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Q2 2020 real estate market update

This report provides an update on the Real Estate Equity and Real Estate Debt markets in Australia, including sector trends, recent deals and transaction activity, economic influences and the impact of recent political events on the market. The information herein has been derived from various sources including CIP Asset Management, Jones Lang LaSalle Research and Australian Bureau of Statistics.

1. Direct Real Estate Markets

1.1 Office

Lead indicators for the office sector softened over the June 2020 quarter. The NAB Business Survey (June) showed that from Q1, confidence fell three points to -15 index points, led by declines in construction and mining. Retail, wholesale, recreational & personal were the only sectors to buck the trend. Business conditions saw a 23 point decline to -26 index points over the quarter.

On a state by state basis, business conditions and confidence deteriorated considerably in all states and they are all now in negative territory. Business conditions dropped between 16 and 40 points to
between -15 to -38 index points, with South Australia the most impacted and Tasmania the least affected. Confidence is at it’s lowest in Queensland and Victoria at -19 points and highest in Western Australia at -8 points.

Across industries, while the decline was broad-based, finance, business, property, recreational and personal service suffered the biggest drop in business conditions over the quarter. While all industries are in negative territory, business conditions are most pessimistic in property, recreational and personal service, where the index lies at approximately -40 points.

In terms of business confidence across industries, construction and mining appear to have being most adversely impacted dropping between 30 and 40 points over the quarter. Business confidence is below zero for all industries with construction and mining being the most pessimistic, at approximately -30 index points.

Forward indicators deteriorated substantially over the quarter with employment expectations declining by 27 points to -28 index points, capex intentions dropping 26 points to -18 index points and forward orders decreasing 20 points to 27 index points. Not surprisingly, given the outlook, capacity utilisation dropped 8.2 percentage points to 74.8%.

The Australian Bureau of Statistics reported that employment decreased by 661,000 for the June 2020 quarter with full time employment decreasing by 376,000 and part time employment decreasing 285,000.  The unemployment rate increased 222 basis points to 7.4%. The second wave of the virus currently affecting Melbourne, together with forward looking indicators in the Westpac Consumer Confidence Index, suggest the unemployment rate is likely to increase further over the coming months.

Deloitte Access Economics forecasts Gross Domestic Product to contract -0.4% (down from +2.4% prior to COVID-19) for the year ending June 2021. Deloitte estimates that GDP will bounce back over the two following years with growth of 5.3% and 4.0% before stabilising at an average of 2.45% for the years ending June 2024 and 2025.

According to JLL Research data, all capital city office markets recorded negative net absorption for the quarter ending June 2020. This was primarily due to the impact of COVID-19 and was manifested in the form of increasing sub-lease space and consolidation activity. Sydney and Melbourne were the hardest hit with negative net absorption in excess of 60,000sqm and 40,000sqm, respectively.

Source: JLL REIS and Challenger Research

On a year on year basis, Sydney, Melbourne and Perth, recorded negative net absorption however, Sydney was by far the weakest performer with negative absorption in excess of 160,000sqm, representing 3.25% of stock. Adelaide and Canberra both performed strongly, relative to other cities, with positive absorption in both instances representing approximately 1.0% of stock in those respective cities. 

Despite Q2 2020 overall negative net absorption, prime gross face rents remained relatively stable in all markets, albeit with marginal growth in Sydney and slight contraction in Melbourne.  On an annual basis, all markets reported rental growth, lead by Sydney and Melbourne with growth in the order of 5.0%.

Source: JLL, REIS and Challenger Research

In the June 2020 quarter, prime incentives increased approximately 2.0% in both Sydney and Melbourne and were stable in other cities. Secondary incentives were relatively stable except for Sydney where they increased 3.0%.

On a year on year basis, growth in incentives was varied. In Perth, incentives contracted by just under 1.0% (from a very high base), while Sydney and Melbourne recorded increases in the order of 4.0% and 2.0%, respectively.  All other markets were flat. Incentives for secondary stock was relatively steady in all markets, with the exception of Sydney where they increased by approximately 4.0%.

Source: JLL REIS and Challenger Research

As a result of increasing incentives, prime gross effective rents contracted by approximately 3.0% in both Sydney and Melbourne and by 1.0% in Adelaide. All other markets were flat.

On an annual basis, with the exception of Sydney, prime gross effective rents grew in all CBDs, with Canberra recording the strongest growth at 4.5%, followed by Brisbane and Adelaide at 3.5%.  In Sydney, gross effective rents contracted by approximately -1.0%.

Secondary markets reported a similar trend albeit at higher levels; Sydney was the weakest performer with gross effective rents contracting -1.8%. At the other extreme, Melbourne reported gross effective rental growth of 9.9%; however, the headline number is misleading as it captures a significant increase in outgoings, hence, real growth was limited. Brisbane and Canberra had a more moderate performance with gross effective rental growth ranging between 4.5% and 5.0%.

Source: JLL REIS and Challenger Research

The national CBD vacancy rate increased 1.75% to 10.2% for the quarter ending June 2020. As previously forecast, vacancy rates increased the most in Sydney and Melbourne, 1.65% and 4.29%, respectively. Brisbane, Adelaide and Perth, recorded relatively small increases in the vacancy rate, while Canberra was the only city to buck the trend with vacancies dropping in excess of 0.50%.

On a year on year basis, vacancy increased the most in Sydney and Melbourne, by approximately 3.5%. In Adelaide, the vacancy rate increased by approximately 0.75% while the Perth market was relatively steady. Canberra was the only city to show a net improvement with the vacancy rate falling by just under 3.0% to 8.2%.

Source: JLL REIS and Challenger Research

While the vacancy rate for prime stock is still lower than secondary stock across all cities, the spread between the grades has narrowed slightly in most markets, but most notably in Melbourne, where the spread in vacancy rate contracted 420 basis points.

Source: JLL REIS and Challenger Research

A summary of key indicators for each market is shown in the table below.

Key Indicators table – Australian CBD Office markets 30 June 2020

MarketStock (m2)Vacancy RateRents (Gross Face per m2)IncentivesPrime gross effective rental growth (Q2)Yields (Prime)

Source: JLL REIS and Challenger Research

As at August 2020, recent completions in Melbourne saw it overtake Sydney as Australia’s largest office market with approximately 5,100,000sqm of total stock.

Prime office yields remained steady across all markets for the quarter ending June 2020. On a year on year basis, prime office yields were flat in Melbourne and Brisbane and sharpened between 25bps and 50bp in Sydney, Canberra, Perth and Adelaide. Secondary markets performed strongly with yields compressing between 20bps and 50bps in Sydney, Melbourne, Brisbane, Adelaide and Perth. Canberra was the highlight with yields compressing 100bps over the year.

Source: JLL REIS and Challenger Research

Prior to COVID-19, leasing conditions were relatively buoyant, albeit they were starting to weaken, particularly in Sydney and Melbourne. Investment activity on the other hand was strong across the board, only limited by a dearth of assets available for sale.

COVID-19 has seen a significant slowdown across leasing markets with the vast majority of deals that were at heads of agreement stage failing to convert to completed lease agreements. At the same time a number of tenants, particularly SME’s, are seeking rent abatements, albeit to a lesser extent compared to the retail sector.

While there is a lack of COVID-19 affected sales evidence to indicate any direct impact to capitalisation and discount rates, valuations have been factoring in lower market rental growth rates, increased vacancy, higher incentives, letting up allowances and abatements which has consequently had a negative effect on investment metrics.  

As envisaged in our previous quarter update, secondary stock and/or buildings with significant vacancy or short WALEs have been hardest hit as they usually have higher exposure to SMEs who typically sign shorter term leases and have been most impacted by COVID-19. Potentially exacerbating the aforementioned are concerns around tenant demand for office space not keeping pace with net new supply. Currently there is approximately 350,000sqm and 315,000sqm of stock currently under construction in Sydney and Melbourne respectively and due for completion by 2022. While approximately 50% of these projects are pre-committed in Sydney and 70% for Melbourne, backfill space will add to net supply and it is expected that these buildings may experience difficulties being absorbed. Brisbane may experience a similar scenario with 125,000sqm of space due to be completed by 2022, with only approximately 51% of this pre-committed.

Hence, while secondary grade assets in some instances have dropped up to ~-6.0% in value, prime assets have, in most cases, maintained value. In some cases, for example where assets that are fully leased on long term leases to government tenants, these have increased in value as their cashflows are perceived to be secured for the long term and less affected by current economic volatility.

1.2 Retail

National retail sales grew 2.9% in the twelve months to June 2020, which is just 20 basis points lower than the growth recorded in the year prior. However, the headline number is misleading as it also captures March 2020 to May 2020, widely acknowledged as the period most impacted by COVID-19 and associated lock down and social distancing measures. For instance, MAT for April experienced a 99 basis point year on year drop.

MAT performance for FY2020 was a case of winners and losers across the various categories with relative performance as follows:

  • Recording gains: Food retailing (+7.1%), Household goods retailing (+6.9%), other retailing (+4.9%)
  • Recording losses: Cafes, restaurants and takeaway food services (-9.1%), Clothing, footwear and personal accessories (-7.5%), Department stores (-0.4%);

Source: ABS, Challenger Research

Turnover in June however shows a more positive outlook having increased 2.7%; this follows a 17% increase in May. Retail sales growth in May and June, together, offset the 18% drop in sales in April. Categories which experienced a substantial rebound in trade once restrictions started to ease are highlighted in the table below:

CategoryMay 2020June 2020
Clothing, footwear and personal accessory retailing129.2%20.5%
Cafes, restaurants and takeaway food services30.4%27.9%
Household goods retailing16.6%-3.25%
Department Stores44.4%-12.05%

These categories were the most adversely affected in April, however as restrictions eased throughout May, the figures show rises in every industry, but particularly strong rises in those that recorded low levels of trade in April. Conversely, those industries that outperformed in March and April, like supermarkets, had a more subdued performance.  Overall, the easing of restrictions has seen consumer spending on essential items remain resilient however, the discretionary retail sector is the major beneficiary in respect of month on month improvement.

At the state level, annual retail sales increased in all states: New South Wales (+1.0%), Victoria (+2.0%),  Queensland (+5.6%), South Australia (+2.9%), Western Australia (+4.9%), Tasmania (+5.8%), the Northern Territory (3.4%), and the Australian Capital Territory (+3.7%).

Source: ABS, Challenger Research

After the biggest monthly rebound in the survey’s history in May (17.7%), the Westpac-Melbourne Institute Index of Consumer Sentiment climbed another 6.3% this month to 93.7 and is now just 2.0% below the September 2019 to February 2020 pre-COVID average. The index has completely recovered the 21.5% March-April drop when the pandemic was at its peak. The improved confidence is reflective of Australia’s success in controlling the virus which has allowed easing of restrictions, with most food and non-essential retailers now open for business, albeit at a reduced capacity as some restrictions still remain. This being said, the index is unlikely to continue to achieve significant gains beyond pre-COVID levels given:

  • Pre-COVID, the index was already showing weakness, reporting more pessimistic versus optimistic results since January 2019;
  • Unemployment is likely to remain high in the short to medium term.

All components of the index recorded gains in June with the major drivers being time to buy a major household item and economic conditions in the next 12 months. Further, unemployment expectations decreased substantially (7.0%) and is now slightly below its long run average.

Overall the various components of the index suggest that consumers still have reservations about the economy, however expectation of the severity of the economic contraction is more benign than first thought. This in turn is having a positive impact on buyer sentiment and provides hope that consumer spending habits will start to return to normal.

What is evident, is that the pandemic has accelerated the structural shift to online retailing putting additional pressure on retailers without a strong online presence. A number of retailers reported a significant increase in their online sales. By way of example, Super Retail Group reported April and May, peak COVID-19 lockdown period, propelled online sales to 126% growth on the prior corresponding period, to represent 18.2% of total sales.

The NAB Online Retail Sales Index (NORSI) contracted 1.0% in May after a record breaking 16.4% increase in April. On an annual basis, the index is up 50.4%. The May data showed five of the eight categories recorded sales contraction led by games and toys, personal and recreational. Takeaway food, grocery and liquor, bucked the trend. On a year on year basis, all categories reported growth, with Takeaway Food, Games and Toys, Grocery & Liquor and Department Stores being the strongest performers.

On a state basis, Queensland was the only state to report growth for the month, while Victoria was flat. Western Australia reported the largest contraction in growth with Tasmania, ACT and Northern Territory close behind. All states reported double digit growth over the last 12 months, led by ACT and Victoria. NAB estimates that Australian consumers have spent around $34 billion over the 12 months to May 2020. This is equivalent to 10.3% of spending at traditional bricks and mortar retailers, as measured by the ABS in the 12 months to May 2020.

Vacancy rates increased across the board however, most notably in regional, sub-regional and CBD assets. CBD assets were most severely affected due to the absence of CBD workers and tourists (given international and some state borders were closed). To this end, Vicinity reported that at the height of lockdown in April, foot traffic plummeted by 50% and just 42% of stores were open. Other operators reported up to an 80% drop in footfall year on year during the peak of the lockdown measures. By late June however, after restrictions started being eased in May, regional and sub-regional shopping centres were reporting 75% to 95% of stores had re-opened and foot traffic had increased to 85% of levels reported at the same time last year.

Average shopping centre vacancy rates increased by 130bps (this figures excludes temporary closures) nationally and across sub-categories (ex-large format retail) over the 6 month to June 2020 to 5.2%, the highest since June 2000. At a national level:

  • Regional centre vacancy averaged 3.9%, almost 2.0% higher than in December 2019. This figure is more than double the 10 year average of 1.5%. Vacancy rates increased the most in South East Queensland and Sydney which rely heavily on international tourism. Regional vacancy rates also increased in Adelaide and Perth, albeit to a lesser extent. Vacancy rates for this sub-sector are highest in South East Queensland at 6.5% and lowest in Perth at approximately 2.0%.
  • Sub-regional centre vacancy rates increased by 1.0% in the 6 months to June 2020, to average 5.9%. This is almost double the 10 year average of 3.2%. Vacancy rates increased the most in South East Queensland and the least in Perth. Overall vacancy rates for sub-regional centres was highest in South East Queensland at 7.8% and lowest in Melbourne at 4.9%.
  • Neighbourhood centre vacancy averaged 5.6%, an increase of 1.2% over the past 6 months, which took the sub-categories vacancy rate above its 10 year average of 4.4%. Vacancy rates increased the most in South East Queensland and decreased in Canberra and Adelaide. Overall vacancy rates for neighbourhoods centres was highest in South East Queensland at just over 11.0% and lowest in Canberra at just under 2.0%.

Over the short to medium term, vacancy rates are likely to increase, particularly in regional and
sub-regional centres with department stores, discount department stores and multiple specialty retailers (particularly fashion retailers) intending to downsize their store network.

Supply increased 45,000sqm in the June 2020 quarter. The bulk of the new supply occurred in the
sub-regional space and to a lesser extent in the neighbourhood space. Currently under construction are approximately 570,000sqm of retail space with the largest proportion being in Neighbourhoods (260,000sqm) followed by Regionals (135,000sqm), Sub-regionals (75,000sqm) and CBDs (100,000sqm). In the wake of COVID-19, many projects were postponed or abandoned. With feasibilities now failing to meet hurdle rates (as a consequence of higher vacancies, higher incentives and lower market rents), supply is likely to be low in the short to medium term. Owners will now turn their focus to asset management and dealing with the handing back of space from specialty retailers, discount department stores and department stores.

Following a -1.4% decline in the March 2020 quarter (Pre-COVID), for the quarter ending June 2020, rents declined by -1.6% nationally. The softest performing category was CBD where rents contracted -2.5%; South-East QLD was the hardest hit accounting for most of this decline due to its heavy reliance on tourism. Regional and sub-regional rents declined in the order of 1.25%; again, South-East Queensland was the most affected albeit the impact was more evenly shared with the other states. Neighbourhood rents were mildly impacted having only declined -0.2% for the period. Interestingly, South-East QLD neighbourhoods rents outperformed every other city by remaining stable whereas they declined in every other market.

On a year on year basis, CBD centre rents declined the most (-3.75%), followed by Sub-regional centres (-3.50%), regionals (-2.5%) and neighbourhoods (-1.25%).

The major reasons for declining rents are deteriorating sales growth together with occupancy costs which have become unsustainable partly due to fixed annual increases typically ranging between 4.0% and 5.0%. This has translated into reduced demand and increased vacancy, hence landlords are reducing rents and increasing incentives in order to attract tenants. COVID-19 is expected to exacerbate this trend.

Rents in regional and sub-regional centres are expected to soften by up to -9.0% throughout 2020 and about -2.0% in 2021 before stabilising to a neutral setting in 2022 and 2023. Neighbourhood rents are forecast to soften by approximately -2.0% in 2020 before returning to minimal growth in 2022/2023. These forecasts may deteriorate once the impact of COVID-19 filters through the trading landscape and dependent on whether containments measures are re-imposed to contain outbreaks. 

Anecdotally, incentives have increased to between 20%-30%. Leasing incentives are expected to increase post-COVID19 as landlords compete heavily to retain existing tenants and entice new ones to avert excessive vacancies.

Prior to COVID-19, retail leasing condition were challenging and sentiment towards retail investments was relatively weak. COVID-19 has significantly worsened the situation with leasing heads of agreements falling over, major retailers closing stores and many tenant seeking rent abatement and
re-negotiated lease terms with landlords.  Shopping Centre Council of Australia revealed that 80% of all SMEs have requested rental assistance in the wake of the National Cabinet’s Code of Conduct, announced in April as part of measures to offset the economic impact of coronavirus.

While there is a lack of COVID-19 affected sales evidence to justify softening capitalisation and discount rates, valuations have been factoring in lower market rental growth rates, increased vacancy and abatement allowances which has consequently had a negative effect on investment metrics. 

As envisaged in the previous quarter, retail fundamentals softened more than in the office and industrial sectors, particularly in regional, sub-regional and CBD assets. Neighbourhood centres fared better given their non-discretionary focus. Accordingly, the impact on portfolio valuations is dependent on the mix of discretionary versus non-discretionary assets. Hence, landlords which have a greater exposure to non-discretionary/convenience based malls are likely to see the value of their retail portfolio fall by up to 5% whereas those whose portfolios are more focused on discretionary based retail (regional and sub-regional centres) will see falls of up to 15%. For example, for the six months ending June 2020, Charter Hall Retail REIT, which has a convenience focus, declined 2.4% in value. Vicinity centres on the other hand, which has more of a non-discretionary focus, reported an overall decline of 11.3%. However, across the sub-sectors, outlet centres were the least impacted declining 7.2% in value whereas regional centres declined by 15.6%.

1.3 Industrial

The industrial property sector is closely linked to GDP growth, employment levels and foreign trade.  As at June 2020, for the third straight quarter, ACT was the best performing state economy on a year on year basis. ACT now leads the nation by recording strong state final demand growth of 2.5%, followed by Western Australia at 1.3%. All other states recorded negative year on year growth with Queensland and Victoria at -0.40% and -0.45%, respectively, New South Wales at -1.04% and South Australia at -1.67%. Northern Territory is the weakest state at -3.99%.

Source: Deloitte Access Economics and Challenger Research

In contrast to the office and retail leasing market, demand for industrial space has benefited from COVID-19 restrictions which has generated a significant increase in online retailing with some retailers experiencing in excess of 100% sales growth on prior corresponding periods. For the June 2020 quarter market leasing activity was 900,000sqm of gross take-up, significantly above the 10-year average of circa 600,000sqm. The majority of leasing activity took place in Sydney and Melbourne which together accounted for almost 90% of take-up. Demand was driven by retail trade, transport, postal, warehousing and manufacturing.

Completions for the June quarter came in at 450,000sqm and was concentrated in
Sydney, Brisbane, and Melbourne accounting for ~90%. On a year on year basis, Sydney accounted for 35% of total supply (1.5 million square metres), followed by Melbourne and Brisbane which accounted for 30% and 18%, respectively. 

The national development pipeline for 2020 is expected to be in the order of 2.0 million square metres. This forecast doesn’t appear to have been materially impacted by COVID-19, notwithstanding some projects have been put on hold or mothballed.

Average national prime net face rents moved slightly higher (+0.5%) over the June quarter however growth was largely confined to pockets of the Sydney market led by Sydney North (2.0%) and Sydney Outer Central West (+1.0%).  On a year on year basis, average national prime net face rents grew 2.0% led by various pockets Sydney North/South, Inner West and Outer Central West, all of which achieved in excess of 3.0% growth. Northern Brisbane and Inner West/East Adelaide also achieved strong growth, in excess of 2.5%. 

Source: JLL REIS and Challenger Research

Year on year rental growth in the secondary markets was led by Brisbane and Adelaide, both of which reported 3.0% growth. This was followed by Melbourne and Sydney with year on year growth of 2.5% and 1.5%, respectively. Rental growth in Perth remained stable for the 12 months ending June 2020.

It is difficult at this juncture to accurately forecast the impact of COVID-19 and associated containment measures. However, it’s generally expected that SMEs will increasingly come under financial stress and hence this may increase vacancies, particularly in the face of upcoming supply, and consequently limit rental growth.

Average weighted prime national yields remained stable during the June 2020 quarter. The sharpest average yields are across the Sydney market (5.17%) followed by Melbourne (5.31%), Brisbane (5.96%), Perth (6.13%) and Adelaide (7.79%).  On a year on year basis, prime industrial yields compressed 35 basis points in Brisbane and Adelaide and 25 basis point in Sydney and Melbourne. Perth yields remained stable for the period. Secondary markets performed in a similar fashion albeit led by Adelaide where yields compressed by 30 basis points followed by Sydney and Brisbane which recorded yield compression of 25 basis points each. Melbourne and Perth Secondary yields remained stable.

Source: JLL REIS and Challenger Research

Industrial property thus far appears to be less affected by the fallout from COVID-19 in comparison to retail and office. While on the one hand international trade and supply chain issues have reduced demand for space, some facilities have excess stock that they can’t move and need increased storage space. There is also increased demand from food distribution, 3PL and pharmaceutical tenants not to mention a significant increase in online retailing, with some retailers experiencing in excess of 100% sales growth on prior corresponding periods.

In June, Australia Post reported that over the last eight weeks e-commerce had grown over 80% YOY. It also noted 200,000 completely new online shoppers since April. Similarly, eStore Logistics reported that year-on-year volume increased, in the triple figures on the back of COVID.

Notwithstanding the above, the sector is expected to be impacted by a general economic slowdown and weaker consumer spending. This will reduce the volume of goods being circulated, particularly for discretionary items, which will weigh on demand.

While there is limited COVID-19 affected sales evidence, the three key sales detailed in our transaction report, support the view that investment metrics for institutional grade industrial assets have remained steady throughout the crisis. Notwithstanding the above, the sector is expected to be impacted by a general economic slowdown and weaker consumer spending. This will reduce the volume of goods being circulated, particularly for discretionary items, which will weigh on demand. In the short to medium term, rents and yields in the prime industrial sector may come under pressure however, the impact may take longer to play out.

2. Real Estate Debt

2.1 Real Estate Loans

APRA data through the March 2020 quarter showed commercial property exposure limits for ADI’s continued to increase ending at $353.0b ($301.3b drawn), a 5% annual growth rate. The major banks market share is 77% (78% previous corresponding period).

The lending growth has been concentrated in the core sectors of Office, Retail and Industrial which each grew at a rate of 9% to 11%. This was partially offset by a 6% decline in lending to Residential and Land developments (now down 16% from mid-2016 peak). This was driven by the recent slowdown in new developments due to a lack of pre-sales.  As noted by the RBA it seems at least some of the pull back in ADI lending to developments has been offset by non-bank lenders.

The major banks have reduced their market share of total ADI exposure to Office and Retail and have maintained market share to Industrial.

The performance of ADI commercial real estate lending portfolios remains strong at March-20 with impairments at 0.2% of asset values, the lowest levels since March 2005, albeit this is expected to increase in APRA’s upcoming quarterly releases due to the impacts of COVID-19.

Even in this more stable part of the market, regulatory focus has had an impact. As the most recent APRA Insight paper on this topic shows, the proportion of riskier loans within the core real estate sector has also declined considerably as shown below.

Office, retail and industrial property investment:

Percentage of originations written outside benchmarks

Source: APRA Analysis, Originations written in the 12 months to March

Important notice
This material has been prepared by Challenger Investment Partners Limited (ABN 29 092 382 842, AFSL 234 678) (CIP Asset Management or CIPAM)*, for wholesale investors only.  It is general information only and is not intended to provide you with financial advice or take into account your objectives, financial situation or needs.  To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. Any projections are based on assumptions which we believe are reasonable, but are subject to change and should not be relied upon. Past performance is not a reliable indicator of future performance. Neither any particular rate of return nor capital invested are guaranteed. This document is not audited.
*CIP Asset Management (CIPAM) is our registered business name and pending trademark. Both are owned by Challenger Investment Partners Limited.