The impact of structural changes to the Australian economy and sluggish economic conditions has continued to flow through to commercial real estate markets. The economy failing to fire, despite repeated interest rate cuts, has been challenging for tenants. Although tenant demand remains generally weak, local buyers remain active, driven by historically cheap debt and yield spreads remaining elevated. Australian yields continue to be attractive to many other developed global real estate markets, buoying demand. As always, those managers with strong investment discipline, robust portfolios and appropriate capital structures continue to be rewarded. However, the sector remains littered with those for whom over-exuberance pre-2008 continues to weigh heavy. Managers with strongly active management skills matched with astute asset selection continue to perform well, generating solid, low-volatility returns for which this asset class is favoured.
Winner: Australian Unity Investments (healthcare and retirement funds)
Zenith says: Australian Unity Property’s (AUP’s) healthcare and retirement funds team boasts a significant depth of experience in this specialist real estate niche. The team’s expertise in the asset class is married to conservative and robust risk management practices which go in tandem with its deep real estate skill set. Close ties with Australian Unity’s core business (as a mutual organisation) in relation to healthcare and retirement services gives the team key insights and synergies to this sector of AUP’s real estate operations. AUP’s wider property team also provides significant breadth and depth across several real estate asset classes operating under a common framework, which allows for easy crossover in human resources if required. In addition to the abilities of the property division, AUP are part of a diversified financial services organisation across multiple asset classes, which adds a depth of rigour to the funds management operations rarely seen in other pure direct property funds organisations.
Interview:
Direct property is one of three new award categories introduced this year, alongside infrastructure and exchange-traded funds. The inclusion of these categories reflects the growing importance of each sector and the increased level of interest among financial advisers.
Australian Unity general manager of property, mortgages and banking, Mark Pratt, says direct property is particularly attractive in the current low-interest-rate environment with many people in, or nearing, retirement searching for yield.
“It’s great that the Professional Planner/Zenith fund awards is recognising direct property because as an asset class it can provide investors with very worthwhile outcomes,” he says.
“Everyone has to consider their own circumstances, but with the ageing demographics, people are looking for income from their superannuation investments, and assets such as commercial property are in a great position to provide that.”
While direct property does not provide daily liquidity, Pratt says it also does not provide the volatility of listed property.
“The great thing about unlisted property is that the price of the asset reflects the value of the asset, and that doesn’t necessarily move up and down depending on the people’s views,” he says.
The Australian Unity Diversified Property Fund returned 9 per cent for the year to August 31, 2013.
– Leng Yeow
Finalists:
– Folkestone Funds Management
• New boutique player which nonetheless is backed by senior management with an impressive skill set and track record of working together.
• The key principals of the team have the demonstrated ability to be proactive and sometimes unconventional in selecting real estate opportunities such as niche asset classes or regions. We see evidence of their willingness to swim against the tide in the search for investment opportunities while maintaining discipline as favourable in an asset class where assets are frequently very tightly held.
• While the business is very much a recent entrant to the field, the capabilities the team brings to the table are highly attractive and Zenith sees the team as one to watch going forward.
– GDI Property Group
• Highly active investment style with very strong investment discipline through market cycles both in acquisitions and disposals, which has created an impressive track record.
• Senior management have high levels of personnel co-investment in their offerings, creating very strong co-alignment with their investors. They show an impressive level of willingness to “eat their own cooking”.
• Strong skill set in value-add strategies which, when combined with management’s robust commercial judgment around risk, has resulted in superior returns.
