Property & Infrastructure Funds Unlisted Property Trusts 2022

By the way, UMAX and YMAX also do covered call strategies, in case you don't already know about them

 

Just having a quick glance at some things that might be interesting -
Free stock screener – Yahoo Finance - hopefully it will take you to the screen I set up.

Having a deep look at BT Panorama, thank you. Not really seeing unlisted trusts, but given they have WAY more options than we do with Unisuper, not sure it's needed. Digging into the options now, curious about fees on trades too.

 

Many other super funds have lots of options, but you seem to be forced to stay with Unisuper because of work? Before you jump into SMSF please talk to at least one person who has been running his own for a number of years to check the amount of admin and fees that this comes with.

 

We aren't forced to stay with them, just what my husband had when we met. About to have a few calls with professionals to work towards best decision. Yes, will do that, thank you

 

The unlisted charter hall funds are available on BT panorama. I can also see Centuria’s unlisted health fund. Fees on listed equities are high. Wouldn’t use BT panorama as a trader. More for a buy and hold investor sort of platform.

Yes outside super for me. Commercial and residential are different when it comes to tax advantages. Tax deferred income is a big feature in commercial.

Not familiar with the one you linked. I invest with Australian Unity. The select income fund. Mortgage syndicates are a messy asset class and can easily go pear shaped. I looked at a few players on this segment and Australian Unity is one of the few that I am comfortable dabbling in this asset class with. Australian Unity are a big player who work across multiple asset classes in the investment scope. They are reputable and less likely to play silly games compared to smaller niche players who only do private debt lending.

I’m sure I’m not teaching you anything new here but income can sometimes come at the cost of your capital going backwards. If that happens for long enough then the income will eventually follow your capital and go down.

Again you obviously have experience in this area which I have no idea about. If you have done it before then I don’t see why you can’t repeat it here.

This place is a great source of information and shared experiences. Keep asking questions and you will soon find what your looking for.

cheers

 

Thanks for the link of the FB group, I'll check it out at some stage.. I probably have too many things going on at once though! Now the interest rates rising has caused me to need alot more attention on the markets as well.

Yes the trusts I was talking about would be a family trust, technically called a "discretionary trust" in Australia.. though on the US-tax form they are called "complex trusts". To give you even more to think about, you can also have a company setup as a beneficiary, so that when you max out your tax brackets you can distribute the rest to the company for a 30% tax rate instead of 49% in personal names. Even more fun at tax return time

If you're still working then an investment property could make sense to reduce taxes, especially if you don't have much residential property it's good to diversify into a hard asset while the rest of the markets are volatile. Aussie property is extremely expensive at the moment, though pretty much all investment assets are thanks to the QE & low interest rates. Growth is likely to moderate or maybe even decline slightly but these things we can never predict so I just like to diversify and let things balance themselves out.

The scenario two if you put the equity into an unlisted property trust paying 6.5% (outside super) - yes you'd still be able to claim the interest from the home equity loan as a tax deduction. However being an income asset instead of a growth asset,the income is higher than the loan so you'd be making a positive geared net gain that difference would be taxable income. Not a bad thing to have income, it just doesn't reduce the tax on your salary.

The reason people on this forum went for residential property is because:
1. The leverage is alot larger, you can go for an 80% up to sometimes 95% loan (or 100% if you're a doctor) on residential. Commercial property trusts internal leverage is usually only 30-50%.
2. The capital growth was much higher on residential than on commercial historically (in Sydney that is), and the net income is negative once you account for all expenses including depreciation. That results in a tax deduction during the years you own a residential property, then a capital gain once sold which would have a 50% discount for a long term hold (as long as it's on a personal tax return i.e. trust or own name but not in a company).
I think it's a big unknown/risk to assume Sydney residential property would grow faster than commercial property right now though, given how inflated it is. The better investment decision may be to focus on the investment and not on the tax, and if you're using a trust you can still send the extra income to a lower taxed individual or company. Over a 10 year period of working and tax deductions residential is usually a great bet, over a shorter timeframe like under 5 years then you never know if you'll hit the next boom in that timeframe or not.

I'm glad I don't have to think about those retirement and multi-country/citizen tax issues, that must make it a much bigger job!

 

I'm involved with unlisted that has agreements.to.roll up over $500m of SDA property.into.a REIT in 2026. Estimated more than a $1Billion at listing. It targets 8 percent cash returns plus growth. REIT is expected to list at significantly higher cap rate so good exit. I think it's awesome opportunity but then I'm involved with it in multiple ways so I would.

 

It's been a bit quiet here lately so I thought I'd share my latest buy as well as some notes about results and the market. Disclosure: I own COF and I own one of their unlisted funds as well.

Centuria office trust (COF) is wallowing down at a bargain price of $2.10 today, a 39c discount from NTA.

Half Year Results from 3rd Feb:
-NTA is $2.49 per share
-Forecast FFO will be 18.3 cents per share, for a 16.6 dividend.
-That's a forecast 7.9% dividend (when using today's reduced price)
-Gearing is only 33% which is quite reasonable compared to some going 45%. If interest rates do rise, it will have less effect than on the highly leveraged REITs
-WALE is 4.3 years which is lower than we find on other assets like Industrial, but it could be a blessing in disguise if there are rent increases on renewals due to the increased construction costs and the lack of good assets combined with COVID recovery and immigration.

In the unlisted space a yield this good is very hard to find at the moment, and buying below NTA is pretty much impossible.
I can only assume that the 2022 general share market volatility around interest rate expectations that hit the market is responsible for the decline in some REITs as well.
If there's still any negative sentiment towards office space due to COVID & WFH my opinion is that it's unjustified. The latest data shows the recent COVID deaths are no worse than a bad flu season so I'm confident we're returning to normal soon.

They pay quarterly dividends, and usually the next ex-dividend date is end of march.

I've picked up another 10,000 shares today on top of some I purchased over the last few months at higher prices. It's not going to make me rich but I just want to put cash somewhere under value and earn some yield while the year ahead is going to be volatile. If it does get revalued at some stage to match the usual cap rates I'm hoping to see the share price move up again. No idea when though, it could be a long time in the future. Until then I'll just earn income.

Announcements and general information Centuria Office REIT
Their other stats such as NTA & yield are a bit delayed but the announcements are easy enough to read directly.

 

Off the record mail from a friend of a friend in one of the big Office operators is that they are very concerned for outlook for 2023+ particularly in B grade and below. Sydney CBD incentives seem to be running at 30-35% even 40% in gnarlier B stock compared to pre COVID you’d struggle to get more than 15%. Same face rent levels. Has to flow through to income impairment eventually if this keeps up. So the key is ensuring asset price is appropriately discounted to meet expected future income

I’m in the process of CBD B to A grade lease negotiations and I’ll share any useful info for those interested on office outlook

 

Thanks, this is very relevant to what I received today - an Information Memorandum for an office building in Pyrmont. Is being purchased at a price with below market rent, so the manager is targeting big rental increases after purchase.

The WALE is only 2.5 years, which would put some of these renewals in the period you mention.

Haven't fully read it yet but I'll do it carefully thanks for the info.

 

Got a meeting on Friday, if you want PM me details and I’ll talk to someone about the building and leasing assumptions.

The problem now is there is so much demand that promoters will put lipstick on any pig and flog it off (often trading between themselves) as their business is not really property investment, but charging fees to investors and getting free carry, and it’s been a great business over the last decade. Classic example of agency risk. Only the investors cop the downside, promoter doesn’t risk their capital and they get paid all the way down if it comes to that.

 

I don't mind saying here it is Elanor (since it was in The Australian paper anyway) - 19 Harris street Pyrmont.

I don't think I'll be proceeding, but probably shouldn't go into too much detail on the IM because there is a confidentiality clause on the email.

I can say they do tend to charge higher fees in general than other managers I have units with. It's also hard to justify buying in at a premium to NTA (due to acquisition costs) when there are listed options at big discounts. Plus I've got something else I want to use the money for I think..

Curious what you think about Elanors listed fund ECF? I have a holding and have been enjoying the income... They pay about 9% dividend yield but the gearing is now up to 54% which is very high, and not good if bad stuff starts happening next year.
I'm thinking of cutting it because I have better use of funds elsewhere.

Also have ERF which has lower gearing, but very hard to analyse because the dividends are all over the place, as well as the share buybacks they've done.

These are multi-property funds though so I understand it's going to be much harder to form an opinion.

 

you've hit the nail on the head -- why would you pay $1.10 for units in this unlisted fund that are valued at $1 when you could buy other listed funds, including ECF, valued at $1 for 90c (most of them trading at 10% discount to NTA)? Its basically a 20% difference. If this fund raises its proposed money, it will show there are plenty of gullible geese out there.

 

There's still some advantages to unlisted over the long term if it's a single asset trust, like no dilution and specific value add plans for capital gain. Also sometimes monthly distributions if you like more frequency. Also you can choose a trusted manager sometimes someone smaller.

But fees have to be reasonable especially upfront fees.
Agree at the moment listed looks like a better deal.

I'm not getting any more exposed though at the moment there's some data I'm getting from the US that's looking like 2022 could be a bad year.

I'm starting to sell covered calls now to create some return, on the assumption there won't be a massive run up in price this year. Also keeping some neutral/cash in case there are bigger bargains down the line.

 

Any thoughts on the latest Centuria Grenfell St offering? I have little background to Adelaide but it sounds like a central location? Not sure about leasing prospects as the property has a short WALE and some rental guarantees.

 

Don’t know all the details on the deal. Give us the numbers. Short wale and Adelaide. While I still like the long term prospect of the office market, we do face some short term head winds. To go into such a syndicate right now I would want a little extra yield premium to offset the downsides. 7.5% would be the minimum I would want if I was looking to allocate into it. Or else you might as well pick up COF. Strong yield, more diversification with a number of buildings in the fund and it’s listed. Unless you are getting rewarded with a higher yield why go single asset unlisted?

 

Question for the unlisted gurus.

Do banks take income from unlisted property trusts into consideration when assessing serviceability?

 

Yes. But not 100%. I believe they use 80% of investment income. Doing this right now for a new home loan. Broker did say they will calculate at 80% of investment income.

 

Thats pretty good.
So about the same as residential and a lot better than share dividends.