What I do know is that property is a foundation asset for investors of all profiles.
A great many self-directed investors include residential real estate in their portfolio and small business owners are particularly attracted to putting their current or former business premises into their SMSF.
At the professional investment level, in the case of the big super funds who manage most people’s retirement savings, property assets generally make up between 8 to 15% of a fund’s assets.
At a time when residential property is generally undergoing a re-rating downwards in most markets it’s worth remembering why the Australian professional investment managers generally don’t include residential property in their portfolio.
The running yields are generally too low- and can be negative when all the costs (transaction costs in and out, land tax, rates and repairs etc.)are taken into account- and the management of many small (residential) assets is difficult/costly and not efficient.
Also, residential prices can be subject to additional emotion and market momentum rather than underlying economics when compared to large commercial office buildings, and industrial properties. Residential property tends to be a capital gains play very often assisted by negative gearing provisions that can help make net yields more attractive over time on an after-tax basis.
With the possibility of negative gearing rules being altered and capital gains concessions reduced should there be a change of federal government, and with house prices projected to continue in a downward direction across the largest markets of Sydney and Melbourne,many SMSF members and trustees and other self-directed individual investors are revisiting how they get their property exposure.
Charter Hall manages more than$28 billion of investment-grade commercial and industrial properties on behalf of large super funds, high net worth individuals, SMSF members and individual investors. The firm manages direct property funds, also known as unlisted property funds, and ASX-listed property funds, also known as A-REITs (Australian Real Estate Investment Trusts).
Another property investment option for SMSF investors beyond listed and unlisted property trusts are property securities funds which invest in a suite of listed property funds or A-REITs.
The attraction of such a fund is that it adds another level of diversity to a portfolio.
Theoretically, listed property securities should behave like direct property over the long term. However, due to being listed these securities are periodically mispriced as a result of market inefficiencies. This occasional mispricing provides buying opportunities for astute managers of property securities funds, assuming they are active managers rather than simply investing in a portfolio of securities that replicates those in an index such as the S&P/ASX 300 A-REIT Index.
Charter Hall recently added this investment option to our list of investment offerings following our acquisition of the Folkstone property business last November 2018.
The Folkstone Maxim Property Securities Fund is now known as the Charter Hall Maxim Property Securities Fund.
This fund is a leader in its class, most recently being awarded the Financial Standard Investment Leadership Award in the Australia Property Securities category for the second year in a row and enjoys high ratings from the major independent ratings agencies.
Maxim is managed based on a high conviction strategy with an investment universe of 54 listed A-REITs and Real Estate Managers and Developers. The fund’s investible universe is filtered down to 45 entities based on a number of criteria including size, management quality and business and investment strategy of the entity. The fund has a target holding of between 10 and 20 securities, meaning it is generally regarded as a concentrated portfolio with any one security limited to 20% of the fund.
Charter Hall’s Maxim team, headed by Winston Sammut, combines a top-down view of the various property sectors with bottom-up valuation modelling based on qualitative input, including site visits and meetings with management, and quantitative input including NPF/DCF (net present value and discounted cash flows), WALE (weighted average lease expiry)credit ratings, gearing and Net Tangible Assets (NTA).
Investments are generally made with a 12-18month time horizon, reflecting a high conviction approach that backs the research process and a willingness to hold onto securities during short term volatility. The criteria for selling a security may include: target price met, relative valuation, or a fundamental change of a security characteristic such as a change in management or change in ownership. Currently the Maxim fund is under weight retail and overweight specialist A-REITs (that own childcare centres and agricultural property) and property fund/development managers.
Maxim is a property securities fund with a track record of performance managed by one of Australia’s leading property investment businesses - it presents a further property investment option beyond traditional listed and unlisted funds for investors.