Becton Investment Management€¦ · CBA BondsCBA Bonds -0.36 -0.28 -0.14 -0.28 0.38 0.17 1...
Transcript of Becton Investment Management€¦ · CBA BondsCBA Bonds -0.36 -0.28 -0.14 -0.28 0.38 0.17 1...
Direct Property – to have and to holdDirect Property to have and to hold
Presentation to PortfolioConstruction Conference 2008
Becton Investment Management
Di l iDisclaimerThis presentation is provided by Becton Investment Management Limited and is for general information only.
Opinions expressed are our present opinions only and are subject to change. In preparing this presentation, we have obtained information from sources we believe to be reliable, but do not offer any guarantees as to its accuracy or completenessaccuracy or completeness.
The information contained in the presentation is general in nature and in preparing this presentation Becton Investment Management Limited has not taken into account the investment objectives, financial situation and particular needs of any particular person. Before making an investment decision, a prospective investor should consider, with the assistance of a financial and tax adviser, whether an investment is appropriate in light of their particular investment needs, objectives and financial circumstances.
It does not contain and is not to be taken as containing any securities advice or securities recommendation. Furthermore, it is not intended that it be relied on by recipients for the purpose of making investment decisions. Subject to law, none of the companies of Becton Investment Management Limited or its respective directors or employees, accepts any responsibility or owes any duty of care to any person acting, or refraining from acting, as a result of material in this presentation.
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Introduction
• Overview of presentation• Overview of presentation• Introduction of Matthew Chun – Chief Executive Officer and Head of Funds
Management
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Reviewing property’s role in your investment strategy
• Direct property in a unique asset class• Direct property in a unique asset class• Are listed REIT’s a suitable direct property exposure?• Performance of direct property investment is enhanced through active investment
strategies• Investors should adjust strategies for the Property market outlook
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Role of direct property
Low or negative correlation to other investments
Correlations of direct property with other assets (period ending December 2007)
5 years 10 years 15 years
CBA Bond: All Series, All 0.07 -0.05 -0.44Maturities
S&P/ASX LPT 300 -0.15 0.02 -0.21
ASX All Ordinaries -0.01 0.48 -0.12
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Role of direct property
Direct property exhibits a negative correlation to both bonds and A-REIT’s
A t li ASX
Correlation Matrix: December 1984-December 2007
Australian ASX Australian Australian Australian Composite S&P/ASX All Industrial CBD Office Retail Property LPT 300 Ordinaries CBA Bonds Inflation
Australian Industrial 1Australian CBD Office 0.82 1Australian Retail 0.45 0.67 1Australian Composite Property 0.85 0.98 0.76 1S&P/ASX LPT 300 -0.10 -0.13 -0.16 -0.13 1ASX All Ordinaries 0.03 0.00 -0.09 -0.01 0.59 1CBA Bonds -0.36 -0.28 -0.14 -0.28 0.38 0.17 1CBA Bonds 0.36 0.28 0.14 0.28 0.38 0.17 1Inflation 0.25 0.51 0.49 0.50 0.02 0.11 0.25 1
Sources: IPD Property Investors Digest March 2008
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Role of direct property
Stability of both income and total returns• Property had unique combination of both defensive and growth attributes• Since 1994 to date total returns have remained between 10% pa and 20% pa
Major Asset Classes - Rolling annual returns to March 2008
40.0
50.0Composite Direct Property
S&P/ASX LPT 300ASX All Ordinaries
20.0
30.0
40.0
s (%
)
ASX All Ordinaries
CBA Bond: All Series, All Maturities
0.0
10.0
Mar
-88
Mar
-89
Mar
-90
Mar
-91
Mar
-92
Mar
-93
Mar
-94
Mar
-95
Mar
-96
Mar
-97
Mar
-98
Mar
-99
Mar
-00
Mar
-01
Mar
-02
Mar
-03
Mar
-04
Mar
-05
Mar
-06
Mar
-07
Mar
-08A
nnua
l ret
urns
-30.0
-20.0
-10.0 M M M M M M M M M M M M M M M M M M M M M
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Source: IPD, Australia Digest March 2008
Role of direct property
Minimal income volatility after 10 & 20 years
10 year 20 year
Income Return Income Income Return Income
Annual Income Returns and Volatility of Returns (nil Tax)
Volatility Volatility
Australian Shares 3.7% 1.2% 4.3% 1.3%
Overseas Shares 1.4% 0.2% 1.6% 0.2%
Residential Property 2.4% 2.6% 3.5% 3.8%
AREIT 6.9% 2.1% 7.9% 2.6%
Fixed Interest 5.8% 3.1% 8.3% 4.3%
Cash 5 4% 0 2% 8 0% 1 0%Cash 5.4% 0.2% 8.0% 1.0%
Managed Funds 4.0% 1.0% 5.3% 1.2%
Inflation 2.9% 3.2%
PCA C it 7 1% 0 2% 7 0% 0 3%PCA Composite 7.1% 0.2% 7.0% 0.3%
PCA Retail 7.1% 0.3% 7.6% 0.4%
PCA Office 6.8% 0.2% 6.5% 0.3%
PCA Industrial 8 6% 0 4% 9 0% 0 5%
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PCA Industrial 8.6% 0.4% 9.0% 0.5%Source: ADPIA
Role of direct property
Volatility of shares & REIT increases significantly when total returns are considered
14 00%
16.00%
Total return and volatility (risk) of returns for major asset classes
Australian SharesAREIT
PCA Composite
PCA Retail
PCA Office
PCA Industrial
12.00%
14.00%
8.00%
10.00%
tal R
etur
n (p
.a.)
Overseas Shares
Fixed InterestCash
4.00%
6.00%To
0.00%
2.00%
0 00% 2 00% 4 00% 6 00% 8 00% 10 00% 12 00% 14 00% 16 00%
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0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00%Volatility (p.a.)Source: Atchison Consultants/IPD
Role of direct property
Stability of income and total returns
Reasons for the low volatility of total returns
• Relative illiquidity - high transaction cost & 3-6 month sale period• Earnings stability Lease contracts provide income security• Earnings stability - Lease contracts provide income security• Property investors tend to make decisions based on medium to long term
outlook, not short term sentiment
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A substitute for direct property exposure
We believe that it is not a suitable substitute for direct property:
1. Low or negative correlation between A-REITs and direct property
2. Volatility of A-REITs total return is significantly higher than direct property due to exposure
3. A-REITs have evolved accentuating further differences• Increased overseas exposure foreign exchange risk• Increased overseas exposure – foreign exchange risk• Stapled structures – different earnings profile• Style of property investments – leasing, refurbishment and development
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Attributes effecting property performance
Diversification enhances return stability
• Sector Diversification – Different sectors & sub-sector effected by divergentSector Diversification Different sectors & sub sector effected by divergent factors & economic conditions
• Geographic Diversification – Local market conditions impact performance
• Tenant Diversification – Reduces impact of any one tenant• Tenant Diversification – Reduces impact of any one tenant – Tenants effected by different economic drivers
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Property Market Outlook
Condition different to early ’90s
• Property investment performance is largely influenced by four key areas:Investment market- Investment market
- Tenant market (highly effected by economic outlook)- Property specifics- Tenant / Lease expiry profile
• Tenant demand and supply should help insulate sector from long term under performancep
• IMF projected Australian GDP Growth of 2% - supportive backdrop
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Property Market Outlook
Office Market• Supply and demand fundamentals have led to upward pressure on rents• Conditions very different to the 1990’s - Vacancy below 7% - the market is in the landlords favour
N ti l Offi V R t 1970 t M h 2008
15%
20%National Office Vacancy Rate, 1970 to March 2008
10%
15%
5%
0%1970 1974 1978 1982 1986 1990 1994 1998 2002 2006
Vacancy Rate Historical Average
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Vacancy Rate Historical AverageSource: Jones Lang LaSalle Research & Consulting
Property Market Outlook
Retail Market• Retailers move towards a lower margin/high volume business model – requires more stores• Moderate supply additions projected, rental rates forecast to be solid• Barriers to entry, greenfield etc
8%
10% National Retail Vacancy, 1998 to 2007
6%
2%
4%
0%
2%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
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CBD Regional Sub-Regional NeighbourhoodSource: Jones Lang LaSalle Research & Consulting
Property Market Outlook
Industrial Market• Industrial market experiencing a structural revolution and growth in demand from logistic/distribution
firms• Industrial sector linked to Transport and Storage sector – average forecast growth 3.8%pa: 2008-2010
2,500,000Eastern Seaboard Industrial Supply (Projects > 5,000 sqm), 1998 to 2007
1,500,000
2,000,000
m
500 000
1,000,000
sqm
0
500,000
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
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Sydney Melbourne BrisbaneSource: Jones Lang LaSalle Research & Consulting
Q&A
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For further information:Website www.becton.com.au
Phone 1800 182 257
Write 6 / 470 St Kilda Road, Melbourne 3004
Becton Investment Management
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