This issue’s featured property: Westfield’s Doncaster Shopping Centre, Melbourne
Highlights
Rent collections remain stable with 91% of December 2021 and 93% of January 2022 billings collected from 100% owned properties.
- The NSW State Government has committed to lease 8,055 sqm across five floors at 447 Pitt St, Sydney NSW. The space will be utilised as the Tech Central Scaleup Hub, a government initiative to create a vibrant innovation and technology precinct in the heart of Sydney's CBD. This fits perfectly with the property’s refurbishment strategy which has been developed to target tech-style tenants.
Q4 2021 valuation
On aggregate, independent valuations increased with a total direct property portfolio (excluding unit trust interests) value of $16.19B. This reflected an increase of $317.7M (after development and capital expenditure) from the valuations recorded in Q3 2021.
Key drivers of valuation
Commercial increased by $73.95M (after capital expenditure). Property-level movement after capital expenditure ranged between -4.76% and +4.81%. Movement has been attributed to selected firming of capitalisation rates and discount rates between 12.50 bps to 75 bps throughout the portfolio, with the Canberra and Perth office markets experiencing the greatest firming of metrics.
Strong demand demonstrated in the capital markets for quality office assets with strong lease covenants and longer WALEs has been slightly offset by softening leasing fundamentals, including increased lease up allowances in some markets in Q4. Markets continued to be impacted by a delayed return to work, driven by COVID-19 and translating to softening growth projections within valuations.
Retail increased by $31.50M (after capital expenditure). The investment market continued to experience high demand and strong transaction activity continues to provide valuers with evidence to firm capitalisation rates and discount rates throughout the portfolio, including regionally located assets.
CBD retail and large-scale regionally configured centres, designed to cater to the discretionary retail market, continue to experience the greatest valuation declines, primarily due to valuers taking a conservative approach to the sustainability of retail rental income. As VIC and NSW emerge from government imposed lockdowns, valuers continue to adopt a cautious approach to the inclusion of COVID-19 allowances within valuations, with some including stabilisation allowances as patronage levels slowly increase and interstate and international tourism begins to rebound.
Logistics & warehousing increased by $198.51M (after capital expenditure) driven by further capitalisation rate compression and increased land value rates, following continued strong demand for prime and well leased logistics and warehousing assets and also secondary and infill assets. This market has demonstrated buyer depth is deeper and stronger than pre COVID-19 as we continue to see a substantial amount of large-scale transactions attracting interest from institutional investors.
Education increased $12.72M (after capital expenditure), which is attributable to valuation movement within the VU City Tower development, driven by a firming of the capitalisation and discount rates by 12.50 bps and 25 bps respectively.
Unlisted property assets are a source of stability and great long-term returns for REI Super’s portfolio.
Approximately 64% of REI Super’s property portfolio within Balanced is invested in unlisted property assets, through one of our long-standing investment managers, Industry Super Property Trust (ISPT).
Unlisted property assets are assets that are not listed on the Australian stock exchange and are generally not readily available to individual investors.
Unlisted property investments are excellent long-term investments, providing a combination of growth and income to REI Super’s portfolio. They also have fewer short-term ups and downs in their returns than many investments.
REI Super’s investments in ISPT are through its Core Fund, which is a diverse portfolio of around 75 Australian commercial, industrial and retail properties across capital cities and regional centres.
Since inception in 1994 the ISPT Core Fund has achieved a total gross return as at 30 September 2021 of 9.54% p.a.
The portfolio includes many iconic Australian properties:
- Melbourne’s GPO
- Westfield’s Doncaster Shopping Centre, Melbourne
- Brisbane’s Wintergarden complex
- Casselden Place, Melbourne
- Liberty Place in Castlereagh Street, Sydney
- 2 National Circuit, Canberra
- 100 St Georges Terrace, Perth
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Future investment performance can vary from past performance, and you should not base your decision to invest in REI Super simply on past performance. Past earning rates are not an indicator of future earning rates. The investment returns of REI Super are not guaranteed, and the value of the investment may rise or fall.
The information contained in this article does not constitute financial product advice. However, to the extent that the information may be considered to be general financial product advice, REI Super advises that REI Super has not considered any individual person’s objectives, financial situation or particular needs. Individuals need to consider whether the advice is appropriate in light of their goals, objectives and current situation.
REI Superannuation Fund Pty Ltd ABN 68 056 044 770 AFSL 240569. RSE L 0000314 REI Super ABN 76 641 658 449 RSE R1000412 MySuper unique identifier 76641658449129. February 2022