The current spread between returns on cash and returns on well-managed property funds means the unlisted property sector will continue to provide good outcomes for investors during 2013, says Mark Pratt, general manager of property, mortgages and capital markets at Australian Unity Investments (AUI).
“Depending on whether the cash rate drops below the current 3 per cent, term deposits are likely to return between 3.2 and 4.2 per cent, while unlisted property funds can provide an income return around 8 per cent in the coming year.
“In addition, property valuations have stood up well over the past period, even with the economic uncertainty. At AUI, we think they are unlikely to go backwards in the next 12 to 18 months, providing much-needed certainty to investors on their capital value.
“Property values have generally increased in line with rental growth over the past 12 months, a situation we expect to continue in 2013 with cap rates forecast to largely remain stable over the same period.
“The recent weak credit environment constraining the supply pipeline for the next two to three years in some sectors, is a further factor supporting our view.
“On a risk-adjusted basis, unlisted property is an ideal asset class for those investors seeking yield, yet also concerned about their capital stability.
“Well-managed open ended funds also provide a very attractive investment option, with lower entry costs, good diversification, and structured liquidity,” Mr Pratt said.
He pointed to AUI’s Healthcare Property Trust (HPT) as an example of what an unlisted property fund can deliver to investors.
“HPT provides excellent exposure to the major demographic change taking place in Australia, with an ageing baby-boomer population, coupled with the growing trend for private healthcare services to supplement public healthcare.
“Furthermore, in line with our active management approach, we have recently made some changes to the HPT’s financing arrangements which we believe will further improve returns to investors during the course of the year,” Mr Pratt said.
These changes are expected to improve distribution returns by up to 0.5 percent per annum (for Wholesale Units).
In addition, AUI has undertaken a new round of valuations for five of the properties in the trust, following the completion of major redevelopments of two hospitals owned by the Trust.
As a result, there has been a net increase in the book value of the Trust’s properties of 2.07 per cent, or $3.31 million (as at 31 December 2012).
Chris Smith, head of healthcare and retirement properties at AUI, said the changes were made to continue improving the already strong returns for investors.
“We are committed to actively managing the trust, including its borrowing and hedging arrangements, and redeveloping and expanding properties to help meet the growing needs of local communities, which in turn delivers better outcomes for investors.
“For example, we recently completed the expansion of the Peninsula Private Hospital in Langwarrin, Victoria, which includes a new intensive care unit and an additional operating theatre. At The Valley Private Hospital, we are halfway through a $23 million redevelopment and have now opened a state-of-the-art hybrid operating theatre with Australia’s first laparoscopic 3D camera system. Additionally, the Beleura Private Hospital now has a new 25-bed ward, a new chemotherapy unit, expanded operating theatre complex as well as additional consulting rooms.
“Such developments help meet growing demand in Australia for healthcare services, maintaining quality long-term tenants and stable income for our investors,” Mr Smith said.
The Trust has approximately $461 million in gross assets (as at 31 December 2012) and owns 22 healthcare-related properties in New South Wales, Victoria, Queensland and South Australia.
The Trust’s Wholesale Units have returned 7.99%# over one year, 6.03%# pa over two years, and 6.20%# pa over five years (to 31 December 2012).
Australian Unity Investments is the funds management arm of financial services, health and retirement living services provider Australian Unity.
The property funds management business has over $2 billion in funds under management (as at 31 December 2012). Australian Unity Investments’ unlisted property funds and syndicates own more than 60 properties in the healthcare, retail, industrial and office sectors, in Victoria, New South Wales, Queensland, ACT, Western Australia and South Australia.
For more information please contact:
Mark Pratt – Phone: 03 8682 4448
Chris Smith – Phone: 03 8682 4534
23 January 2013