Centric Wealth DHA Fund wins PIR Unlisted Fund of the Year.

Wealth management firm, Centric Wealth and its partner DHA, have been awarded a prestigious award by Property Investment Research (PIR) for the Centric DHA Residential Property Fund (the Fund).  The award comes as the Fund receives a AA+ rating from the same research house.

The Fund, gives investors exposure to a diversified residential property portfolio that is underpinned by long-term leases to the Defence Housing Australia (DHA), delivering income returns supported by AAA rated contracts.

Centric Wealth Chief Executive Officer, Phil Kearns, said the Fund was designed to overcome many of the issues that prevent investors from accessing residential real estate.

“This is the first time DHA has offered properties via a trust structure and it is also the largest residential fund of its kind in Australia. What sets this Fund apart from other residential funds is the Government backing, diversified portfolio and the fund managers ability to select the underlying properties. The portfolio has been specifically designed to provide investors with geographic diversification using a population weighted portfolio of residential properties across Australia and a mixture of housing styles.

“We are very pleased that besides receiving a AA+ rating from PIR, we have now also been awarded Unlisted Fund of the Year.”

DHA also maintains a database of more than 10,000 prospective investors, and the history of asset sales undertaken by DHA suggests there will be limited risk to the saleability of assets.

Mr Kearns said the Fund is available to both retail and institutional investors.  However, the Fund has particular relevance for institutional investors as access to residential real estate is usually difficult for wholesale investors to access. The minimum investment for institutional investors is $20 million, while high net worth individuals can invest in the Fund for a minimum of $50,000.

“Our newly appointed Business Development Manager, Andrew Mehrtens, is focusing on the sale of the Fund to superannuation funds and institutions. Centric Wealth has a clear strategy for expanding our operations and Andrew has quickly become a valued member of the Products and Services team.”

Mehrtens has enjoyed a meritorious international rugby career that saw him played 70 tests for the All Backs and score 967 test points, as well as coaching and playing in England, Italy and France. In 2011, he completed a Bachelor of Arts degree with Stage 1 and 2 Finance papers from the University of Canterbury in Christchurch.

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Chaired by PIR with panel members including Richard Stacker of Charter Hall Direct Property, Stuart Brown of Westpac and Brad Matthews of AMP Research, the panel discussed the outlook for the unlisted property syndicate market, with an audience of investment advisers, HNW investors and fund managers.

One of the biggest issues the panel discussed was the gatekeeper role retail investment platforms play, in determining whether advisers are able to easily access investments in unlisted property syndicates and funds for clients.

“Advisers are looking at how they can best scale their business and gain the most efficiency and for a greater number this is achieved by investing on platforms. At the moment we’d say direct property is on the fringe of the mainstream investments for planners and a key reason for this is because of the lack of assets offered on platforms,” said AMP Research’s Brad Matthews.

Getting unlisted investments on platforms requires a collaborative approach 
Charter Hall’s Richard Stacker said there was opportunity for unlisted products to get on to platforms but it needed to be a collaborative process.

“Product providers need to work alongside dealer groups and platform providers to ensure the structures of new products meet the needs of investors but also the platforms, to help bring direct property investments into the mainstream financial planning space.

“We’ve already had strong traction with platforms for our Direct Industrial Fund (DIF1) and now DIF2, and we are seeing increasing flows from that area as planners use this efficient model for their clients to look for alternatives to term deposits where they have also invested via a platform,” Stacker said.

Commenting on the quality of investments available in the current market, Matthews said he didn’t believe liquidity was the area holding unlisted investments from inclusion on platforms.
 
“Property investments coming out at the moment are of a higher quality and more client-oriented than previously; however, this hasn’t translated into strong representation on platforms. In the past liquidity was a critical characteristic for getting on a platform, however it shouldn’t be the case that something has to be liquid to get onto one, providing investors are aware of the liquidity restrictions,” he said.

Stacker said there were opportunities for product providers to be included on platforms, provided they were willing to design product around platform requirements.

“Charter Hall has spent a lot of time with platforms and we are seeing increasing flow from that area as planners gravitate to platforms for efficiency and alternatives to term deposits,” Stacker said.

Low interest rates bring strong interest in unlisted property 
According to Westpac’s Stuart Brown the ongoing deposit war of the last few years amongst the big four banks had made term deposits very attractive for investors. However Brown believes as the banks become more comfortable with their capital structures, the reliance on term deposits will reduce.

“I’d say all the big banks have reached a level with their capital structures they’re now comfortable with. Our economist is forecasting one more rate cut this year so term deposits will probably come down a bit more with that,” Brown said.

With the current low interest rate environment driving investors and their advisers to alternative sources of growth and income, the panel consensus was unlisted property syndicates and funds would continue to experience strong interest.

Since 2012, the unlisted property syndicate sector has seen strong activity as a result of improved property fundamentals, lower debt costs, and increased appetite from retail investors for higher income yields.

PIR estimates since January 2012, unlisted property syndicates and retail funds have raised between $450-$500 million in equity, with newly launched syndicates often promising distribution yields of 8% and above. Figure 1, below, shows an overview of the unlisted retail sector as at 31 December 2011. PIR is due to release the updated 2012 figures later this year.

According to Stacker, demand for unlisted property syndicates and funds is increasingly being driven by SMSF investors, with Charter Hall seeing strong interest from trustees and their advisers. He attributed this to SMSFs’ natural affinity for property investments, long term investment horizon and favourable tax characteristics.

“The opportunity lies most for people initially in the accumulation phase, as they can get the tax deferred benefit of investing in property. Once they move into the pension phase, having capital gain returned, tax free, is a huge advantage and one that probably needs to be sold a bit better,” he said.

In conclusion, Matthews said:”Direct property is a fundamentally good investment for clients. It provides what investors are looking for, stability with inflation linked returns, and syndicates have the potential to do that so if we can get the structure and expectations right, there’s a real opportunity.”

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Strategically placed to provide investors with exposure to the strong Perth office market the Trust has a fixed term of 7 years and is open to Wholesale investors only. Target distributions from the Trust are forecast by management to commence at 9.25% pa for FY13 rising to 9.50% pa in FY14 with a reasonable level of tax advantage. Trust distributions should be relatively stable over the short to medium term owing to the low level of scheduled lease expires (commencing 2015).

The Trust is issued by GDI Funds Management, a wholly owned subsidiary of the GDI Property Group (GDI) who will act as the Trust’s Investment Manager. GDI are a specialist boutique manager of unlisted property funds founded in 1993. GDI are highly active in their investment approach preferring to seek strong value-add opportunities in office markets.

Zenith’s View
Zenith believes that the Trust represents a strategic opportunity to take exposure to the Perth office market which is currently generating very strong returns from resource led demand. With contracted building rents underpinning strong growth in a very tightly held market where tenants have little opportunity to move until at least 2015 owing to scant a supply development pipeline, we see opportunities for risk aware investors to dial up the risk in their property exposure for higher rewards.

Zenith has a high conviction in the abilities of the Investment Manager. GDI have carved out a very strong track record since inception, with past trusts predominantly generating very strong returns as befitting their predominantly highly active strategies. Zenith believes that the team has shown strong discipline in their investment approach and rate their processes highly.

The Trust will sit higher up the risk curve than those real estate investment strategies usually found in the Core Enhanced space however the risks are probably not as high as those typified by most Value Add strategies we have observed.

While the Perth market faces reversionary risks from a cooling resource investment, Zenith have high confidence in GDI’s ability to manage outcomes and extract value. Zenith rates the GDI No. 36 Perth CBD Office Trust Recommended.

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