.00%. Over the 12-month period ended 31 May 2017, the Fund returned +6.48% (after fees, before tax), substantially outperforming the Benchmark return of +2.30% by +4.18%.

KEY TAKEAWAYS:

• During the month of May, a total of $564m of capital was raised.
• Charter Hall Group (CHC) raised $275m to co-invest in eight of its existing Funds, Aventus Retail Fund (AVN) raised $215m to acquire two large format retail assets in Sydney and Ingenia Group (INA) raised $74m to acquire five lifestyle communities.
• The vote for Investa Office Fund (IOF) to acquire a 50% interest in the Investa management platform failed, leaving Cromwell Property (CMW) now needing to clarify the status of its potential all cash offer to acquire all the units in IOF.
• In May, as expected, the Reserve Bank of Australia (RBA) left the cash rate unchanged at 1.5%. Key economic data released during the month again highlighted a mixed outlook with business confidence up, consumer confidence lower and a weaker retail environment.
• Retail sales in March fell a worse-than-expected 0.1%m/m (consensus: +0.3%) bringing the y/y rate to 2.1%, the slowest in almost four years.
• Residential building approvals for March also fell 10.3% as APRA continues to curb demand from investors.
• Some market commentators are now toying with a potential rate cut from the Reserve Bank if the weakness in the economy continues.

The A-REIT sector continues to benefit from the continued flow of foreign money chasing premium assets. This has led to further cap rate compression boosting their NTA’s. Also, some A-REIT managers are selling down non-core assets to reposition their portfolios and de-leverage their balance sheet.

Over the month, the Fund returned -0.58% (after fees, before tax) outperforming the Benchmark return of -1.00%. Over the 12 month period ended 31 May 2017, the Fund returned +6.48% (after fees, before tax), substantially outperforming the Benchmark return of +2.30% by +4.18%.

In May, positive contributions to returns came from the Fund’s overweight exposure to Eureka Group Holdings (EGH +5.3%) and Asia Pacific Data Centre (AJD +4.1%) and a zero holding in Stockland Group (SGP -2.7%).

Detracting from performance was the Fund’s overweight exposure to Folkestone Education Trust (FET -4.5%) and Rural Funds Group (RFF -3.5%).

At the end of May, the Fund’s investments comprised 16 ASX listed securities totalling 91.3% of the portfolio, 10 of which were constituents of the S&P/ASX 300 A-REIT Index, with the remaining 6 holdings being non-index stocks. A 0.1% exposure is held in an unlisted fund (a spin-off from GPT), which we expect to exit in due course. The balance of 8.6% of the portfolio was held in cash/liquid investments.

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