Resolution Capital Real Assets Performance Review | News

What is the Resolution Capital Real Assets fund?

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).

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Resolution Capital Real Assets Fund Commentary September 30, 2023

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.

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Performance Review

Fund Name	Last Month ? Returns after fees in the most recent (last) month).	3 Months Return ? Returns after fees in the most recent 3 months.	1 Year Return ? Trailing 12 month returns.	3 Years Average Return ? Average Annual returns from the last 3 years.	Since Inc. Average Return ? Average (annualised) returns since inception	1 Year Std. Dev. (Annual) ? The standard deviation (or annual volatility) of the last 12 months.	3 Years Std. Dev. (Annual) ? The average standard deviation (or annual volatility) from the last 3 years.	Since Inc. Std. Dev. (Annual) ? The average standard deviation (or annual volatility) since the fund inception.	1 Year Max Drawdown ? The maximum drawdown in the last 12 months - a drawdown is a peak-to-trough decline during a specific period for an investment, trading account, or fund.	3 Year Max Drawdown ? The maximum drawdown in the last 36 months - a drawdown is a peak-to-trough decline during a specific period for an investment, trading account, or fund.	Since Inc. Max Drawdown ? The maximum drawdown since inception - a drawdown is a peak-to-trough decline during a specific period for an investment, trading account, or fund.
Resolution Capital Real Assets	6.24%	13.98%	44.56%	9.48%	15.73%	16.97%	20.23%	42.5%	-6.25%	-25.54%	-45.06%

Product Overview

Fund Name	APIR Code ? A Product Code is unique a identifier code issued by a group or governing body, to reference products in a large group. For an example, APIR codes are commonly used for Funds and Ticker codes are commonly used for Securities such as ETFs and Stocks.	Structure ?	Asset Class ? An Asset Class breakdown provides the percentages of core asset classes found within a mutual fund, exchange-traded fund, or another portfolio. Asset classes (in microeconomics and beyond) generally refer to broad categories such as equities, fixed income, and commodities.	Asset Category ? An Asset Category is a grouping of investments that exhibit similar characteristics and are subject to the same laws and regulations. Asset categories (or a sub-asset class) are made up of instruments which often behave similarly to one another in the marketplace, looking down to the Asset Category level is important if looking to build a diversified portfolio.	Peer Benchmark Name ? A Peer Index (benchmark) refers to a peer group of investment managers who have the same investment style or category. It is used to compare the performance of one manager to their peer group, which makes it simpler for investors to choose between the vast number of investment managers.	Broad Market Index ? A Market Index (benchmark) refers to a hypothetical portfolio of investments that represents a segment, asset or category of an investable market. Market Indices are used to benchmark managers performance, to assist their style reliability and ability to provide excess returns.	FUM ? Funds/Assets under management (AUM) is the total market value of the investments that a person or entity manages on behalf of clients. Assets under management definitions and formulas vary by company.	Management Fee ? A management fee is a charge levied by an investment manager for managing an investment fund. The management fee is intended to compensate the managers for their time and expertise for selecting finanical products and managing the portfolio.	Performance Fee ? A performance fee is a payment made to an investment manager for generating positive returns. This is as opposed to a management fee, which is charged without regard to returns. A performance fee can be calculated many ways. Most common is as a percentage of investment profits, often both realized and unrealized. It is largely a feature of the hedge fund industry, where performance fees have made many hedge fund managers among the wealthiest people in the world.	Spread ? A spread can have several meanings in finance. Basically, however, they all refer to the difference between two prices, rates or yields. In one of the most common definitions, the spread is the gap between the bid and the ask prices of a security or asset, like a stock, bond or commodity. This is known as a bid-ask spread.
Resolution Capital Real Assets	WHT0014AU	Managed Funds	Property and Infrastructure	Australian Listed Property	Property - Australian Listed Property Index	ASX Index 200 A-REIT Index	14.88 M	0.65%	0	0.41%

Peer Comparison

Fund Name	Peer Index Name ? A group of individuals who share similar characteristics and interests are called peer groups. Peer group analysis is an essential part of assessing a price for a particular stock in investment research. The emphasis here is on making a comparison, meaning that the peer group constituents should be more or less identical to the company being examined, especially in terms of their main business and market capitalization areas.	12 Months Excess Return ? Excess returns are an important metric that helps an investor to gauge performance in comparison to other investment alternatives. In general, all investors hope for positive excess return because it provides an investor with more money than they could have achieved by investing elsewhere.	Excess Return Annualised Since Inception ? Excess returns are an important metric that helps an investor to gauge performance in comparison to other investment alternatives. In general, all investors hope for positive excess return because it provides an investor with more money than they could have achieved by investing elsewhere.	12 Months Alpha ? Alpha is used in finance as a measure of performance, indicating when a strategy, trader, or portfolio manager has managed to beat the market return over 12 months. Alpha, often considered the active return on an investment, gauges the performance of an investment against a market index or benchmark that is considered to represent the market’s movement as a whole.	Alpha Annualised Since Inception ? Alpha is used in finance as a measure of performance, indicating when a strategy, trader, or portfolio manager has managed to beat the market annualized since inception. Alpha, often considered the active return on an investment, gauges the performance of an investment against a market index or benchmark that is considered to represent the market’s movement as a whole.	12 Months Beta ? Rolling 12Month Beta is a measure of the volatility—or systematic risk—of a security or portfolio compared to the market as a whole. Beta is used in the capital asset pricing model (CAPM), which describes the relationship between systematic risk and expected return for assets (usually stocks).	Beta Annualised Since Inception ? Beta is a measure of the volatility—or systematic risk—of a security or portfolio compared to the market as a whole. Beta is used in the capital asset pricing model (CAPM), which describes the relationship between systematic risk and expected return for assets (usually stocks).	12 Months Tracking Error ? 12Month Tracking error is the difference in actual performance between a position (usually an entire portfolio) and its corresponding benchmark over the last 12 months. The tracking error can be viewed as an indicator of how actively a fund is managed and its corresponding risk level. Evaluating a past tracking error of a portfolio manager may provide insight into the level of benchmark risk control the manager may demonstrate in the future.	Tracking Error Since Inception ? Since Inception tracking error is the difference in actual performance between a position (usually an entire portfolio) and its corresponding benchmark since inception. The tracking error can be viewed as an indicator of how actively a fund is managed and its corresponding risk level. Evaluating a past tracking error of a portfolio manager may provide insight into the level of benchmark risk control the manager may demonstrate in the future.	12 Months Correlation ? Correlation, in the finance and investment industries, is a statistic that measures the degree to which two securities move in relation to each other. Correlations are used in advanced portfolio management, computed as the correlation coefficient, which has a value that must fall between -1.0 and +1.0.	Correlation Since Inception ? Correlation, in the finance and investment industries, is a statistic that measures the degree to which two securities move in relation to each other. Correlations are used in advanced portfolio management, computed as the correlation coefficient, which has a value that must fall between -1.0 and +1.0.
Resolution Capital Real Assets	Property - Australian Listed Property Index	0.3%	7.26%	NA%	NA%	NA%	0.88	2.82%	38.07%	1	0.45

Product Details

Fund Name	Verifed by SMSF Mates	Manager Address	Phone	Website	Email
Resolution Capital Real Assets	Yes		-	https://rescap.com/	-

Product Due Diligence

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%.

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Historical Performance Commentary

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

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

Performance Commentary - March 31, 2023

Performance Commentary - February 28, 2023

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Resolution Capital Real Assets (WHT0014AU) Report & Performance