Combined Property
Combined Property Income Fund Update
June Quarter 2008
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Download the Combined Property Income Fund Update
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This update is for the BlackRock Combined Property Income Fund (Aust) (formerly known as the Merrill Lynch Combined Property Income Fund).
The performance shown in the Fund Update is the net performance of the fund. To view the net performance of the fund or of the different unit classes of the fund download the Fund Performance Report or visit Fund Performance.
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.
Uncertainty and caution remain the key themes among valuers and investors in the direct property markets this quarter. A number of significant factors have been impacting the global and Australian economies and subsequently the pricing of real estate in Australia.
Financial markets are undergoing a period of repricing of debt and equity, which is having a significant effect on investors in commercial property. As the ability of investors to access both debt and equity becomes increasingly difficult and costly, there are reduced numbers of buyers of property able to participate in the market. Property assets with higher risk will be more exposed to any downturn, while higher quality assets will have greater protection. Vendors’ expectations are likely to be divergent from the capacity of buyers.
Notwithstanding the softening of market sentiment, property fundamentals in Australia still remain strong. Many markets still expect continued rental growth, while mandated superannuation investment will continue to seek low volatility and high yield, characterised by long term exposure to property assets.
Positive Influences on Performance
Property
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Previous Valuation
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Current Valuation
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% Change
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107 Pitt Street, Sydney
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$29,300,000
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$30,400,000
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3.8%
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555 Lonsdale Street, Melbourne
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$64,750,000
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$65,700,000
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1.5%
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2-20 Shore Street West, Ormiston
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$9,200,000
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$9,400,000
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2.2%
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Negative Influences on Performance
Property
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Previous Valuation
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Current Valuation
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% Change
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31-33 Maddox Street, Alexandria
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$63,250,000
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$61,000,000
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(3.5%)
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10 Barrack Street, Sydney
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$79,500,000
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$77,300,000
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(2.7%)
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369 Ann Street, Brisbane
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$24,203,000*#
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$23,125,000#
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(4.4%)
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* Purchase price. # Represents the BlackRock Direct Property Fund (Aust) 50% interest.
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- The BRPT currently has six investments in unlisted property funds. These investments are made to enhance the diversification of the Trust, complement our direct exposure, and capitalise on pricing arbitrages.
- While five of the six investments continue to perform in line with, or exceed, our expectations, the Centro Direct Property Fund (Centro DPF) remains closed to applications and redemptions.
- BlackRock, as Responsible Entity of BRPT, acquired a 50% interesting 369 Ann Street, Brisbane in a joint venture with Becton. The acquisition is a strategic addition to the portfolio, providing further office exposure at a time when office space fundamentals are strong. The Joint Venture will undertake a refurbishment of the building in order to capitalise on the strength of the Brisbane leasing market and secure a strong lease profile for the building.
- We have contracted to sell 34 Corporate Drive, Cannon Hill, for $13.2m. This asset was first purchased in June 2005 as part of a portfolio of two industrial assets in Brisbane. This sale is from an unsolicited offer and is a pleasing result given current market conditions where the number of buyers in the marketplace has decreased and because BRPT is not required to pay any of the selling agent’s fees.
For the BlackRock Property Securities Fund (Aust):
The BlackRock Combined Property Income Fund (Aust) invests into the BlackRock Property Securities Fund (Aust).
- June was an extremely difficult quater for the Australian Listed Property sector as the continued dislocation in global capital markets and several negative stock specific announcements weighed heavily on performance.
- Concerns mounted over the potential for decline in the capital value of assets in Australia and abroad weighing heavily on investor sentiment with the sector falling 15.49% over the quarter.
- Stocks with a high component of active earnings were sold off aggressively throughout the quarter as investors questioned the outlook for funds management and development earnings in an environment of falling capital values.
- The major residential developers struggled over the quarter as declines in home affordability and tighter lending practices resulted in analysts downgrading forward earnings.
- Office was the best performing sub-sector over the quarter falling 7.8%. The office sub-sector was buoyed by the strong performance of Tishman Speyer Office Fund which rose 5.3% over the quarter after selling off heavily over the past 12 months.
- The retail and diversified sub-sectors returned -9.2% and -22.2% respectively.
- The industrial sub-sector lagged returning -26.2%. Sub-sector returns were dragged down by the poor performance of Goodman Group which fell 26.6% over the quarter as negative sentiment continued towards stocks with funds management earnings as investors actively priced in the potential for earnings downgrades.
- Two new positions were added to the Fund over the quarter, Reckson New York Property Trust (RNY) and Bunnings Warehouse Property Trust (BWP).
- Reckson owns a portfolio of office assets in the New York tri state area. Reckson is trading at a substantial discount to our view of the private market value of its assets.
- Bunnings Warehouse Property Trust owns a portfolio of bulky goods retail properties across Australia and New Zealand. The majority of the trust’s properties are leased to Westfarmers limited a large diversified Australian company which owns a variety of retail operations. We feel BWP is well positioned to weather the current environment due to its strong balance sheet, long lease profile and the strength of its tenant covenant.
- Over the quarter we increased positions in ING Office Fund, Macquarie Countrywide and Macquarie DDR Trust. We reduced positions in Goodman Group, Stockland and Macquarie Leisure.
Performance review of the Combined Property Income Fund
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Gross
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Benchmark#
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Out-performance*
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3 Month
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-5.98%
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-6.95%
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0.96%
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6 Month
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-13.30%
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-14.43%
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1.13%
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1 Year
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-14.53%
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-13.71%
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-0.82%
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2 Year (pa)
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1.85%
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2.94%
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-1.08%
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3 Year (pa)
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6.65%
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7.65%
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-1.00%
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Past performance is not necessarily a guide to future performance.
Performance of Class D units. Inception date for the Fund is 25/08/2003.
#Performance benchmark figures (before fees and tax) are 50% Mercer Unlisted Property Funds Index and 50% S&P/ASX 200 Property Trust Accumulation Index.
*Shows the difference between Gross return and Benchmark return.
Long term performance returns show the potential volatility of returns over time. Gross performance figures quoted are calculated with no allowance for management fees, operating expenses or tax on income.
Performance review of the Property Trust
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Gross
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Benchmark#
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Out-performance*
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3 Month
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-0.15%
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1.77%
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-1.92%
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6 Month
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1.92%
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4.08%
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-2.16%
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1 Year
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8.39%
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14.66%
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-6.27%
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2 Year (pa)
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13.31%
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16.85%
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-3.54%
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3 Year (pa)
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13.99%
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16.98%
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-2.99%
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5 Year (pa)
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13.58%
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15.22%
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-1.64%
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Past performance is not necessarily a guide to future performance.
^ Inception date 30/6/1993
# Mercer Direct Property Index
* Shows the difference between Gross return and Benchmark return.
Long term performance returns show the potential volatility of returns over time. Gross performance figures quoted are calculated with no allowance for management fees, operating expenses or tax on income.
Performance review of the Property Securities Fund
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Gross
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Benchmark#
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Out-performance*
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3 Month
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-15.02%
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-15.49%
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0.46%
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6 Month
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-31.58%
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-30.58%
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-1.00%
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1 Year
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-37.99%
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-36.35%
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-1.64%
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2 Year (pa)
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-12.10%
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-10.49%
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-1.61%
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3 Year (pa)
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-2.75%
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-1.84%
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-0.91%
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5 Year (pa)
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4.81%
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5.54%
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-0.73%
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Past performance is not necessarily a guide to future performance.
# S&P/ASX 200 A-REIT Accumulation Index.
* Shows the difference between Gross return and Benchmark return.
Long term performance returns show the potential volatility of returns over time. Gross performance figures quoted are calculated with no allowance for management fees, operating expenses or tax on income.
- The Australian Listed Property Trust sector returned -15.49% for the quarter significantly underperforming the broader Australian equity market by 13.75%.
- Over the period the BlackRock Property Securities Fund (Aust) returned -15.02% (before fees) outperforming the benchmark index by 47 basis points.
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Positive influences
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- Overweight positions in Tishman Speyer Office Fund (+5.3%), FKP Property Group (+77.3%) and Thakral Holdings Group (-1.2%); and
- Underweight positions in General Property Trust (-30.1%), ING industrial Fund (-24.4%) and Stockland (-19.6%).
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Negative influences
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- Overweight positions in Becton Property Group (-27.9%), Macquarie Leisure Group (-36.9%); and
- Underweight positions in Commonwealth Property Office Fund (-3.8%) and Westfield Group (-8.5%).
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Investment objective
The primary objective of the Fund is to deliver a combination of income and capital growth over the medium to long-term by investing in a portfolio of direct property and listed property securities, with an emphasis on income. The Fund aims to deliver an attractive income yield from both direct and listed property.
We aim to achieve this objective by outperforming the benchmark asset allocation returns over rolling five-year periods.
The Fund is actively managed against a passive benchmark, equally weighted between the following listed and direct property indices:
- 50% Mercer Unlisted Property Funds Index (before fees and tax).
- 50% S&P/ASX 200 A-REIT Accumulation Index.
Fund strategy
The investment objective of the Fund is currently pursued by investing in a portfolio of direct property and listed property securities. Exposure to direct property and listed property securities is obtained through related Funds managed by BlackRock – the BlackRock Property Trust and the BlackRock Property Securities Fund.
Designed for investors who…
- Seek a fund which aims to provide a regular income stream from a diversified portfolio of direct property and listed property securities.
- Want exposure to the diversification benefits of direct property without necessarily sacrificing liquidity.
- Seek growth over the long term.
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