SGH Property Income Fund update – September Quarter 2025

SGH Property Income Fund update: Continuing strong performance driven predominantly by retail outperformance

In this quarterly fund update, Grant Berry, Lead Portfolio Manager of the SGH Property Income Fund, recaps the September 2025 quarter’s performance and positioning.
The fund benefited from solid contributions by a number of retail groups including, Scentre Group and Vicinity Centres and continued office sub-sector positive net absorption.

 

Watch/Listen to the September quarter 2025 SGH LaSalle Concentrated Global Property Fund update ⏬:

Transcript:

September quarter performance

Welcome to the SGH Property Income Fund update. I’m Grant Berry and I want to talk about the SGH Property Income Fund performance, what’s been happening over the quarter and outlook.

Firstly, the fund performance. The fund delivered a strong result over the September quarter, returning 10.3% compared with the A-REIT 300 accumulation index, which did 4.8%.

The fund was also well ahead of the CPI plus 3% per annum benchmark for it. This follows a solid run of performance through 2025, taking the total return over 16% for the rolling 12 month period. Let’s talk about the market environment. The broader backdrop for property securities remained constructed through the quarter.

Both the RBA and the US Federal Reserve maintained an easing bias with rates expected to trend lower into the year end. Importantly, long-term bond yields were stable, helping preserve the valuation support that has underpinned A-REIT performance. In fact, post the quarter end, we’ve seen real bond yields rally somewhat, which is even more supportive.

Economic data points to a steady environment. It’s not a booming environment, it’s steady, but it’s one in which the policy settings and capital will continue to support income producing real assets.

During the quarter, we had reporting season, and I just want to touch on a few points from reporting season here. The August reporting season reinforced the good underlying fundamentals. The FY 25 results were broadly in line with expectations, and while FY 26 guidance was modestly below consensus, what we saw was occupancy levels remained solid and rent growth persisted across most of the sub-sectors. Office being, more subdued there.

Retail and convenience retail continues to drive strong performance

Retail and convenience based assets continues to deliver dependable earnings supported by healthy tenant demand, and moving up the spectrum to Scentre Group, and Vicinity Centres both produce solid results reflecting steady consumer activity and positive releasing spreads.

Industrial property has remained firm, though the releasing spreads growth, which was very high in recent years, has somewhat eased from those strong years while the office sector showed early signs of stabilization with incentives plateauing, and effective rents improving modestly.

Overall, the key message from reporting season was that A-REITs making up the portfolio continue to demonstrate balance sheet strength, earnings quality, and consistent cash flow generation, which positions the portfolio very well into FY 26.

Moving on to property fundamentals, probably the key data points to look at here is the JLL third quarter update, where they provide a constructive picture across the major property sub-sectors. Firstly, the office market. This may surprise a number of people listening in here. The office sub-sector has recorded now seven consecutive quarters of positive net absorption.

This is tenant demand, which is very positive. Effective rents arise across all the CBDs and prime yields are holding steady a sign that values may be nearing their cyclical trough. Retail showed mixed, but generally positive results including yield compression in several sub-sectors and continued rent growth in neighborhood and sub-regional centers.

While industrial sectors saw weaker occupied demand and rising incentives, but selective investor appetite remains linked to yield tightening in some of the markets. These trends to us indicate that the broader property market is moving into a more balanced phase, with office, interestingly, showing genuine signs of recovery while industrial moderates from elevated levels.

The current SGH Property Income Fund position

In terms of the portfolio, what’s been happening and the contributors and detractors, the contributors for the quarter were GPT Group. Now this has been our largest and it is still our largest holding. It delivered solid earnings growth across all its divisions and modestly upgraded their guidance.

Scentre Group reported portfolio occupancy of very high levels of 99.7% and upgraded its four year distribution, and Charter Hall’s social infrastructure REIT produced strong results driven by high occupancy, its long WALE, and robust leasing spreads. There were no material detractors from performance over the period.

In terms of the portfolio position and outlook, the portfolio remains well diversified with the tilt towards convenience retail and now office interestingly. We continue to see attractive opportunities in the smaller and mid-cap A-REITs, where fundamentals are strong and valuations are more appealing to us than the larger REITs.

Portfolio adjustments and new positions

Over the past quarter, we’ve been modestly increasing office exposure as demand improves and rental conditions stabilize, and we’re seeing real value there because this is the most discounted sub-sector in the A-REIT space. Retail remains a core allocation, offering reliable income and strong leasing momentum, while industrial weightings are modest, given moderating rent growth and rising incentives.

In terms of what we have been doing, more stock-specifically, we exited our position in Unibail-Rodamco-Westfield. That was really a function of it leaving the Australian index, or I should say the Australian exchange here.

We’ve been increasing in a rather big way into Dexus property group. We see that as very good value, high quality assets. It’s got a big exposure to Sydney office space, which is improving as mentioned earlier.

We like GPT, it has done well for us. It is our largest holding, but we’ve been trimming our exposure there and rotating back into Dexus. It was actually the other way around earlier this year.

We’ve been increasing exposure to Growth Point Australia. That is also another office/industrial name, and we see a lot of value there, similar to Dexus and we’ve been adding to Waypoint, which is convenience retail service stations. We see that as good value, very defensive, and they’re executing on a buyback.

Why invest in the SGH Property Income Fund

So looking ahead, we continue to view the A-REIT sector favorably. The fund is well positioned to deliver solid income yield with capital growth potential supported by disciplined active management with a focus on high quality value backed real estate securities. We see value within the A-REIT sector, not so much in the larger REITs, we’re seeing it in the smaller REITs, and that’s where we’ve really increased our emphasis. We’ve got a very high exposure there, very resilient, good income. Trade below net tangible asset backing and we see that sets up the fund very nicely for the year ahead.

Thank you for continued support and interest in the SGH Property Income Fund. As always, please reach out if you’d like to discuss the fund, the portfolio, or outlook in more detail.

*The text has been edited for clarity.

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Disclaimer

This fund update has been prepared by SG Hiscock & Company (SGH) to provide general information only and is not intended to take the place of professional advice. It does not take into account the investment objectives, financial situation or particular needs of any particular person.

Equity Trustees is the responsible entity for the SGH Property Income Fund. Neither SGH, Equity Trustees nor any of its related parties provide any warranty of accuracy. Past performance should not be taken as an indicator of future performance. You should obtain a copy of the Product Disclosure Statement before making a decision about whether to invest in this product. Follow the link for the full disclaimer: https://sghiscock.com.au/podcast-disclosures-and-disclaimers/.