Property & Infrastructure Funds Unlisted Property Trusts 2021

So, your crystal ball isn't working right now either, huh?...

 

I am learning that the only crystal ball that works is the long view one. Short term outlook crystal balls don’t work.

Long term I am fairly confident commercial property will be worth more. So will equities, resi and pretty much every other asset class.

As long as you are an asset accumulator and not a trader, then keep buying and you will do well. Thats what my crystal ball is telling me.

 

Thanks so much for this - I'll do a bit of reading into GPT, as they sound like a much better option.

We just want to make sure that the real estate options that we are looking into are heading in the 'green' direction, as we think that is likely to start having a bigger impact on management requirements of these properties over the coming years. Plus, we're becoming more environmentally conscious ourselves - these decisions can't be solely about making money, they have to be ethically good, too.

 

Talking about Cap Rates, Centuria is pushing it although they may have their reasons.
Sydney warehouse sale on 3.6 per cent yield sets new benchmark for industrial property in Australia

Quote from AFR: " 60,000 square metre Sydney warehouse leased to Fantastic Furniture and logistics giant DB Schenker has set a new benchmark for institutional-grade industrial property in Australia after being acquired by Centuria Industrial REIT for $200.2 million on a yield of 3.6 per cent.The record low return – a reflection of the weight of capital seeking exposure to the asset class, where demand is being driven by the e-commerce boom "

I'm glad I bought into DIF4 instead of CIP, and I think this is one of the examples of what you mentioned - unlisted being more attractive than listed. Centuria I did get some of their unlisted Healthcare fund though, for some safe & stable tenants.

For office and retail, I'm actually seeing discounts to NAV on some listed REITs. That's probably a short term reflection of fear over lockdowns + some evergrande fear. Unlisted still has a small premium because of the stamp duty & acquisition costs which is unavoidable.

Ended up choosing 3 unlisted and 3 listed REITs out of about 10 options. The rest of my cash I'm going for Equities & ETFs to diversify just in case there's ever another GFC type funding issue with REIT gearing.

 

Yeah saw that. That’s insane. Though I am hearing that in the US industrials are trading in the low 3s now. So maybe not so crazy. This tells me that not many expect interest rates to go back to any where near what was normal only a while ago.

Even with the discounts to NAV the yield on offer in the listed retail space still doesn’t excite me. If I could get one of the A grade retail reits trading at a price that offers 7% yield then that would get me interested. I’m not seeing many of the high quality office reits trading at a discount.

Sounds like a solid plan. When I started close to 6 years ago now I was 75% unlisted property and 25% equities. Lucky for me the property trusts have had a decent run as that is way too heavy into any asset class other than equities. I’m now 50% equities and 50% sitting in unlisted property and mortgage syndicates. Over the next 12-24 months I will hopefully be 75% equities and 25% across the other 2.

 

Here's another example

Port Melbourne industrial asset sold on 3.6% yield $81.6m by Dawkins Occhiuto

Is this merely indicative of lower for longer or might we see negative rates.

I can't help but wonder how much values will soften when (if) interested rates eventually rise...... or is the new normal for this decade or more?

 

With everyone from governments to individuals carrying more debt than ever before, I can’t see how interest rates will ever be able to rise significantly. Sure we will eventually see a small increase in rates but nothing like yesteryears.

 

So looks like the AU DPF - AOF.AX merger is likely to proceed. I wouldn’t be happy as a holder of AU DPF…you get rolled into a REIT and pick up a big pile of additional office exposure. Not what you would have signed up for.

 

I would imagine investors would have been given an opportunity to redeem and exit the fund prior to the merger.

Its been a while since I looked at the assets the different AU property trusts hold but if anything their office fund looks to be a better mix of assets than the Diversified fund.

 

Ability to redeem is not the point, and that is TBA. You’ll crystallize CG obviously which for a core position is painful.

DPF is a much more interesting mix which now includes growing Defence related stuff, and pending development sites (local shopping centres). They’ve done very well over the years with this motley mix. AOF is just a bunch of buy-hold A&B office buildings, secondary capital CBDs and metro area otherwise.

This deal is in the interest of AOF (and Australian Unity in particular) as provides diversity and scale to that portfolio, they are hoping to close AOF NTA discount, which is now about 15%. If AU can’t close this gap they are in danger of losing management rights….reading the comms to DPF holders it’s pretty transparent what’s going on (not in a good way).

 

Fair enough. I would prefer to redeem and cop the capital gain hit rather than stay in a fund that I felt was moving in the wrong direction.

I was faced with that option when Heathley was going to list their medical fund. I opted to redeem prior to the fund being listed. Was not happy with how the fund was being run by the manager. Unfortunately they pulled the listing and instead heathley ended up selling out to centuria.

This is the thing with unlisted assets, you really need to have faith in the manager and most managers will take an opportunity that is in their best interest even if it might not be in the best interest of any individual investors.

 

Very true @Big A. This type of buggery really interrupts long term compounding of capital.

 

That's why moving forward all capital is being allocated into the 2 index funds VAS / VGS. No need to worry about bad decision making by fund managers or managers changing course.

 

Elanor has a new unlisted fund for a Warrawong property.
https://coreprop.com.au/Site/media/...-Warrawong-Plaza-Fund-Report_October-2021.pdf

Just skimming through so far the starting NTA seems a bit lower than others (lost 15% on day1), and the performance fee of 25% > 10% hurdle is a bit high.. it's not a "buy and hold" for them so I guess they want to earn more out of increasing the value once the changes are made.

Having said that, making changes to the property may increase risk, though this is not a first for Elanor.

The enticing thing is the distributions starting at 7% for 2 years, then 9.2%, 9.5%, 9.7% for the next 3 years. Capital gain is always better money after tax compared to distributions though, so the 25% performance fee is still quite painful.

Not sure about this one, when their listed funds are returning 8%, are liquid, and at their NTA, that seems like it could be the better option. Even so, I'll read up more on the detail later.. I'm curious because I know the area/property since I'm from the south coast originally.

 

Im on the south coast and not far from this centre. Been in there a few times but not very familiar with the centre. Seems to do alright but there are a few vacancies.

7% yield for retail and regional retail doesn’t excite me. The management fees are just silly. 2% acquisition fee which is common but then also a 1% capital raising fee. Haven’t seen that one before. Then a 25% performance fee. Too many fees not enough yield for my liking.
The 9% year 3 on yield is not guaranteed but on the assumption they can improve lease terms. Good luck with that.

 

Valuation of REIT assets can drop fast if market conditions turn bad as it happened around 10 yrs ago.
I'd suggest being very weary of LVRs

 

Thanks, yeah I agree. I don't have anything that costs this much, and the cheaper fund managers may end up performing just as well.. And hand over more of it at the end.

 

Yep, Warrawong is 50% which is only slightly high. 40% is better. Limiting REITs to a reasonable portion of net assets (eg 30%) mitigates alot of the downside risk of the black Swan events like GFC.