Download the Property Securities Fund Update

Download the Funds Performance report

Gross performance returns and benchmark performance shown do not include expenses, fees or tax. Net performance returns are prepared on an exit-to-exit fee basis which includes all ongoing fees and expenses.

 Market Review

• The A-REIT sector outperformed the broader equities market +3.3% in January for the first time in three months, before underperforming again in February (-0.7%) and March (-5.8%).
• Capital raisings seemed to have finally abated and valuations appeared to be stabilising.
• February’s major event was the reporting season, where most A-REITs reiterated guidance. While some positive signs of stabilisation emerged from reporting season, an air of caution was apparent – a cautious approach was taken by A-REITs in their outlook statements.
• Tactical allocation out of the A-REITs, profit taking by offshore funds off the back of strong AUD, and a rally in bond yields were behind the sector weakening in March.
• Industrial was the best performing sub-sector for the quarter, up +1.0%, led by Goodman Group up +3.1%.
• The Retail sub-sector was the next best performer but decreasing slightly -0.3%, with mixed results; Westfield Group were flat at -0.1%, CFS Retail Trust and Charter Hall Retail REIT down -1.3% and -4.3% respectively, but Bunnings Warehouse Property Trust up +4.3%.
• The Diversified sub-sector was down -2.3%, led by General Property Trust which was down -3.3%, while Office was the worst performing sub sector over the quarter, down -7.2%. Charter Hall Office REIT was the worst performing office name, down -8.1%.
• In a quarter with little news flow consolidation emerged as a theme with Charter Hall Group finalising a deal with Macquarie Group to acquire the majority of its real estate management platform including the management rights for Macquarie Office Fund and Macquarie Countrywide Trust.
• Reporting season saw the following key themes:
  – Asset values did continue to fall slightly.
  – Net Operating Income growth expectations provided by the REITs were
  relatively benign.
  – Development upside catalysts are not yet firing and forecast 2010
  commencements are unlikely to move the dial.
  – US real estate fundamentals are worse than we thought.
  – Debt costs are still a headwind for most REITs.

Market Outlook

• The painful deleveraging process through heavily discounted capital raisings is now complete. Recent improvement in transactional activity and management commentary during reporting season has also provided evidence of asset values now stabilising.
• NTA stabilisation may also provide fertile ground for increased IPO activity. Other than this, focus continues to be on earnings and the search for leverage to any economic recovery. However it is also clear that the equity raisings have diluted earnings and the market will monitor closely the impact of rising interest rates on A-REIT debt costs.
• On an NTA basis, the A-REIT sector has traded broadly in line since October 2009. Up until June 2008, the sector mostly traded at a premium to NTA (average of 29% from the start of 2000). Since June 2008, it has traded at an average 14% discount to NTA. This shows both the extent of the recovery but also the fact that there is a long way to go before it gets back to normalized levels.
• NTAs fell slightly this reporting season (sector weighted average fall of 2%), a sign that asset values are close to stabilising.
• The sector’s weighted average gearing is currently 31.5%, having been reduced through the multiple rounds of equity raisings, albeit these reductions have been partially offset by asset value declines.
• The sector is currently trading at a forecast FY10 yield of 5.6%, a 20bp discount to Australian 10 year government bonds, and significantly lower than the five year average premium of 167bp.
  

Performance Review as at 31/03/10

• The A-REIT sector finished the December quarter down, recording a return of -5.0%, after strong rallies in the June and September quarters.
• The sector returned -5.01% for the quarter underperforming the broader Australian equity market by 8.40%. Over the period the BlackRock Property Securities Fund returned - 4.77% (before fees) outperforming the benchmark index by 24 basis points.

The major influences to quarterly relative performance were:

Positive influences

• Overweight positions in ING Office Fund, Dexus Property Group and Goodman Group.
• Underweight position in Westfield Group.

Negative influences

• Underweight positions in Charter Hall Group, Stockland Group and Bunning Warehouse Property Trust.

About the Fund

Investment objective

The primary aim of the Fund is to achieve a total return consisting of dividends and capital gain through investment in listed property trusts and other property related securities. We aim to outperform the S&P/ASX 200 A-REIT Accumulation Index over rolling five-year periods.

Fund strategy

The Fund is actively managed, meaning that we continually monitor and, where necessary, adjust the Fund’s portfolio to suit changing economic and market conditions.

The investment process is driven by a ‘bottomup’ approach to trust and stock selection meaning that our investments are based on research of individual trusts and companies to determine their investment merits.

Our evaluation of Listed Property Trusts and property companies considers the quality of management, the strength of the business franchise and underlying real estate and appropriate valuations.

Designed for investors who…

• Seek a fund which aims to provide a regular income stream from a diversified portfolio of listed property trusts and property related securities.
• Seek growth over the long-term.