The Resolution Capital Real Assets Fund was previously known as the Resolution Capital Core Plus Property Securities Fund. The Fund aims to exceed the total return of the Benchmark after fees on a rolling 3 year basis. It gives Investors access to a professionally managed portfolio of Australian listed real estate, typically known as A-REITs, and Australian listed infrastructure investment securities. The underlying assets of the investments include commercial real estate assets such as office buildings, shopping centres and logistics warehouses as well as infrastructure assets such as airports, pipelines, toll roads and public utilities. Resolution Capital seeks to further enhance returns by investing up to 20% of the Real Assets Fund in global real estate and infrastructure securities listed on international stock exchanges. The Fund invests primarily in Australian Real Estate Investment Trusts (‘A-REITs) and real estate securities (minimum of 50% of the portfolio), but also has the ability to invest in Australian listed infrastructure securities (‘ALI’) and up to 20% in global listed real estate and infrastructure securities (global portion).
The S&P/ASX 300 A-REIT Total Return Index produced a total return of -8.7% for the month ended 30 September 2023, underperforming the Australian equities market (S&P/ASX 300 Total Return Index). A-REITs underperformed as global bond yields rose significantly over the month with fewer 2024 Federal Reserve interest rate cuts now expected in the U.S.
The Australian 10-year bond yield is at the highest level in more than a decade. Australian listed infrastructure outperformed property.
The Reserve Bank of Australia (RBA) held the cash rate at 4.1% in September in line with expectations but again noted “some further tightening may be required” depending on economic data. August inflation re-accelerated and the unemployment rate held at 3.7%.
Within A-REITs the office and industrial sectors outperformed, whilst retail and property fund managers underperformed. Broadly, the Portfolio’s infrastructure exposure contributed to relative performance.
Outperforming A-REITs included land lease community developer Ingenia Communities (INA) and Centuria Industrial REIT (CIP). Media speculation suggested INA was close to selling some seniors living assets. CIP sold two assets at Jun-23 book values whilst the stock price implies significant property devaluations. The Portfolio’s overweight positions in INA and CIP contributed to relative performance.
Underperforming A-REITs included interest rate sensitive property fund managers Cromwell (CMW), Charter Hall (CHC) and Home Consortium (HMC). High interest rates present headwinds to earnings via downward pressure on asset valuations and therefore management fees, as well as limiting transactional activity and equity inflows. The Portfolio’s underweight positioning in property fund managers contributed to relative performance.
Several A-REITs announced management changes. GPT appointed Charter Hall’s current Chief Financial Officer (CFO) as its new CEO. Soon after Charter Hall announced GPT’s current CFO would replace its outgoing CFO. Elsewhere, neighbourhood shopping centre landlord Region Group (RGN) announced the resignation of its Chief Operating Officer. At the start of October, Cromwell Property Group announced the resignation of its Chief Financial Officer.
Turning to deals, fund manager Centuria Capital (CNI) announced a new $500m institutional mandate targeting industrial assets.
With respect to transactions, the media reported that a partnership managed by retail landlord Vicinity Centres (VCX) sold Midland Gate, a regional shopping centre in Perth, for ~$465m representing an almost 15% discount to its pre-pandemic valuation. No yield was disclosed. Elsewhere, a property syndicator acquired a 50% stake in the Stockland Townsville shopping centre at a 12% discount to Jun-23 book value representing a ~8% yield.
In infrastructure, toll road operator Transurban (TCL) saw the Australian Competition and Consumer Commission (ACCC) oppose its proposed acquisition of a majority interest in the Victorian Eastlink toll road. The ACCC’s decision was on the basis that the transaction would lessen competition for future toll road concessions in the state. Separately, TCL appointed its current Head of Victoria and Strategy to the vacant CFO slot after the former CFO was promoted to CEO. The Portfolio’s TCL position contributed to relative performance.
Portfolio holding U.K. water utility Severn Trent (SVT) raised £1bn of equity representing ~18% of shares outstanding to help fund a large capex pipeline which will see the regulated asset base grow ~6% p.a. between 2025-30 on a real basis. The Portfolio participated in the raising. The Portfolio’s SVT position contributed to relative performance.
What is Resolution Capital Real Assets Resolution Capital Real Assets is an Managed Funds investment product that is benchmarked against ASX Index 200 A-REIT Index and sits inside the Property - Australian Listed Property Index. Think of a benchmark as a standard where investment performance can be measured. Typically, market indices like the ASX200 and market-segment stock indexes are used for this purpose. The Resolution Capital Real Assets has Assets Under Management of 14.88 M with a management fee of 0.65%, a performance fee of 0 and a buy/sell spread fee of 0.41%.
How has the investment product performed recently? The recent investment performance of the investment product shows that the Resolution Capital Real Assets has returned 6.24% in the last month. The previous three years have returned 9.48% annualised and 42.5% each year since inception, which is when the Resolution Capital Real Assets first started.
How is risk measured in this investment product? There are many ways that the risk of an investment product can be measured, and each measurement provides a different insight into the risk present. They can be used on their own or together to perform a risk assessment before investing, but when comparing investments, it is common to compare like for like risk measurements to determine which investment holds the most risk. Since Resolution Capital Real Assets first started, the Sharpe ratio is NA with an annualised volatility of 42.5%. The maximum drawdown of the investment product in the last 12 months is -6.25% and -45.06% since inception. The maximum drawdown is defined as the high-to-low decline of an investment during a particular time period.
What is the relative performance of the investment product? Relative performance is what an asset achieves over a period of time compared to similar investments or its peers. Relative return is a measure of the asset's performance compared to the return to the other investment. The Resolution Capital Real Assets has a 12-month excess return when compared to the Property - Australian Listed Property Index of 0.3% and 7.26% since inception.
Does the investment product produce Alpha over its Peers? Alpha is an investing term used to measure an investment's outperformance relative to a market benchmark or peer investment. Alpha describes the excess return generated when compared to peer investment. Resolution Capital Real Assets has produced Alpha over the Property - Australian Listed Property Index of NA% in the last 12 months and NA% since inception.
What are similar investment products? For a full list of investment products in the Property - Australian Listed Property Index category, you can click here for the Peer Investment Report.
What level of diversification will Resolution Capital Real Assets provide? Resolution Capital Real Assets has a correlation coefficient of 0.45 and a beta of 0.88 when compared to the Property - Australian Listed Property Index. Correlation measures how similarly two investments move in relation to one another. This establishes a 'correlation coefficient', which has a value between -1.0 and +1.0. A 100% correlation between two investments means that the correlation coefficient is +1. Beta in investments measures how much the price moves relative to the broader market over a period of time. If the investment moves more than the broader market, it has a beta above 1.0. If it moves less than the broader market, then the beta is less than 1.0. Investments with a high beta tend to carry more risk but have the potential to deliver higher returns.
How do I compare the investment product with its peers? For a full quantitative report on Resolution Capital Real Assets and its peer investments, you can click here for the Peer Investment Report.
How do I compare the Resolution Capital Real Assets with the ASX Index 200 A-REIT Index? For a full quantitative report on Resolution Capital Real Assets compared to the ASX Index 200 A-REIT Index, you can click here.
Can I sort and compare the Resolution Capital Real Assets to do my own analysis? To sort and compare the Resolution Capital Real Assets financial metrics, please refer to the table above.
Has the Resolution Capital Real Assets been independently verified by SMSF Mate? This investment product is in the process of being independently verified by SMSF Mate. Once we have verified the investment product, you will be able to find more information here.
How can I invest in Resolution Capital Real Assets? 
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Comments from SMSF Mates SMSF Mate does not receive commissions or kickbacks from the Resolution Capital Real Assets. All data and commentary for this fund is provided free of charge for our readers general information.
Performance Commentary - August 31, 2023 The S&P/ASX 300 A-REIT Total Return Index produced a total return of 2.2% for the month ended 31 August 2023, outperforming the Australian equities market (S&P/ASX 300 Total Return Index). Australian listed Infrastructure underperformed property.
The relative strong A-REIT sector performance was largely driven by industrial landlord and developer Goodman Group (GMG).
Consequently, within A-REITs the industrial sector outperformed, specialist and retail sectors trailed slightly whilst the office and diversified sectors underperformed. Broadly, the Portfolio’s infrastructure exposure detracted from relative performance.
August was filled with FY23 earnings results and maiden FY24 earnings guidance. Outperforming A-REITs included industrial REIT Goodman Group. Goodman reported strong operating fundamentals, guided to a near sector-leading 9% FY24 earnings growth and disclosed a large data centre pipeline underpinning future development earnings.
The Portfolio’s underweight position in GMG detracted from relative performance.
Underperforming A-REITs included office and industrial landlord Growthpoint (GOZ) and diversified Charter Hall Long WALE REIT (CLW). Both companies have above sector average financial leverage. Higher debt costs are a key drag as GOZ guided to -15% FY24 earnings growth and CLW -7% for FY24 after -8% in FY23. The Portfolio’s underweight positions in GOZ and CLW contributed to relative performance.
Key A-REIT reporting season themes include:
• Few A-REITs will grow earnings in FY24 owing to higher debt costs overwhelming revenue growth.
• More FY24 earnings guidance misses than beats, generally due to new interest rate hedging crystallising higher FY24 debt costs.
• Office remains challenging. Occupancy was broadly stable though some reported declines. Tenant incentives remain elevated and the tone softened on proposed developments. Several A-REITs are trying to sell assets though buyers remain cautious. Dexus (DXS) sold 1 Margaret St, Sydney for 21% below Jun-22 book value and retained an equity holding given the acquirer could not raise all of the required capital.
• Retail metrics were encouraging. Occupancy is high (>98.5%), leasing spreads improved to flat/positive and retailers are generally in good financial shape heading into a tougher environment. Supply of new centres is low. Sales growth is decelerating into FY24, particularly for discretionary categories, likely impacting occupancy and leasing spreads. Rising property expenses inc luding insurance/utilities/taxes are pressuring net rent growth.
• Industrial conditions remain favourable though there are some signs of demand softening from a high base. Occupancy is high (~99%), supply is delayed due to planning and new deal rents accelerated in 2H23 to >20% above in-place rents. Mirvac (MGR), Stockland (SGP) and GPT continue to prioritise growing industrial exposure, generally via development.
• Residential sentiment is subdued near-term with more optimism into CY24 if interest rates stabilise. Affordability is constraining demand and first home buyers are absent, hit by lower borrowing capacity. Sales are at historically low levels though sequentially improving from the 2022 trough. Enquiry has lifted but conversion is slow. Buyer defaults are above cyclical ave rages. Positively, A-REIT residential developers are winning market share, production constraints are easing and construction cost inflation is moderating. Medium-term support from undersupply and migration remains intact.
• Headwinds for fund managers persist. Transaction volumes are subdued, downward valuation pressure remains and equity inflows have slowed with some funds needing to satisfy redemptions.
• Self-storage FY24 revenue growth is slowing to long-run ~4-5% from elevated levels during the pandemic years. In FY23 occupancy loss was offset by rate growth. For both National Storage REIT (NSR) and Abacus Storage King (ASK) development is a key growth driver with attractive returns.
Auckland Airport (AIA) resumed paying dividends as FY23 passenger volumes recovered to 75% of 2019, aided by international back to 86% in Jun-23 but domestic plateauing at 84% due to airline capacity constraints. AIA guided to higher profitability in FY24, albeit less than expected, due to a continued recovery in passengers and retail income, property developments and higher aeronautical tariffs associated with its monumental $6.6bn 10-yr capex plan which includes a new domestic terminal.
Toll road operator Transurban (TCL) reported an FY23 result which slightly missed expectations due to higher costs and weaker traffic in the fourth quarter, with Sydney and Melbourne still below 2019. Future earnings growth is underpinned by new road development completions and TCL remains interested in acquiring a stake in Eastlink. The new CEO will likely maintain the existing strategic focus on growing a sustainable dividend as traffic stabilises on new road developments, rather than pursuing new capital intensive pro jects.
Performance Commentary - July 31, 2023 The S&P/ASX 300 A-REIT Total Return Index produced a total return of 3.9% for the month ended 31 July 2023, outperforming the Australian equities market (S&P/ASX 300 Total Return Index). Australian listed Infrastructure slightly outperformed property.
After two months of consecutive rate rises the Reserve Bank of Australia (RBA) held the cash rate at 4.1% in July. Sentiment regarding future interest rate rises shifted downward with the consumer price index (CPI) numbers for July coming in below market expectations.
Within A-REITs, the specialist and retail sectors outperformed whilst the industrial and residential sectors underperformed. Broadly, the Portfolio’s infrastructure exposure detracted from relative performance.
It was a relatively quiet month in terms of news flow ahead of the August reporting season. Outperforming A-REITs included agricultural REIT Rural Funds (RFF). RFF rebounded in July after a year of underperformance on the back of balance sheet concerns. Moreover, the REIT declared its final FY23 distribution in-line with guidance. The Portfolio’s underweight position detracted from relative performance.
Underperforming A-REITs included pub landlord Hotel Property Investment (HPI). During the month the Victorian Government announced its intention to implement a number of electronic gambling machine reforms. HPI has limited Victoria exposure, but other states could follow suit. The Portfolio’s overweight position detracted from relative performance.
Performance Commentary - June 30, 2023 The S&P/ASX 300 A-REIT Total Return Index produced a total return of -0.1% for the month ended 30 June 2023, underperforming the Australian equities market (S&P/ASX 300 Total Return Index).
To curb elevated inflation the Reserve Bank of Australia (RBA) hiked interest rates in June by 0.25% to 4.1%. The RBA has increased rates at 12 of 13 meetings since May 2022 to the highest level since 2012.
Within A-REITs, industrial and diversified sectors outperformed whilst the retail and office sectors underperformed. Broadly, the Portfolio’s infrastructure exposure detracted from relative performance.
Outperforming A-REITs included fund manager Home Consortium (HMC) and office/self-storage landlord Abacus (ABP). HMC announced it had raised $350m in institutional capital for a new unlisted retail property fund. The Portfolio’s underweight position detracted from relative performance. ABP raised $225m of equity for its proposed new externally managed self-storage REIT tentatively named Abacus Storage King (ASK). Pricing of the new REIT reflected a 10% discount to Net Tangible Assets and the Portfolio participated in the raising. The Portfolio’s overweight position in ABP contributed to relative performance.
Underperforming A-REITs included retail landlord Region Group (RGN) and diversified landlord Charter Hall Long WALE REIT (CLW). RGN and CLW were amongst several A-REITs to announce preliminary June 2023 appraisal property valuations. RGN’s book value was marked down 1.7% whilst CLW’s was down 5.8%. The Portfolio’s overweight position in RGN detracted from relative performance whilst the underweight position in CLW contributed positively.
Broadly, appraised based property values have started to fall reflecting the pressure of higher interest rates and most importantly actual transactional evidence after a period limited activity. However, in aggregate A-REIT property values only fell ~3% over the six month period as capitalisation rates expanded by ~25 basis points, partially offset by higher income growth.
Appraised devaluations were most pronounced in office (down 4-8%) whilst non-discretionary retail was down 1.5-4.0%. Industrial, self-storage and childcare values were flat with rent growth offsetting cap rate expansion. Mall landlords have yet to report.
Some notable transactions took place this month. Office landlord Dexus (DXS) sold an A-grade office building at 44 Market St, Sydney for $393m reflecting a 17% discount to book value, 6.6% cap rate and ~$12,800/sqm. The asset has a short 3-year lease expiry and is only 85% occupied. DXS also sold a business park asset in Victoria for $306m at a 7% premium to book value, bringing total FY23 divestments to ~$1.5bn. DXS has a large development pipeline to fund. The Portfolio’s underweight position contributed to relative performance.
We expect further devaluations will eventuate with more transactional evidence over 2023 as the market has had time to absorb and adjust to higher interest rates and more challenging economic conditions. A-REIT stock prices already reflect significant devaluations suggesting ~15%.
Performance Commentary - May 31, 2023 The S&P/ASX 300 A-REIT Total Return Index produced a total return of -1.8% for the month ended 31 May 2023, outperforming the Australian equities market (S&P/ASX 300 Total Return Index). The portfolio underperformed the index.
After pausing in April, the Reserve Bank of Australia (RBA) unexpectedly hiked interest rates in May by 0.25% to 3.85%. Later in the month the unemployment rate rose from 3.5% to 3.7% but the monthly inflation indicator came in above expectations.
Within A-REITs, office and industrial outperformed while the diversified and retail sectors underperformed. Whilst house prices rose for a third consecutive month, residential developers generally underperformed after recent strong performance amid the renewed prospect of higher interest rates. Broadly, infrastructure outperformed real estate.
Outperforming A-REITs included fund manager Home Consortium (HMC), which announced progress in capital raising efforts for new healthcare and retail funds, and office landlord Dexus (DXS) which provided a quarterly update in which office occupancy increased by 0.1% to 95.4% and tenant incentives moderated. The Portfolio’s underweight positioning in both stocks detracted from relative performance.
Underperforming A-REITs included retail landlords Vicinity Centres (VCX) and Scentre Group (SCG). VCX upgraded FY23 earnings guidance to the top end of the prior range, which represents 11% growth, aided by recovering ancillary income. For the first time since 2018 leasing spreads turned positive. VCX also announced the sale of a 50% stake in its Broadmeadows regional mall at a ~4% premium to book value. Proceeds will fund developments.
Weighing on retail sentiment was likely several discretionary retailers (i.e. tenants) reporting slowing sales. The portfolio’s overweight positioning in both stocks detracted from relative performance.
Operating conditions remain favourable for industrial landlords with market rental growth buoyed by low current vacancy and tenant demand exceeding supply. Rent growth is offsetting capitalisation rate expansion, supporting valuations.
Goodman Group (GMG) upgraded FY23 earnings growth guidance from 13.5% to 15%. Although development work in progress fell 7% the $7bn p.a. production rate remained stable. Development margins are attractive and GMG is doing more development on balance sheet. Higher returning data centres now constitute 30% of the pipeline. Other landlords including GPT (GPT) and Centuria Industrial REIT (CIP) also reported accelerating double digit industrial releasing spreads. Underweight positioning in GMG, predicated on relative valuation, detracted from relative performance, whilst underweight positioning in GPT contributed.
Self-storage and office landlord Abacus (ABP) announced revaluations ahead of its proposed creation of an externally managed storage A-REIT. Self-storage values rose 2.6% whilst office/retail fell 5%.
Toll road operator Transurban (TCL) held an investor day at which it messaged that its capital-intensive greenfield projects are being progressively completed. As such the model is moving more towards dividend growth, as road traffic matures, and brownfield projects such as road widenings. TCL did signal interest in bidding for a stake in Victoria’s Eastlink road and lifted dividend guidance by 1.8%.
Performance Commentary - April 30, 2023 The S&P/ASX 300 A-REIT Total Return Index produced a total return of 5.2% for the month ended 30 April 2023, reversing last month’s losses, and outperformed the Australian equities market by 3.4% (S&P/ASX 300 Total Return Index). The Portfolio underperformed the index.
During the month the Reserve Bank of Australia (RBA) kept interest rates on hold. This was the first pause after nine consecutive increases.
Australian housing values appear to have bottomed out. After falling 9.1% between May 2022 and February 2023 CoreLogic’s national Home Value Index increased by half a percent in April, following a 0.6% lift in March. The RBA interest rate pause, combined with recovering housing prices, made residential exposed A-REITs the top performers within the index, with Mirvac Group (MGR), Stockland (SGP) and Ingenia Communities all producing double digit total returns during the month.
The second-best performing sector was retail, whilst industrial lagged this month. Broadly, infrastructure underperformed real estate.
Two residential exposed A-REITs provided quarterly updates. First, MGR reduced its FY23 EPS guidance by 5% due to delays in residential settlements and development profits being pushed into the next year. It also announced progress in capital initiatives by finding two new investors for its Build to Rent segment and partners for new office and industrial development.
Second, SGP’s reiterated its FY23 profit guidance pre-tax, with tax payable expected to be at the lower end of 5-10% guidance range. Management highlighted improving residential sales rates, albeit they remain ~30% below its 13- year quarterly average. Within the company’s expanding land lease platform it has 21 projects in the pipeline and will look to deliver over 1,000 lots per year over the “medium term” up from 350 lots in FY23.
Performance Commentary - March 31, 2023 The S&P/ASX 300 A-REIT Total Return Index produced a total return of -6.8% for the month ended 31 March 2023, underperforming the Australian equities market by 6.6% (S&P/ASX 300 Total Return Index).
During the month the Reserve Bank of Australia (RBA) raised interest rates by 0.25% to 3.60% but suggested a pause is likely near term. The failure of Silicon Valley Bank in the U.S., and the bail-out of Credit Suisse by UBS in Europe, highlighted the fragility of banks with weak capital structures and concentrated asset exposures. What this means for the broader market including REITs and infrastructure is likely tighter lending conditions and reduced credit availability for sectors with weak operating fundamentals such as office.
Within A-REITs, industrial outperformed whilst retail was in line with the benchmark and the diversified, fund managers and office sectors underperformed. Defensive, lower leveraged A-REITs generally outperformed. Broadly, infrastructure outperformed real estate.
The best performing A-REITs included residential developer and diversified landlord Stockland (SGP) and self-storage REIT National Storage (NSR).
Stockland likely benefitted from the RBA nearing a pause in hiking interest rates and early signs of a stabilising residential property market. Potential green shoots include monthly positive price growth and robust auction clearance rates, albeit the supply of listings is low. The Portfolio’s underweight position detracted from relative performance.
Performance Commentary - February 28, 2023 The S&P/ASX 300 A-REIT Total Return Index produced a total return of -0.4% for the month ended 28 February 2023, outperforming the Australian equities market by 2.1% (S&P/ASX 300 Total Return Index). Within A-REITs, office outperformed whilst retail was in line with the benchmark and the diversified and industrial sectors underperformed.
Broadly, infrastructure outperformed real estate, with airports and tollroads outperforming utilities.
The best performing A-REITs included National Storage REIT (NSR), diversified GPT Group (GPT) and childcare landlord Arena REIT (ARF). A key underperformer was land lease developer Ingenia Communities (INA) which downgraded earnings guidance due to delayed development settlements stemming from wet weather and labour shortages. The Portfolio’s overweight positions in NSR and ARF contributed to relative performance whilst positioning in GPT and INA detracted.
February was dominated by earnings releases. Key themes to emerge from A-REIT results include:
• Earnings guidance was largely reaffirmed, or previous wide ranges tightened, owing to greater visibility on higher debt costs. Broadly, passive A-REIT earnings growth will be negative in FY23 due to higher debt costs overwhelming rent growth, and many face further headwinds into FY24.
• Comparable rent growth is strongest for industrial, self-storage, childcare and A-REITs with a high proportion of inflation-linked lease escalators.
• Balance sheet leverage remains moderate, with some exceptions. Interest rate hedging continues to be lifted, crystallising a higher cost of debt.
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