Property & Infrastructure Funds Unlisted Property Trusts 2020

{Note from mods - this thread continues from here: Unlisted Property Trusts 2019 [Property & Infrastructure Funds]}




The Charter Hall 31 December 2019 prices have now been fully updated for their revaluations:

DOF: 1.4836 to 1.5537 (up 4.72%)
PFA: 1.0628 to 1.0953 (up 3.06%)
DIF4: 1.0886 to 1.1210 (up 2.98%)
DSCF: 1.0087 to 1.0528 (up 4.37%)

 

Hi

Just thought I would weigh in here also, provide some hopefully helpful information as well as personal experience.

By way of background, I have/am invested in:

• Centuria - 8 Central Ave (amazing, over double), Zenith (amazing, over double in around 2 years), 2 Wentworth (amazing, 2.5x in 5 years, pay out in Feb), 203 pacific (currently up 50%), ATP (currently up 88%, with significant upside based on latest december quarterly), scarborough house (treading water, underwhelming), 348 edward (new investment, brisbane office looks promising based on development and spreads compared to VIC/NSW), Centuria Diversified (slow and steady, but has a large AREIT exposure I am not particularly excited about) - prefer to choose between listed and unlisted.
• Charter Hall - exited WZ (was a bad investment, down I believe 10%), exited VA (+~25% cap growth I recall), DIF1, DIF3 (still in, cap growth up around 25%, not amazing), DIF4 (new investment), DOF (been in for a very long time, has been a good investment).

All in all, I have been nothing but delighted with my investments in Centuria and it has helped my wealth goals significantly having invested with them for over 5 years. Charter Hall is good, but in my view not as nimble and opportunistic as Centuria. Charter Hall is where I would park some lazy capital with decent yields, knowing that they will be around for a while and I am going to get a decent core-style return - certainly based on my current investment and experiences.

With regard to DOF vs PFA, this is what the CH rep replied when I asked the key differences:

• DOF focuses on CBD or established office markets with an emphasis on the east coast, anchored by high profile or well-regarded tenants;
• PFA targets established or emerging office markets, focusing on properties anchored by government or well-regarded corporate tenants. Currently, 56% of PFA’s net passing income is secured by Australian state and federal government tenants.

This is consistent with what has been posted above.

With regard to DIF4, I decided to place an allocation due to the level of diversification, plus a decent slice of their wholesale core logistics portfolio. I am a big believer in the e-commerce theme. Here is some info from their rep, which isn't on their website:

In terms of regional exposure, the properties are weighted around Australia as follows:

• 71% of allocation to strong Eastern Seaboard industrial market:

• 1% QLD
• 48% NSW
• 22% VIC

• 1% TAS
• 10% SA
• 18% WA

Core Logistics Partnership (CLP)


DIF4 also has an investment in a managed wholesale investment partnership – Core Logistics Partnership Trust. The portfolio consists of 33 properties and is diversified across New South Wales, Victoria, Queensland, South Australia, Tasmania and Western Australia. Please see the following graphic which contains some further information:


Also, I was uncomfortable with the track record of Heathley and some of the information in their PDS.
I was also not comfortable with the buy spread, something like 20% on the way in, so the NTA is less 20% your buy in price from my understanding. I expect 5-10% discount to NTA tops, when you factor in stamp duty etc.
I also did not like their 'poison pill' provision, where they are entitled a fee if they are replaced as the RE. This is not the case with the other Centuria stuff, who have been very forward with removing these anti-investor type of clauses.
I also found their rep to be pretty rude and non commital when following up with my queries. I like to perform reasonable due diligence when I place relatively significant capital with these managers.

Finally, not sure if you guys/girls have had exposure, but I have dabbled with US based multi-family investments - it isn't an asset class you can seem to access in AU.

There are plenty of offerings. I think the most legit are on crowdstreet.com.

Without saying that yield is the only factor, the yields on offer in the USA are quite compelling.

Hope this is helpful.

 

A decent read:
Future of offices: Australia, the global capital magnet

 

Hi @bookworm , thank you for sharing your thoughts and experiences.
Yes Centuria seems to have had some strong performing funds. Unfortunetly a few of the ones you mentioned came before I entered the world of property trusts. I am in ATP which is my best performer to date. I unfortunately passed on Zenith when that came up. There were a few things at the time that made me uncomfortable with the offering. I also went into 348 Edward st late last year.

I agree that some of the charter hall funds probably wont shoot the lights out like a number of centuria funds have, But I feel charter hall are a safer play offering decent yield with less risk.

Heathley didn't charge me a buy in spread when I went in. But regardless I am extremely disappointed with there performance to date. The only upside I see with them is that Centuria has now taken over them and hopefully they will have a positive influence over the heathley funds.

Are there any other property managers you are invested with? I have holdings in a number of trusts with Fortius. They have one opening up next week for an asset in Adelaide that I have signed up for. Adelaide is not normally a market that gets my attention but its a CBD office asset that they are getting with a strong initial yield. Asset is run down and has some vacancy. So if they manage it right it has potential for a significant uplift in value. They were oversubscribed on this offering in under 24 hours of putting out the expression of interest.

The only other manager I have 1 single holding with is Sentinel. Most of there offerings are a little to much risk for my liking but I got into there Cairns DFO trust 4 years ago now. I think its going well but I couldn't really tell you much because they have barely communicated with investors about the asset since buying it. I actually called them recently and said can I please get some info on how the asset is performing and why the distribution has not increased at all since commencement. Considering that they provided a very ambitious distribution forecast for the first 3 years of the fund, they have not delivered on this forecast or advised investors on why. So I called and asked them what happened to the forecasted increases in distributions and just for a general update. They said that the asset is performing very well and the reason the distribution has not increased is due to the additional capital work they have done to improve the site which they believe has increased its value significantly.

My response was that's great. I have no issue with them re directing some of that income to improve the asset and increase its value. But should this not be shared with investors. Should they not be giving us regular updates on the assets value and how the distributions they have not handed to investors are now captured in the NTA increase. Still couldn't tell you what the current NTA is. They don't report this to investors.

Lesson from all this is I will no longer invest with such a manager. Regardless of how well there funds perform. The lack of communication with there investors speaks volumes about a manager.

Anyway rant over.

 

Hey @Big A, cairns dfo is right near the gym I go to and I probably drop in once every month or two, so I can give you my observational opinion. There’s always been about a 15-20% vacancy rate and that has not improved over the last 3 years. Then I would say turnover is very high for about 25% of the shops. New one opens and close very quickly. It just doesn’t get the traffic of a normal shopping centre. It’s very different to say the Brisbane dfo offering which is the only other one I’ve been to.

So, I’m not surprised when you said there had been no distribution growth given the lack of improvement in the vacancy rate and patronage.

Also I can’t see what the significant capex spend has been on. I can see they spent a little on a forecourt area with plans to expand into an outdoor DFood concept with food trucks but that hasn’t actually progressed into a permanent thing. I think they do something once a month on Friday nights but I’m yet to see it utilized during normal shopping hours. I would try and get more details on exactly what improvements they have made to increase the asset value as I can’t see it from a consumers perspective but hey, I might be missing something.

Sorry if I’ve given some negative news but thought you might want to hear from a local if you aren’t getting much info from them. Maybe this gives you something to put to them to try and get further insight.

 

Thank you @Greedo . Appreciate the info. Well that explains the lack of updates to investors and when I did contact them and ask they were very vague.

Improvements they mentioned were along the lines of a repositioning of the food outlet offerings and this new dfood are they had established. New signage and other cosmetic updates. They added solar to the site. Increased foot traffic and renewed leases / added some new tenants. They forgot to mention the ongoing vacancies.

Look the yield is not terrible. It’s been 7% since start 4 years ago. But There forecast was something like 13% by year 3.

Luckily it’s on the smaller side of my normal property trust holdings and I am not in any of there other funds.

 

I guess you don't shop at Woolworths, Coles or Bunnings.

 

Reminds me of the examples Thornhill has used in why productive enterprise have little interest in owning the property that houses them.

 

Correct. Business don't operate in vacuum. Their products and services can easily be checked if that is important to you before making an investment.

Cheers
Oracle

 

So youre doing better than 24%* then. Good going there.

* return on funds employed.

 

I liked Zenith because it had a low WALE (2 years), I believe ~10-20% vacancy, apparently sub-optimal use of floor plates and there was an opportunity to split the title into two towers for separate sale (which did not eventuate). I am also always in the Chatswood area , so I know it well. It suited my risk profile at the time. This is the same reason why I invested in the Edward St one, I think there is good opportunity to extend leases, optimise the building, reduce vacancy and revalue. My understanding is that commercial is very much cap rate, wale driven as opposed to resi which may have a high element of emotion.

I share your view on Charter Hall - slow and steady and not a fly by night outfit.

Perhaps Heathley didn't have that horrendous spread, but if you look at the PDS, you will see 20% buy spread, which is unacceptable for me. Nonetheless, I hope they offer a product more in line with Centuria pedigree.

Thank you for your comments regarding Sentinel and Fortius. I have not heard of Fortius, but I have heard of Sentinel. I found their website extremely difficult to navigate, to the point I wasn't sure if their funds were open or closed. I also had a sense their product was a lot more speccy and high yield, in secondary locations. They seem to have a decent track record, but something didn't sit right with me regarding the liquidity of some of their locations on exit. The poor/lack of communication is also concerning.

I am interested in hearing more about your Fortius experience. I also understand that there are some positive commercial developments in adelaide, with regard to stamp duty and some promising support for startup businesses etc.

In terms of other AU property managers I have/am invested in:
- Cromwell (Diversified)
- Australian Unity (Healthcare)

I tend to just stick with the ones I have comfort and trust in.

 

Well I am glad we have another Property trust enthusiast with us. @The Y-man and I were getting outnumbered by the LIC groupies on here.

I like how you saw the short wale as a oppourtunity with Zenith. I see what your saying, but with my risk averse perspective I see that as a risk. The key issue for me with Zenith was a condition they had from the lender. Something I had not seen before and concerned me as at the time interest rates were expected to move up next and not down. The LVR allowed under the loan was not fixed. They had something along the lines of that the LVR covenants would be reduced after year 2 of the loan. This combined with the fact they had planned capital works which would increase the borrowing had me thinking they could get very close to the max LVR covenants.

As they were raising a significant amount of capital for that syndicate I think it took them a little longer than usual. They actually called me and asked if I was interested in going in to the fund. I raised my concern on the borrowing terms as the reason I held back. They acknowledged that this was not a standard term they normally come across but were comfortable with it on this asset. Obviously that was a missed opportunity as Zenith absolutely shot the lights out.

The heathley fee think I remember actually reading something along the lines of what you are saying. But for some reason they haven't been charging the fee. I will take a guess why. They have struggled to raise capital for there funds without charging a buy spread so imagine if they charged some ridicules buy spread like 20%. No Chance. Again I really hope centuria take the heathley funds by the horns and turn them around.

You mention Australian unity healthcare fund. That fund is actually the reason I went into the heathley medical fund. I really liked the AU fund but the yield at the time was low compared to other offers. But looking back now and after a few years experience and learning I should have went with the AU offering instead. The yield being offered back then would look fairly attractive today. But anyway you live and you learn.

Not a fan of the other open AU funds. I did have a significant holding with AU in there select income fund. They are pretty much separate contributory mortgage funds. I am a fan of this investment class but would not invest in it with just any manager. AU in this asset class I like.

Fortius is one I found just researching online on unlisted property trusts. I went to there office in Sydney and met with them as I have done with every property manager except for centuria which I have only communicated with via phone. I liked what they had to say and there track record. A bit of a smaller player but I have since built a good relationship with there investment relationship manager and can call her at anytime for updates / info. I am in 5 different funds of theirs and will be going into number 6 that's about to open up with the office building in Adelaide. Though Fortius is not open to retail investors. Wholesale only.

I probably should not be going into anymore property trusts. I am way overweight in property trusts but I cant help it. I really like the asset class. It just makes sense to me and I love the fact that I can see the results with a great flow of regular income. I have warmed up to equities and am slowly building that part of the portfolio because its the smart thing to do. As much as I like property trusts I don't think its wise to be 100% in. I am aiming for 50 / 50 property trusts / equities.

 

Excuse my ignorance. How does the risk / return differ between something like VAP or DJRE and the unlisted property trusts mentioned?

 

Let me have a crack at this.

Lets start with yield. Today for a decent unlisted property trust you should still be able to get a yield in the 6's. I am talking Aus here. Not familiar with the international Reit market.
VAP with the mix of listed reits and how low most listed yield I would say will get you under 5% yield. So less yield.

On the risk side. The positive is the most listed have lower gearing than unlisted. something like 35% compared to 50%. Though some unlisted have lower gearing than 50%.
Then there is the liquidity option with listed.

The downside I see with listed index reits is you get the good ones mixed in with the dogs. While I am accepting of that with a normal index such as ASX300 its not something I would touch in property. There are some property trusts I would just not touch. And that's in both the listed and unlisted side. Low quality assets, low yields and to much risk for my liking. I prefer to analyse each trust individually and make a decision on its merits. I believe it is much easier to analyse property trust and evaluate it then it is for general shares. Property is much simpler in my eyes.
Asset type, location , tenants , WALE , passing yield , gearing and managers past record / experiences. Those are pretty much the key areas you want to asses with property.