Property & Infrastructure Funds Unlisted Property Trusts 2022

I thought it’s same as share dividends. I just did mine and they took total investment income being a mix of reits, share dividends and mortgage syndicate income. They then used 80% of that income for serviceability calculations. They took the last 2 years figures.

 

I tend to agree. The metrics are:

1. 7% yield in FY22; 7.1% in FY23
2. 3.9 year WALE (including some rental guarantees)
3. 72% of gross income from SA govt or multinationals
4. $0.97 NTA for every $1.00 invested (no stamp duty on commercial real estate in SA)
5. LVR 45%

I'm concerned the IRR range in the independent research report is 6.4-9.0% only and notes "Investors should expect distributions to moderate as higher interest costs and rental abatements flow through in later years". The comment essentially underpins my view of the risk in this product - re-leasing risk and incentive payments as near term leases expire which will put pressure on distributions, particularly given the initial LVR leaves little headroom to debt fund incentives for new payments.

 

Sorry I took so long to reply. Had a good tax planning session, looks like we will pull equity out of our house (currently an investment but will move in in August) and invest in an unlisted property trust, via EG, which give 2 years deferred tax benefits (my husband will be retired after this period), and still have another $75k to invest. We just need to make sure get enough distributions to cover the investment loan, which we look set to do. Just need to figure out if I want to put that additional $75k in property or dividend-paying shares, for better liquidity.

 

What happens when an open fund closes itself to new investors?
Are current investors still able to top up the same fund?

 

We've been noticing that listed property is showing better prices/yield than unlisted now, thanks to the stock market declines affecting everything with some correlation.

Depends on the fund, some have regular pre-planned "liquidity events" (eg I've seen twice yearly) where you can get in or out but it's not guaranteed. Usually they have a cap like 5% of fund value or something similar.

Alot are just closed ended which are more likely to be single asset funds, if you want to invest more then you pick a different fund. Good for diversification anyway.

If it's a small manager you may be able to get them to ask around if anyone wants to exit early and sell to you or vice versa, but small funds don't always have accurate valuations until the sale so generally exiting early is a bad idea.

 

FYI haven't forgotten still working through this (been delayed for a couple of reasons). In coming weeks when I can I'll share effective gross rent being achieved on a new 4-5 year lease from Q3 2022 for Sydney CBD A grade vs existing rent levels and some more commentary. Some my find this of interest viz expectations going forward.

 

You guys moving the market with big orders & pumping the price on COF?

Today's price of $2.31 is looking a bit more expensive and about 10% higher, not sure if I'd continue buying.
Ex-dividend date is coming up end of this month for a quarterly div of 4.15c which still puts it over 7%.. but it's no longer the great discount that it was last month.

Keen to hear @The Falcon opinion on risks going forward for office

 

https://coreprop.com.au/Site/media/Files/Unlisted/Centennial-B2C-Partnership-Fund_March-2021_18.pdf

A development fund targetting IRR 12-14%
Seems quite low for that style of fund, though I've never done one of these before. Seen others pitched quite a bit more return and I assume different/higher risks to regular leasing funds.

I'm not looking at doing this one or any at the moment, but always keen to learn if anyone else is and wants to share.

 

Does anyone know what has happened to Charterhall CHC? Havent looked at it for awhile and today realised the share price has been going steadily south since beginning of this year and hasnt paid a dividend since Jun 2020.
I thought this fund was meant to reflect CH as a property manager (ie the fees they charge) + performance of properties/other CH funds they hold, both of which has been doing reasonably well during covid (and therefore should have distributions).

Hence I can't figure out why they havent paid dividends or what is the cause of its share price decline.

 

Price looks to have retraced back down to the pre covid crash and run up. Cant help you with why its been going down since the start of the year. Maybe its the looming interest rate rises.
Regarding dividends, it shows they paid out a dividend in February this year.

 

Someone forgot to update their website! CHC investor page says the last distribution was Jun2020 but commsec shows they have been regularly paying the twice a year dividends.

Alot of property related funds have fallen since beginning of year due to anticipated interest rate rise, but I thought it was odd that CHC seems to have fallen more than others.

And perhaps the cause for the fall is CHC is the exception...

Chart showing comparison of CHC share price vs. Centuria Industrial, Cromwell, Dexus, GPT.
CHC is the top teal coloured line. Since beginning of 2022, whilst its fallen alot more than its peers, its also just trending down closer to its peers performance.

Still the best performer of the bunch though (share price wise). But yield is so low at 2.7% even after recent price fall......more fall to come or good time to buy a quality stock?

 

...and today's price is $2.02. So I picked up some more.

 

I'm kind of giving up on property trusts (albeit listed ones).

Every time I think it is safe to go back they slump. I'm jinxed.

CLW seemed a solid choice but has been hammered just as badly as everyone else.

I'm sure the yield will hold up, but I'm tax loss harvesting my dabble.

 

Everything's slumped, property was just a bit slower to get there than others.

 

If you believe the yield will hold up then what’s changed? If you were happy with the yield when you bought it then it shouldn’t matter what the price is today. Have the quality of the assets in the fund changed?
Don’t let market sentiment drive your decision. Fundamentals should be your main consideration and have those changed since you purchased?

 

Fundamentals have changed... 10 year swap rate has gone from 1.54% on 30 June 2021, to 1.96% on 31 Dec 2021 to over 4.5% now. Just as it added as a tailwind on the way down, it will act as a drag on the way up:

Capitalisation rates: Unless they are expecting massive rent increases, capitalisation rates in the 3s and even 4s start to become untenable. As a rough guide, property cap rates have generally been 2-3% above the 10 year swap rate. What happens to valuations when we see cap rates go back to 5, 6, or 7%?

Debt: Any floating rate debt payments have already dramatically increased while fixed rate debt will be protected until it comes to refinance near their maturity. The more money devoted to inerset payments, the less distributions are ceterus parabis
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To the person above who asked about CHC share price....The CHC stock is not a pure "collect rent" stock. Most of its earnings come from collecting fees on its various satellite entities . The valuation for that side of things is quite generous in a bull market as fees, especially performance fees are volatilie, but they shrink in a bear market as markets think that earnings will shrink from slower growth etc.

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Back to the title of this thread unlisted property.....(please take discussions about shares, SMSF somewhere else or start a new thread!!!) I don't expect any valuation changes for 30 June as the rise in interest rates has been quite sudden and all valuations would have been done by now, however come the end of the year if the 10 year swap is still above 3 or 4% there might be some negative revaluations happening....

 

Centuria 348 Edward St fund recently reduced its distribution for FY23 due to interest rate increases (Did they really think 0% was going to last forever?). It went from 6.25% to 5.25% with a warning that future interest rate increase may affect the distribution further.

How likely is it that Charter Hall, particularly Direct PFA, moves to reduce the distribution right after the 5 year liquidity event ends?

 

Higher interest will affect dividends of anything that leveraged. I think that’s common knowledge.
Charter Hall fund tend to hold lower lvr in their funds, in the 30s. I’m sure they also have a good portion of that at fixed rates so it might not have a major impact short term. In the mean time as rents increase in the portfolio at a fixed rate or with CPI, that should hopefully offset part of the increased interest costs.
But generally higher interest rates are not good for property full stop.

 

I agree, higher interest rates are not good for property , but near 0% was unrealistic. If these funds didn't lock in fixed rates, then someone was asleep at the wheel.

What are your thoughts on PFA? I was thinking about exiting part of my portfolio, but I honestly don't know where to park it that would be significantly better/safer.

 

I would imagine both Charter Hall and Centuria would have been well aware of the rate increase that were coming. Both are experienced players and are not usually asleep at the wheel.

I hold a large position in PFA. It’s actually my largest single property trust. I’m exiting and not because I don’t like the fund but I need the capital for a new house build. If it wasn’t for that I would seriously need to consider what better alternative is there right now to put that capital into.
The office segment is not as desirable as it was a few years ago but neither is it a terrible asset class. At the moment not much is looking hot. Everything has become a little more volatile / risky than it was a few months ago.
I would still rather hold PFA over cash. Long term I still think it’s a solid fund. If I have non tax deductible debt which I do right now I would cash out and sit it against it.