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Becton Investment Management Direct Property – to have and to hold.

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Presentation on theme: "Becton Investment Management Direct Property – to have and to hold."— Presentation transcript:

1 Becton Investment Management Direct Property – to have and to hold

2 Becton Investment Management Disclaimer This 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 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.

3 Becton Investment Management 2 The View Economic – Interest rates slashed -Markets bottoming, recession to come?? Banking environment – restrictive lending, govt. guarantees having impact on funds management industry, decreasing risk tolerance Property fundamentals – still strong (supply/demand), but pressure on values as valuers take account of the points above

4 Becton Investment Management 3 Agenda Reviewing property’s role in your investment strategy Direct property is 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/Fund Managers should adjust strategies for the Property market outlook

5 Becton Investment Management 4 Role of direct property 5 years10 years15 years CBA Bond: All Series, All Maturities 0.07-0.05-0.44 S&P/ASX LPT 300-0.150.02-0.21 ASX All Ordinaries-0.010.48-0.12 Direct property exhibits a negative correlation to both bonds and A-REIT’s Correlations of direct property with other assets (period ending December 2007)

6 Becton Investment Management 5 Role of direct property Low or negative correlation to other investments Correlation Matrix: December 1984-December 2007 Sources: IPD Property Investors Digest March 2008

7 Becton Investment Management 6 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 Source: IPD, Australia Digest March 2008

8 Becton Investment Management 7 Role of direct property 10 year20 year Income ReturnIncome Volatility Income ReturnIncome Volatility Australian Shares3.7%1.2%4.3%1.3% Overseas Shares1.4%0.2%1.6%0.2% Residential Property2.4%2.6%3.5%3.8% AREIT6.9%2.1%7.9%2.6% Fixed Interest5.8%3.1%8.3%4.3% Cash5.4%0.2%8.0%1.0% Managed Funds4.0%1.0%5.3%1.2% Inflation2.9%3.2% PCA Composite7.1%0.2%7.0%0.3% PCA Retail7.1%0.3%7.6%0.4% PCA Office6.8%0.2%6.5%0.3% PCA Industrial8.6%0.4%9.0%0.5% Annual Income Returns and Volatility of Returns (nil Tax) Source: ADPIA Minimal income volatility after 10 & 20 years

9 Becton Investment Management 8 Role of direct property Australian Shares Overseas Shares AREIT Fixed InterestCash PCA Composite PCA Retail PCA Office PCA Industrial 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00% 0.00%2.00%4.00%6.00%8.00%10.00%12.00%14.00%16.00% Volatility (p.a.) Total Return (p.a.) Source: Atchison Consultants/IPD Total return and volatility (risk) of returns for major asset classes Volatility of shares & REIT increases significantly when total returns are considered

10 Becton Investment Management 9 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 Property investors tend to make decisions based on medium to long term outlook, not short term sentiment

11 Becton Investment Management 10 A-REITS 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 to investor sentiment 3.A-REITs have evolved accentuating further differences Increased overseas exposure – foreign exchange risk Stapled structures – different earnings profile Style of property investments – leasing, refurbishment and development

12 Becton Investment Management 11 Attributes effecting property performance Diversification enhances return stability Sector 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 – Tenants effected by different economic drivers

13 Becton Investment Management 12 Property Market Outlook Condition different to early ’90s Property investment performance is largely influenced by four key areas: - 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 performance IMF projected Australian GDP Growth of 3% to 3.5% - supportive backdrop

14 Becton Investment Management 13 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 0% 5% 10% 15% 20% 1970197419781982198619901994199820022006 Vacancy RateHistorical Average National Office Vacancy Rate, 1970 to March 2008 Source: Jones Lang LaSalle Research & Consulting

15 Becton Investment Management 14 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 0% 2% 4% 6% 8% 10% 1998199920002001200220032004200520062007 CBDRegionalSub-RegionalNeighbourhood National Retail Vacancy, 1998 to 2007 Source: Jones Lang LaSalle Research & Consulting

16 Becton Investment Management 15 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 0 500,000 1,000,000 1,500,000 2,000,000 2,500,000 1998199920002001200220032004200520062007 sqm SydneyMelbourneBrisbane Eastern Seaboard Industrial Supply (Projects > 5,000 sqm), 1998 to 2007 Source: Jones Lang LaSalle Research & Consulting

17 Becton Investment Management For further information: Website Phone 1800 182 257 Write 6 / 470 St Kilda Road, Melbourne 3004

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