Property & Infrastructure Funds Unlisted Property Trusts

Hi mate,

starting to look at pds and getting my head around the fee structure, is this pretty common ?

- management and expenses of 0.7% of gross asset value (inclusive of debt), so say 1.27% at 45% LVR.
- performance fee , 15% of performance achieved over hurdle rate 10% IRR
- acquisition and disposal fees, 1.5% gross asset value in/out, so say 0.6% pa total based on 5 year asset holding period.

 

The fee structure above seems about right. Actually a lot of funds charge a 2% of asset purchase price / sale price fee. So the fees you mention are reasonable. I would look at the funds borrowing costs. The big players are borrowing in the high 3% range or very low 4% range. How long is there loan term? Most funds now have a 5 year operating term with a option to extend up to 7 years if voted by unit holders. After 7 years they must give you an out if you request. Open trusts that continue to purchase assets over the term have the benifit of being diversified over many assets, but at the same time you rely on the manager to continue buying quality assets which is not always the case. Any particular funds you looking at the moment?
There isn’t many attractive options around at the moment. I only recently went into charter halls Direct industrial fund 4. That opened about 2 years ago and I originally decided not to go in. But with industrial being the next big thing I decided I would go in now. I’m alreadying holding direct industrial fund 3 with charter hall.
I also topped up further in Charter halls PFA which is a office fund. In the current market the options with funds that pay a 7% plus distribution and hold quality assets is hard to find. I also recently purchased some shares on market in CMA which is centuria’s metro office fund. The sp is slightly down at the moment and for a listed fund a 7.5% distribution is very good.

 

@Big Al thanks, found that for Charter Hall's DOF online. Not looking at any particular fund, just a pds I found. Interest rates were also something I was looking for, it stands to reason that wholesale funding would be significantly cheaper. Those levels were based from what I can ascertain on "retail" investment type, any idea on the lay of the land with regards to wholesale / sophisticated class? I'd hope for a bit of a fee trim.

 

I actually have a decent holding in DOF. Though the current unit price makes the distribution of 5.8% low. But the assests are all A grade office buildings in prime location Sydney cbd / melb cbd. I went in at $1.14 a unit the topped up again at $1.17 a unit. It’s now $1.43. I’m getting very close to 7% distribution at my purchase price close to 3 years ago now.
I don’t think funds targeted at wholesale investors offer a better fee structure. Sentinel don’t do retail and if I remember fortius also are only wholesale. Look at fortius. I don’t think they have anything open at the Moment but I have gone into there last 4 funds. The most recent being the barracks in QLD. Doesn’t settle till end of jan but it’s a building with retail on ground and office above in Brisbane cbd. Starting distribution of 7.75%, 5.3 year wale with 67% tax deferred distribution s in year 1. Something I also look for is a high tax deferred portion of distribution.

 

Yeah the office market has definitely had a strong run. Charters halls PFA fund is currently offering a 6.9% distribution but the location of the office assets are not as high grade as DOF. I went into PFA when it opened about 12 months ago so the distribution I get for that is 7.2%. I did top up and purchase some more units two weeks ago at $1.05 a unit.
CMA with centuria is similar to charter halls PFA asset wise but at the current SP the distribution is 7.5% which is strong for a listed fund. I picked up some shares in that recently and if the price drops any further I would pick up more.

 

There you go. Something I didn't think off or understand. That's why I don't trade much with the listed stuff. I leave the purchasing of equities to the fund managers who can pick it all apart. .
As long as they ( CMA ) keep paying me a nice distribution each quarter I'm happy to live with the limited liquidity. I like regular cash flow coming in.

 

Compared to some Unlisted Property Funds especially in tough times CMA might appear quite liquid. Then again if I did invest in listed property it would be for long term income rather than trading.

I haven’t owned Unlisted property for decades. But when young and stupid during the 87 Crash I panicked and sold some of our Unlisted equity funds at a loss. The Unlisted property trusts we owned froze redemptions so I couldn’t redeem our units. Turned out to be the best thing. By the time the freeze on redemptions was lifted we were well into the black again and I had stopped panicking so very good outcome overall.

For weak hands I can’t help but think that illiquidity can be the best thing to protect them from themselves at times!

 

Big Al you give those fundies too much credit

 

LOL. If the guys at the likes of Macquarie and Magellan don't know what they are doing then we are all in trouble. I like to think that with teams of experts if they cant get it right then I have no hope.

Nodrog,
Hallelujah, finally some one that understands / recognises the benefits of unlisted. Most people tell me to steer clear because of the fact you are locked in. I see that as a positive as long as your dealing with a reputable manager. Last thing you want is everyone jumping overboard during a storm and along the way sinking the whole ship. Let the fund manager steer the ship in times of turmoil. If you trust them to be a passenger on there ship during the good times you should trust them and stay on that ship during the bad. The bad times is when you need there expertise the most.

 

Hi @Big Al.

If one takes a view that like equities property is a long term investment and the investor is sensible enough to maintain their own liquidity through cash buffers / offsets etc there’s generally no reason for them to be needing access to the Unlisted property capital simply because the market has tanked. This is typically just panic in action but also one of the greatest wealth destroyers that exists.

So in these circumstances as upsetting as a freeze on redemptions might seem at the time investors are likely to be very thankful for the illiquidity as things settle down. I know I was at the time. During the 87 Crash I turned the equity funds losses into permanent ones from selling out of fear but the Unlisted property trusts which I couldn’t sell not only recovered but the profits covered the equity losses.

 

Very wise words. Could not agree more.

 

He he. Not sure if I’m wise? Ironically I no longer hold any property other than our home. Laziness, limited analytical ability (due to too much beer I think) and desire for a low stress life keeps me away from direct and Unlisted property. The only property other than our home we hold now is the constituents of the listed cap weighted equity ETFs and index proxy LICs.

 

Funny thing is just over 3 years ago I was only invested in residential property. The idea of investing in shares or anything else was not something I thought I would ever go into. Then I had a bad experience when a tenant in one of our properties tried to sue when they felll over a boundary wall which I believe they knocked over. That really turned me off IP and I sold the lot.
I then had a family friend tell me about property trusts. After doing some home work I know have a good size of my portfolio in property trusts. And my financial adviser even convinced me to even put some capital into shares which I never dreamt I ever would.
I now hold only 1 IP which I picked up just over 12 months ago. And so far it’s been a pain with tenants vacacating at the end of every 6 month lease. Every now and then I think to myself I wouldnt mind going back to holding a few more IP. But with the hassle free returns on offer in the property trusts I can’t see the merit in sticking large amounts of capital in residential property with the paltry returns on offer.
With what a good quality property trust has to offer with regards to hassle free returns of 7% plus growth how does one decide they would rather stick there capital in a residential investment property?
What’s the counter argument for resi IP over commercial property trusts?

 

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NODROG
`Australian Super has access to unlisted property deals individual investors can only dream of. They offer their Property Fund option separate which if held till retirement (pension mode) will be CGT free hence the lowered cost base as a result of the deferred income component isn’t an issue like in a Company structure. There’s no doubt some listed stuff in the fund also but I doubt that would be a deal breaker. It seems like a lot less hassle and work compared to trying to research this stuff yourself? Would perhaps be a great compliment to your Aus and International with them?`


Agree!
Hostplus also offer a Property Option with a return of 10.5% for the year ending Nov 30th.
They also offer options from Industry Super (12%) and Lendlease (14%) as well as an IFM Infrastructure Option at 15%. Returns from previous returns have also been very good.

Even if returns don't continue at these rates it sure beats shares at the moment.

 

Hi @Gormy, yes aware of that thanks. I mentioned something similar earlier in this thread and have suggested same to others elsewhere at times. However we have a SMSF so I don’t want to double up on fees by having part of our Super in an Industry Fund as well as our SMSF. If I wanted property in the SMSF it would simply be through owning a REIT Index fund preferably Global REITs. Valuations are quite stretched at the moment.

 

I'm currently invested with Quintessential (www.quintessential.com.au) and have used their individual property syndicates in the past. The fee structure is high, but they have a model of buying dilapidated buildings and refreshing them. My experience to date has been positive. That said, my listed office exposures have done pretty well too, DXS with 15.5% compound growth over 10 years, and GOZ at 17.1%. Admittedly, 10 years ago was in the GFC and a pretty low base!

 

So let me pose the question then. In the current climate if you had capital to invest today would you put it in residential property, commercial property trust ( listed or unlisted ) or equities?

Up until the recent sharemarket melt down I would have said property trusts. But I’m thinking with the current stock market declines it might be a good idea to start topping up equities holdings in the new year.