Property & Infrastructure Funds Unlisted Property Trusts 2020

This.

People barely do any work when they are in the office. Can you imagine how much less they will do between golfing and all the other things they will be doing instead of working.

The more things change the more things stay the same. Habits don’t change that easy. Being in business myself I am seeing how much less productive people are working from home. Less work and more distraction equaling less productivity.

I think office property trusts will be fine. Sure occupancy might change from time to time but that could be from the economic slow down rather than people working from home.

 

Finally found a good thread on Property Trusts! I thought Property Trusts fans did not exist

I'm relatively new to Property Trusts compared to the veterans here but intend to slowly tilt my asset allocations towards it over the next few yrs.

I have assessed most of the larger fund manager names mentioned here as well as smaller syndicates, but I only have put my money in Charterhall (CH) to date.

For those that are still deciding, here are some reasons I like CH over other managers. These are also the criterias I use to assess all managers.

• they are good prudent operators and have proven themselves during a crisis event like COVID. Eg, they were in early to refi upcoming debt across their portfolios at the beginning of this yr as COVID hit due to their experience following GFC. Another example is I own CQR which is the Retail Trust, which you would expect to perform poorly due to COVID. But because of their tenant makeup (anchor with supermarkets) and the type of properties they buy (local/regional hub shopping centres), they came out relatively OK with low amounts of rent deferrals / late payments.
• they are Big! CH is the biggest landlord in Aust and I feel uncomfortable with the quality and longevity of smaller fund managers. Add to that one of the reasons why I buy funds/trusts vs direct commercial holding is the ability to attract/retain/negotiate quality tenants. A larger manager with their army of lawyers has much better leverage to negotiate than the small guys.
• a few have highlighted that CH don't give returns that shoot the lights out. Yes there are other funds out there that can give you higher yields, but when you compare returns also bear in mind that CH has relatively low leverage (gearing in funds range 25-40%). Personally I prefer the fund to have low gearing and if I do feel so inclined to up the risk & return, I will gear outside the fund (ie, I will use borrowed funds to buy CH).
• also related to returns, though I imagine not unique to CH, is the tax implications. Due to some tax wizardry involving deferred / non-primary production income / depreciation that is above me, only a fraction of the distributions are classified as taxable. Eg, in 2018/19, the taxable component of the distributions from my holdings in CQR, CLW and PFA range from 24% - 41%. Again, how this is calculated and why it differs by fund/yr I have no idea and I never got a simple explanation from CH. But the net effect is increase in net yield.
• transparent communications. Eg some managers I struggle to even find a recent NTA to assess the price! Others I fail to find a performance update other than super high level numbers on a webpage. Coming from investing in shares and equity managers like Vanguard, I was frankly shocked at how little disclosure some of these funds provide. I prefer regular updates and a good breakdown of the financials so I know what's going on and can properly assess their performance. See also points below on listed vs unlisted re comms. Funds could cherry pick and show only the best performers, but a good manager should be happy to show you all their open/closed funds performance, warts and all.

In deciding between listed vs unlisted, I hold both with CH but I generally only buy listed when there's a bargain on price vs NTA (e.g during this yr's wild sharemarket swings). I care more about investment themes as opposed to whether its listed vs unlisted because I am buy & hold so am not concerned with liquidity.

However, listed funds by definition will always have more disclosure than unlisted. Eg listed fund CQR has the usual half yrly financial reports and investor presentations that you would expect of all large asx listed entities. Unlisted PFA gets only a brief mention in the unlisted funds qtrly updates and an annual financial report.

A further example of listed vs unlisted, if the DAT fund that @Big A mentioned above was listed, they would at least need to notify investors/ASX, and potentially require a vote, if they want to sell those assets.

Much longer of a post than I thought i would write, maybe CH can pay me a spokesperson fee

 

Has anyone reviewed Charterhall's WPS1 fund?

I have looked at a couple of similar wholesale / sophisticated investor funds but the returns they claim to provide are at most even to, but sometimes worse than the retail funds. They also have more restrictions compared to retail funds such as limited or no withdrawals until maturity. Sometimes they offer a few basis points off the fees and access to "higher quality assets" (that don't necessarily provide better returns ) but thats about the only positives I have found.

I generally fail to see the attractiveness of such wholesale/sophisticated investor funds. Am I missing something here?

 

Welcome to the property trust fan club.

 

I looked at it when it first became available but was not excited by what I saw. Its a mix of different CH funds between there retail funds which I already hold and part of there institutional wholesale funds which individuals do not have access to. The wholesale funds do have high quality assets but the yield is terribly low. For me it wasn’t worth the hair cut on the yield compared to the yield on offer with their retail funds.

 

Has anyone (Big A???) asked Charter Hall for a discount off the unit price on one of their unlisted funds for investing a large sum (maybe a wholesale amount circa 500k)? Just curious as I consider what to do with the proceeds of an investment property

 

Not going to happen. They offer a 2% discount when a new fund is open for the first xxx amount raised.
I have put over $500k in a number of there funds and no discount. And I have asked the question when I first started investing with them. They don’t appear to have a shortage of investors throwing money at them.

 

I figured no discount, but had to ask. Probably why CH can have multiple liquidity events each year.

 

@bookworm @Big A

Is this WPS1 ?

 

Yes sir. That would be the one. You considering it?

 

Yes mate, early days. Looks like a well diversified fund with high quality assets. I’m not interested in chasing high rental yield with lower quality assets / higher internal gearing.....as I would probably be using LOC against home equity provided I am happy with IR. Currently have no AU property exposure other than PPOR and market cap weight exposure in ASX300. Have considered doing small direct commercial in the future though don’t know if I can be arsed!

 

The market sets the acquisition price and therefore unlevered yield, returns on an asset can then be juiced with higher levels of debt and or value add over time. Starting yield imho is not a “no brainer” measure as higher initial yield signifies higher debt or lower asset quality - or both. So we are talking higher risk, or lower expected CG.

 

I think main thing with this product is

quality of the product
LVR is low (40%)??
Success/track record over at least 20 years?
Average WALE. 8-12 years

i still would like a minimum return of 7%

 

WPS1 is a bit of a weird one. When launched the IM said it could invest funds into DOF, PFA, and DIF4 which sort of defeats the point for most people with 250k to invest.

The fund is now invested in CPIF, which investors would like, but CPIF wasn't even mentioned in the IM. For those that don't know CPIF and CPOF have first right of refusal over industrial and office properties over $30m at Charter Hall respectively . ie retail funds like DIF4 have to fight for the rejects that CPIF does not want. That's why tenants in CPIF are the higher quality ones - Metcash, Woolies, Coles, Aldi, Coca-Cola, Arnotts whereas the highlights for DIF4 are lesser names like Inghams, Visy, Primo, Mainfreight. From what i can gather CPIF has outperformed DIF4 by 1%pa for the past 3 years (DIF4 has only been around for 3 and bit years)

I agree with "The Falcon" when he says yield is just a function of debt - if you want a higher yield, you can gear the investment up by borrowing yourself.

The big disadvantage of the fund when i looked at it when it came out was the set realization period. Unlike DOF, PFA, DIF4 which have rolling 5 year periods, WPS1 wants to shut up shop in Jan 2025 with the intention of returning capital by Jan 2028. IMO that 3 year period could be a period of underperformance as it fiddles around doing nothing. Or worse, it chucks the money into their Maxim fund and you get exposed to market volatility which unlisted property investors don't want. You can invest in the AMP Core Property Fund if you want a hybrid and at least you get monthly redemptions in that fund.

 

Valuable input, cheers. The last issue you raise is what I am struggling with. Initial period 2020-feb 2022...this is raising capital and deployment. Investment period 2022-2025...realisation 2025-2028. The windows feel short to me. The assumption is that capital will be returned on realisation, so you’ll get dribs and drabs over time. The other thing I struggle with, CH can direct this capital to whichever funds they choose...there has to be some agency risk here..from what I can see you pay CH a 20bps premium to deploy as they wish. I really do want to use some <3% debt for commercial property investment just working through which avenue makes sense.

 

Hi guys
I was looking at potentially putting more money in PFA. I had a look at the historical unit prices (can be downloaded from their website here: https://www.charterhall.com.au/docs...pfa-daily-unit-price.xlsx?sfvrsn=f0c95b74_500).

I can see the unit price is on a long trend average going up slightly but surely for a few years until Jan 2020, and since then going down on a regularly trend to now. Given it is an office fund with still a good number of years on the leases, I would not think the rent collected have been affected much by covid (or would be still affected), so any special reason in your opinion why the unit price has been going down throughout 2020? @Big A I believe you have a fair bit of it, have you talked to CH recently about this or have an idea?
Yann

 

I find it strange for a fund like PFA with a dozen properties to have its unit price changing on a weekly basis, I would assume their properties would be valued once or maybe twice a year only? So it seems val's are not the only input into their unit price, could the unit price be linked more to a weekly adjusted balance sheet, where val's would not change often in the non-current section, but the cash at bank, some financial positions and other bits and pieces that are considered current assets would drive these weekly unit prices?

 

An observation, in January it was hard to get a Sydney CBD lease incentive of 10% (this is based on 250m2 tenancy). 30% is now readily available. The current trajectory for office rents is down and should be reflected in valuation.

 

CH advise current distribution yield on WPS1 is 4.5%. Given rents and interest rates drive valuation in commercial, I’m trying to get my head around medium term prospects. My gut feel is that performance of the last 2015-2019 is not a good indicator. Keen for thoughts on this.