CROMWELL PHOENIX PROPERTY SECURITIES FUND

CROMWELL
PHOENIX
PROPERTY
SECURITIES
FUND
This award winning Fund is one of the top performing
property securities funds in Australia, with underlying
investments chosen by Phoenix Portfolios using a
‘best ideas’ approach.
www.cromwell.com.au/phoenix
Investment Report to 31 March 2014
Performance (annualised)
Fund vs Benchmark
160
Fund
140
Benchmark
120
Fund Performance
After fees & costs
100
Benchmark
80
S&P /ASX 300 A-REIT Accumulation Index
1 year
3 years
5 years
Inception
11.0%
20.1%
27.3%
5.5%
5.0%
11.7%
15.7%
-2.2%
6.0%
8.4%
11.6%
7.7%
60
40
Excess Returns
20
After fees & costs
0
9
-0
ar
M
0
-1
ar
M
1
-1
ar
M
2
-1
ar
M
3
-1
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M
Key Statistics as at 31 Mar 2014
Status
OPEN
Investment Class
Listed Property
Minimum Investment $20,000
Issue Price
$0.97711
Withdrawal Price
$0.97321
Distribution Rate
5.00 cpu2
Distribution Yield
5.3% p.a.2
Withdrawals
Daily4
3 Year Return
20.1% p.a.
Fund Value
$105.7 million
Fund Inception
18 April 2008
Fund Maturity
Open Ended
ARSN
129 580 267
PIC Code
CRM008AU
30
4
-1
ar
M
Market Commentary
The S&P/ASX 300 A-REIT
Accumulation Index rebounded from
the selloff last quarter to close up
3.0% by the end of March 2014.
The key event for the quarter was
the release of half-year results to
December 2013. In the case of the
two Westfield vehicles, GPT Group
and Australand, the results represent
full year numbers as these stocks
have December year-ends. In
summary, the property sector posted
results very much in line with analyst
forecasts or previous guidance. Retail
conditions have continued to be
weak, with the most obvious indicator
being the drop in rents that landlords
are receiving when signing up new
tenants in regional shopping centres.
This trend has been evident for some
time, and while it only affects a small
amount of the rent roll, it is indicative
of tough conditions.
Office landlords provided mixed
results, with contracted growth
in lease income for occupied
assets offset by some slippage
in occupancy and continued high
levels of incentives required to
encourage tenants to stay or commit
to new space. Residential conditions
provided the upside surprise during
reporting season with high levels of
contracts on hand that will support
earnings in future periods. However,
residential earnings from the majority
of large cap property stocks, such
as Mirvac and Stockland, are not a
substantial portion of group earnings.
The competition between GPT Group
and Dexus Group for control of the
Commonwealth Property Office Fund
(CPA) was effectively concluded in
January, with a compromise deal
struck that will deliver four office
assets and one retail asset to
OPEN FOR INVESTMENT
Sector Split3
Asset Allocation3
Top 10 stock holdings3
Carindale Property Trust
Gowing Bros Ltd
CFS Retail Property Trust Group Mirvac Group
53.4% Retail
8.5% Industrial
77.0%
S&P/ASX 300 A-REITs
19.1%
Other ASX-listed Property
3.9% Cash
15.4% Other
3.9% Cash
Dexus Property Group
Sydney Airport
Folkstone Limited
Westfield Group
General Property Trust
Westfield Retail Trust
Alphabetical order
18.9% Office
Outlook
wholesale funds managed by GPT for
a combined value of approximately
$1.2 billion, and the balance of the
CPA portfolio moving to Dexus.
Elsewhere in corporate activity,
Stockland Group has emerged
with a 19.1% stake in Australand
Property Group following the exit
from the Australand register of its
major shareholder, CapitaLand Ltd.
We can see some strategic merit in
a bid by Stockland for the balance
of Australand, but would be very
uncomfortable to see Stockland pay a
significant premium for the business.
The sector is currently trading on a
5.8% forecast distribution yield for
the financial year ending June 2014,
which represents a 1.8% premium
to the 10-year bond rate, and is in
line with the average premium over
the last decade. Today’s distribution
yield is considered more robust than
historical yields because it is based
on a more conservative payout policy
that retains some earnings to support
growth.
Over the medium term, Australian
Real Estate Investment Trusts
(A-REITs) earnings streams are
relatively secure given the contracted
nature of rental income and long
average lease terms. Financial
leverage remains low, with gearing
across the sector below 30% (Debt
to Total Assets) making the sector a
relatively low risk investment choice.
There was some strong retail sales
data at the end of 2013 and coming
through into January of this year.
Given the significant exposure of the
property sector to retail, a return to
trend retail sales growth would be a
welcome development.
Overall, we consider A-REITs are at,
or very slightly above, their long term
fair value. While distribution yields
remain robust, significant capital
gains may be harder to come by in
the short term.
In addition to footnotes below, please read the important disclaimer at the beginning of the Quarterly Reports section on page 23.
1. The issue and withdrawal price of units in the Fund is subject to change and is updated daily. See Cromwell's website www.cromwell.com.au for further information.
2. Distribution rates and yields are calculated and based on the current unit price. Capital growth, distributions and tax consequences are not guaranteed and are subject to the
assumptions and risks set out in the PDS.
3. Figures as at 31 March 2014. Positions held by the Fund are subject to continual change.
4. Withdrawals can not be guaranteed. See section 2.2 of the PDS for more details.
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