FMOTY 2023: Spotlight on Unlisted Assets
With the Fund Manager of the Year Awards just around the corner, Money Management spoke with the finalists nominated for Unlisted Real Estate Fund of the Year.
The three finalists in the category are:
- Australian Unity Healthcare Property Trust — Wholesale Units
- Centuria Diversified Property Fund
- Charter Hall Direct Industrial Fund No.4
Click here to view the full list of finalists.
Relying on strong sector fundamentals while prepping for continued variation in the performance of sectors in unlisted property sector over the next 12 months, these funds have outlined what made them stand out from their peers.
Australian Unity’s Healthcare Property Trust came with an over two-decade track record of delivering consistent income with the potential for capital growth. It started in 1999 with a $70 million portfolio of four private hospitals and today, its portfolio includes some 101 healthcare-related properties with assets under management approaching $4 billion.
“The Trust’s wholesale units total return for the year to 30 April 2023 was 4.94 per cent, its two-year return was 15.56 per cent, its three-year return was 18.65 per cent, and its five-year return was 14.57 per cent,” Chris Smith, general manager, healthcare property at Australian Unity told Money Management.
“Speaking for healthcare property, its advantage in this point in the cycle is that demand for the services provided in hospitals, medical centres, and aged care for example, are not affected by economic drivers like demand in the office or retail sectors are.
“Secondly, the lease terms with tenants in healthcare properties tend to be longer than they are in other traditional commercial property sectors. Hospital operators, for example, invest significantly in fitting out hospitals in line with the services provided, and unlike office or industrial tenants, the lease terms are longer, in some cases up to 30 years.”
Historically, healthcare assets had exhibited resilience when economic growth slowed, he noted.
Meanwhile, Steven Bennett, chief executive of the direct property business within Charter Hall, shared that its Charter Hall Direct Industrial Fund No.4 (DIF4) benefited from a diversified portfolio where over 50 assets provide exposure to different geographic areas within Australia and the fund has a diverse tenant base.
“[The fund] has not only produced strong total returns for investors over the year to 31 March 2023 (7.1 per cent versus the benchmark return of 4.2 per cent), but it has grown over the same period to $3.5 billion (versus 31 March 2022 portfolio value of $2.6 billion), given the strong investor demand for the asset class,” he said.
As at 31 March 2023, the fund’s $3.5 billion industrial and logistics portfolio was 100 per cent occupied with a weighted average lease expiry (WALE) of 10.3 years. Some of its major tenants include the Australian government, Bunnings, Kmart, Woolworths, and Coles.
Looking ahead, he said the fund would continue to focus on fundamentals such as record-low vacancy, rental growth, land supply challenges, growth of the Australian e-commerce market; and future industrial space needs.
Centuria portfolio manager, Doug Hoskins, said its Diversified Property Fund had evolved to responded to shifting market dynamics, such as introducing six new direct property assets; broadening the fund’s mandate to include the industrial asset class (representing 18.3 per cent of portfolio) and social infrastructure asset class (representing 7.4 per cent of portfolio); and a financial year 2023 focus on additional sustainability upgrades like solar or energy efficiency.
Since inception, the fund had delivered total returns for investors at 10.78 per cent as at 31 March 2023.
“The performance of unlisted property investments is dependent on the real estate sectors they are exposed to. As an asset class unlisted property, returns are driven by both income returns and property valuations,” he told Money Management.
“While there are potential headwinds in valuations, investors should also look at the [funds’] ability to generate a strong rental profile (income). A strong rental profile for an asset will also be factored into determining a property’s value, which is critical in the current cycle.
“We believe a minimum five-year period for an unlisted property investment is most ideal, especially considering the backdrop of wider macro-economic implications such as inflation and interest rates.”
Winners of the 2023 Fund Manager of the Year Awards will be announced on Thursday, 22 June 2023 at a black-tie gala awards ceremony at The Star in Sydney.
Click here to buy tickets to the awards ceremony.
AUTHOR
Rhea Nath
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