Five minutes with David Curtis – UBS Fund Manager
30 April 2008
Like most Australians who love their property, UBS Fund Manager David Curtis also has an abiding interest in this asset class.
He likes it, he says, because it's a straight-forward investment with a 'touch and feel' aspect plus regular cash flow.
As part of a team of three managing the UBS Property Securities Fund, these 'guys' certainly have 'skin in the game' so they all feel it when the fund under performs.
"It's a double hit; it hurts in the hip pocket and professionally," he says.
David also feels that property is always about the long-term view, and believes the fund will improve performance over time.
Listed Property Trusts taken a beating
All Listed Property Trusts (now called Real Estate Investment Trusts) have taken a beating this year as the fall out from the sub-prime crisis and the credit crunch envelopes the industry.
The global Real Estate Investment Trusts (REIT) index shows a 27 per cent decline in returns to end of March 2008, while Australia performed slightly better with a drop of only 24 per cent.
The UK was the worst performer, falling by 33 per cent to March 2008, while Hong Kong bucked the trend with a 19 per cent positive return.1
The UBS Property Securities Fund, which has $1.9 billion dollars under management as of July 2007, invests only in Australian Listed Property Trusts (LPTs) on the ASX.
Lonsec reports the fund as one of the longest running property securities fund in the sector, with a history of successfully investing in smaller Cap LPTs.
Since its inception in April 1996, the Fund has returned an average of 11.4 per cent per annum (NET of fees) up to March 2008.2
While the Fund has a mixture of small, medium and large trusts as part of its holdings, Curtis favours the smaller and medium trusts, such as Charter Hall Group and Aspen Group, which are managed internally.
"We like these trusts because they're nimble and well managed, with the managers having strong experience in real estate."
And with the alignment of interest between shareholders and management, they have added value over the years, he says.
Curtis also feels that an LPT managed by external managers - where the shareholders provide the equity, and the Trust acquires the assets - is not a model he prefers.
"The alignment of interest between management and shareholders is sometimes questionable because external managers are generally paid on the value of assets under management. The problem with this approach is that the external managers earn fees from the level of assets. So you may question sometimes whether acquiring certain assets is sensible."
The Pain of Centro
Curtis and his team are not the only property fund managers to be affected by the Centro debacle but it was still a shock, he says.
He adds that the Centro event was the biggest challenge of his career, after the Multiplex and Wembley stadium fiasco from 2005.
"I guess you think you only get these types of events every 10 or 20 years. But Centro was a surprise to us all because of its failure to adequately report debt exposures in June 2007. The situation was further compounded late December when they disclosed the material refinancing difficulties that the group was experiencing."
"This was compounded further because it came in the middle of the credit crunch and sub-prime meltdown. The wrong amount of debt at the wrong time." he says.
The Centro incident made Curtis and his team take a step back.
"It was one of those moments that make you stop and think if we had missed anything else within our holdings," he says.
They then approached all the Trust management teams to re-check the disclosure of debt levels in case they'd missed something.
They found one Trust had overlooked disclosure of debt exposures but it was not a major issue. However, it did remind Curtis of how diligent fund managers have to be, to avoid the pain of a Centro collapse.
Curtis has always had a soft spot for property, even during his studies at the University of Western Sydney where he graduated in economics and finance.
He says property touches everyone and the only regret in his professional career is that he did not get involved in the sector earlier.
He is also well qualified to co-lead the UBS team with a Masters in Applied Finance from FINSIA (formerly known as Securities Institute, now Kaplan). Curtis joined UBS in September 2006 from Deutsche Asset Management, and is backed by Andrew McGrath and Michelle Willimott.
McGrath, recruited from ABN AMRO in April 2002, is co-leader and like Curtis is also dedicated to managing the Fund.
REITS and the future
Curtis says that smaller and medium LPTs still look appealing from a valuation and management perspective.
"Smaller LPTs can do deals which have a bigger impact on earnings than some of the larger Trusts," he adds.
He also believes that the market is still too geared and dividend pay-outs are too high versus the sustainable level of earnings, so some risk remains.
"De-gearing needs to take place and dividends need to be re-based, but unfortunately this will take some time."
Curtis expects more clarity after the reporting season in August when the Trusts report end-of-year earnings and managers and companies 'take their medicine.'
He adds that, "until all these things happen, I do not see a sense of normalcy in stock prices returning to the sector just yet."
1Download the market performance indices report (source: UBS Global Asset Management (Australia) Ltd, 7/04/08)
2 Past performance is not a reliable indicator of future performance. Current performance information can be obtained here.
About David Curtis
David Curtis
Portfolio Manager/Investment Analyst
Director
UBS Global Asset Management
Years of investment industry experience: 13
Education: University of Western Sydney (Australia), BCom; Securities Institute of Australia, Master of Applied Finance and Investment
David Curtis is responsible for co-managing the Australian Property Securities Fund and analysis of the Australian Listed Property Trust sector.
David joined UBS Global Asset Management in September 2006 after four years with Deutsche Asset Management where he worked as a portfolio manager and analyst in the
Listed Property Trust team. Previous to that he worked at Zurich Scudder Investments for two years in research and portfolio management related roles.
David is a Fellow of the Financial Services Institute of Australasia.
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