WEBVTT

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Welcome back to The Rated Change with York Wealth

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Management. As advisors to some of the wealthiest

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families in the country, The Rated Change is

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a podcast designed to help you in the pursuit

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of building long -term wealth through the insights

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of some of the brightest minds in asset management.

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In today's podcast, Ryan Bass is joining us again

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from Panjen Capital. People that listen to the

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podcast regularly may be familiar with him. We

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had him on last year. But I was just having a

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conversation with him regarding, you know, how

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the markets are going in this, you know, wartime

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market scenario. And Ryan had a number of interesting

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comments about the asset class that he's working

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in and essentially the opportunities that he's

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seeing in, which is, you know, increase the return.

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you know, availability of returns for some of

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the assets which he's managing. So really good

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to have you on, Ryan. And why don't we begin

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as we always do and tell everyone a little bit

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about yourself, you know, for people that may

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be joining us for the first time. Thanks, Murdoch,

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and great to be on again. Just a quick background.

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Prior to setting up PanGen Capital, I spent 16

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years as a senior property investment professional

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at Unisuper, where I was involved in over $8

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billion of equity transactions, ranging from

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some of the largest real estate assets in the

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country, such as at Caranup Shopping Centre.

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We bought a third of that, and then about 10

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years ago, did a... eight nine hundred million

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development we did uh uh the pacific fair and

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macquarie center acquisition with sea bus which

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was the largest australian retail property transaction

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in in australian history probably about five

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six years ago we we've done you know developments

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across office towers and industrial sheds. And

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this is across direct assets, unlisted property

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funds. And also I was an active A -REIT manager

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for the last 10 years at PanGen. But for many

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years, I've been thinking about this incredibly

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high quality asset class, which is institutional

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grade real estate. That's in Australia, core

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real estate. So that's established shopping centers,

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office buildings, industrial sheds. And these

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are held by in institutional funds that, you

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know, the small investors like you and I typically

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can't get access to. You need typically 10 million

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or more just to get into one. You probably need

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30 to 40 mil to build a portfolio. And these,

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you know, these funds that are mature cycle tested

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asset class, just within the index, there's about

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70 bil of equity over 100 bil of property assets.

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And we think the sector or the outlook for the

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sector is providing some pretty compelling risk

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-adjusted returns going forward. So before we

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get into what we're discussing and the changes,

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I think when we spoke, you were in the process

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of just listing the fund. So what is the fund?

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How does it work? And how did the listing go?

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Yeah, great. So the fund is launched. We've now

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got over seven months of track record, pushing

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on, I think, the returns to the end of February.

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Essentially, it's a monthly fund with monthly

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applications, quarterly distributions and quarterly

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liquidity, up to 5 % of the fund nerve. Returns

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have been really healthy to date, a bit over

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4 .5 % to the end of February. you know, that's,

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I think, pretty attractive when compared to,

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you know, what the markets have been doing sort

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of generally. And we are looking at a pretty

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sort of strong outlook. So we launched the fund

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seven months ago. We're now... getting sort of

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good traction. We've got a lot of high net worth

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investors in it. We've got some family offices

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and we've got increasingly financial advisors

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using our product through directly and also through

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platforms such as we're on Hub24, we're on Premium

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and PowerUp and we'll be expanding to other major

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platforms like NetWealth sort of going forward.

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So that's sort of really where we're at. And

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we're just, locked in our second cornerstone

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investment, which we'll be finalising shortly.

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And that's the GPT Wholesale Shopping Centre

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Fund. So how much money has been raised for the

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fund so far? Post this sort of second round,

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we're getting north of 20 mil, probably more

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like 25 mil. And we're sort of building it organically

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going forward. Nice. So the early moving money

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that came in, what assets have you purchased

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with that $25 million? So our initial cornerstone

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investment is essentially it's called the Texas

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Wholesale Property Fund. This is probably one

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of the best. if not the best diversified core

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property portfolios in the country. It's got

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13 billion of assets, around 10 billion of equity,

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40 properties, over 2 ,500 tenants. And some

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of the properties, many of your listeners will

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know, Gateway, Key Quarter Tower, 33 Alfred Street,

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Westfield Miranda, Ravenhall Logistics in Melbourne,

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Waterfront Place. So it really is just an exceptional

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portfolio. portfolio, which has outperformed

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pretty much over all time periods. And importantly,

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I guess this asset class, but this fund as well,

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has delivered through the cycle, even in really

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tough times like the GFC. These assets are really

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strong. We've also got a number of REITs in the

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portfolio. That's a small component of it for

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additional liquidity. And that's focused on rent

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collecting REITs and also a bit of portfolio

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completion. Nice. So how's it faring in these

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wartime markets? Yeah, so I've had quite a lot

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of investors asking that question. And I think

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this is... This is a period which really highlights

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why this asset class, we're talking about high

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-quality core real estate with low leverage,

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why it's such an important part of the portfolio.

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Firstly, you're not taking a lot of development

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risk. You've got established assets in great

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markets with a lot of blue -chip tenants. banks,

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you've got government tenants, you've got Coles,

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you've got Woolies, you've got all types of,

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Amazon, one of the assets holds, one of the funds

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holds an Amazon shed in Melbourne. So you've

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got blue chip tenants, high quality assets, and

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really there's almost no income sort of concerns

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in this portfolio. So the performance of this

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fund has been, you know, doing exactly what it

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should. It's doing what is there on the tin.

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Nice. So, yeah, so everyone's been seeing what's

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happening with the Strait of Hamas. You kind

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of can't look at it. I think the market's off

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quite considerably today. And we are recording

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on the 23rd of March. So I think, you know, Trump

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and his government has given them 48 hours to

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essentially let ships through. Hopefully that

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gives a bit of reprieve for the diesel price.

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But where I'm going with this, I was just curious,

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just in the back of my head and maybe other listeners

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are thinking the same, does things like diesel

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prices, you know, potentially impact, you know,

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these property assets? Because I understand,

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because we're having a conversation, the reason

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why it popped up, you said Amazon, right? And

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we've been speaking to a number of other businesses,

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obviously all the transport costs and it just...

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They have to pass it on. It's hitting the airlines.

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I think, you know, Qantas came out and said they

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had to pass it on. Huge amount of backlash. I

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was just wondering in the back of my head, does

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this impact essentially any property assets potentially

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like indirectly at all? Look, maybe indirectly

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to some degree, but, you know, ultimately our

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fund. invest in funds that own real estate that's

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leased to the tenants. So these are big corporate

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tenants that have to pay the rent. They're contractually

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bound to pay the rent. Another point to mention

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is that because these are institutional grade

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real estate, the sustainability credentials of

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these properties is second to none. You know,

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we've got, you know, a lot of these managers

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have a net zero policy. Their assets have been,

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they've been sort of improving the sustainability

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and energy efficiency of their assets for, you

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know, sometimes decades and when they've built

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new assets. So I don't see that as a concern

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or an issue for... for our sector. Yes, it might

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push up the costs to some tenants of their, you

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know, operating. And I think when it comes to,

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let's say, logistics, that reinforces the need

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to be in really prime locations, close to population

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centres and with good transport links, because,

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you know, industrial... tenants or logistics

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tenants want to make sure that their costs are

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as as low as possible and how do you do that

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you you you lease the best assets in the best

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locations that makes a lot of sense so yeah when

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we're chatting offline the whole reason when

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we got uh asked you to come back on is you're

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saying something very interesting about the uh

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your new asset you're considering purchasing

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like what is happening because You know, I remember

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when we were discussing this, you know, the yields

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were, the returns were potentially lower than

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the private credit market, you know, the eights,

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nines, tens. But then you were mentioning, you

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know, some assets, return profiles, you know,

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spitting out potentially double digits. Like

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what's happening in your space now and what's

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changed? You know, there's probably one word

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to summarize why we're so excited about this

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asset class and it's supply. So we're seeing

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an increasingly constrained supply pipeline.

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And as you know, with inflation and build costs,

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it's just getting more and more expensive to

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build. So if you're owning some of the best quality

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assets and there's less supply going on and the

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tenants want to, you know, real estate's a pretty

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simple asset class in some ways. Tenants want

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to gravitate. They want to occupy the best properties

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in the best location. balance is shifting really

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in the favour of the landlords. We're seeing,

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you know, more than double digit growth in parts

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of the office sector in Sydney and Brisbane,

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for example, for those really sort of, you know,

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key assets, actually. retail, particularly the

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dominant malls like the High Points and the Westfield

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Mirandas, you know, these shopping centres and

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the Chermside Parks, these shopping centres are

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basically full. There's tenants in there who

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want to expand and there's tenants not in these

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assets who want to get in. And I was actually

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talking to a retailer a few weeks ago, I was

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looking to lease some space and he's telling

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me that in order to get space in some of these

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highly productive malls, they have to pre -commit

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two to three years ahead of the space becoming

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vacant. Otherwise, they won't get it. And that's

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really for the prime sort of asset. So what that

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is translating to is much stronger rental growth

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prospects. going forward. And then we've got

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to also, as you know, the last few years since

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the pandemic, interest rates have risen significantly.

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So we've seen cap rates blow out significantly,

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you know, yields, that's your incoming yield

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on a property. So you've got, and to give you

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an idea, office cap rates probably blew out 150

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basis points to where they are now. Retail, probably

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50 to 75 basis points. And that's an industrial,

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probably 150 basis points. So as you know, cap

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rate is kind of the inverse of a price earnings

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sort of multiple. So it's, you know, so I guess

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you could say there's been multiple, sorry, the

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cap rates have expanded. So you've got a higher

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incoming yield or yield you're paying on these

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assets. But importantly, the rent growth prospects

00:12:54.620 --> 00:12:57.879
are way higher. So that's why we are seeing in

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the market now, a lot of our managers are predicting

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based on pretty reasonable assumptions, double

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-digit returns for their funds. And to put that

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in context, these are funds that aren't taking

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much, if any, development risk. They're existing

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assets, already built, with good rent rolls and

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growing income levels. So when you think about

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that greater than 10 % plus on a risk -adjusted

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basis, I would say... it stacks up really well

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against probably private credit and a lot of

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the higher returning, you know, let's say property

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sectors like that require a lot of development

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or have secondary assets or higher gearing. So

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I think from a risk -adjusted return, you know,

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I guess one analogy is let's say you're shopping

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around for a term deposit and you're going to

00:13:57.470 --> 00:14:00.070
the four big banks and they're all offering you

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four and one of them, offering you you know five

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and a half you know what do you take so it's

00:14:05.710 --> 00:14:10.789
similar so it's the risk adjusted uh return prospects

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i think are really attractive at this point in

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the cycle what i'm trying to work out is is this

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temporary or do you think this is ongoing and

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why i'm asking the temporary we see it all the

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time where essentially you know one particular

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asset class you know has its day in the sun and

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then all of a sudden you know two years from

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now you know, pulls back again. And why would

00:14:32.720 --> 00:14:35.080
it pull back? And some people may think, if you

00:14:35.080 --> 00:14:36.759
think about logically, as you mentioned, supply,

00:14:37.019 --> 00:14:39.720
demand and supply, there was the entire thing

00:14:39.720 --> 00:14:41.600
pushing for years when essentially, you know,

00:14:41.700 --> 00:14:44.299
we discussed Amazon and you got, you know, online

00:14:44.299 --> 00:14:46.600
shopping, you know, people going less to the

00:14:46.600 --> 00:14:50.620
shops. There may be, say, less foot traffic,

00:14:50.700 --> 00:14:52.519
you know, hitting these particular shops. So

00:14:52.519 --> 00:14:55.269
people theorized. That maybe essentially, you

00:14:55.269 --> 00:14:57.190
know, the good old -fashioned retail shop may

00:14:57.190 --> 00:14:58.850
not see the foot traffic in a whole lot of the

00:14:58.850 --> 00:15:01.169
business online. Then the other side as well,

00:15:01.210 --> 00:15:02.950
maybe that isn't the case and people actually

00:15:02.950 --> 00:15:05.730
like to touch and feel and buy. Fair point. But,

00:15:05.789 --> 00:15:08.129
you know, what are the also, what about the other

00:15:08.129 --> 00:15:10.509
indirect, you know, implications of like we do

00:15:10.509 --> 00:15:12.190
have a walk -on, right? You know, cost of fuel

00:15:12.190 --> 00:15:13.789
is going through the roof. Are people going to

00:15:13.789 --> 00:15:16.309
the shops as much? Or are the behaviors of how

00:15:16.309 --> 00:15:19.570
people, you know, shop going to start being more?

00:15:20.080 --> 00:15:22.200
you know, deliver it to me so they don't have

00:15:22.200 --> 00:15:24.960
to pay for fuel and that have a natural impact

00:15:24.960 --> 00:15:28.120
on essentially these rentals. I'm just trying

00:15:28.120 --> 00:15:30.259
to wonder, you know, it's really cool that you're

00:15:30.259 --> 00:15:32.200
finding asset classes that are in the double

00:15:32.200 --> 00:15:34.259
digits and you're seeing private credit start

00:15:34.259 --> 00:15:37.620
to, you know, pull back. A lot of great private

00:15:37.620 --> 00:15:40.220
credit assets are out there, but I'm just trying

00:15:40.220 --> 00:15:43.059
to ascertain, is this, you know, here for a long

00:15:43.059 --> 00:15:46.000
period of time? Is this an actual change in a...

00:15:46.360 --> 00:15:48.559
Is this happening because of the asset class

00:15:48.559 --> 00:15:53.860
or is this a short -term type return for this

00:15:53.860 --> 00:15:56.559
asset class? I think there's a few points to

00:15:56.559 --> 00:16:02.440
make. Firstly, the cost of construction is really

00:16:02.440 --> 00:16:07.120
high and that's a pretty hard issue to fix overnight.

00:16:07.259 --> 00:16:10.000
That's going to take years, if not decades, to

00:16:10.000 --> 00:16:13.179
really fix. We've got a structural undersupply

00:16:13.179 --> 00:16:16.259
in housing and we've got... possibly a structural

00:16:16.259 --> 00:16:18.840
undersupply in commercial real estate as well.

00:16:19.120 --> 00:16:27.019
So I don't think that's going to change anytime

00:16:27.019 --> 00:16:30.940
soon. Inflation is another interesting point

00:16:30.940 --> 00:16:34.879
because rents tend to be... have a correlation

00:16:34.879 --> 00:16:38.100
with inflation. Because if you think about the

00:16:38.100 --> 00:16:41.539
cost to build, your rents, currently the cost

00:16:41.539 --> 00:16:43.779
to build is higher than what you call the economic

00:16:43.779 --> 00:16:48.600
rent. So rents have to rise a lot before it actually

00:16:48.600 --> 00:16:54.059
justifies building new supply as well. So in

00:16:54.059 --> 00:16:56.440
your rents, you've got sort of a structural,

00:16:56.580 --> 00:17:02.919
I guess, correlation with inflation there. I

00:17:02.919 --> 00:17:06.180
think, yeah, maybe in the short term as inflation

00:17:06.180 --> 00:17:11.700
increases, that might impact some degree of consumer

00:17:11.700 --> 00:17:16.599
spending. But remember that these, in the case

00:17:16.599 --> 00:17:20.019
of, say, shopping centres, these shopping centres,

00:17:20.180 --> 00:17:22.819
they actually don't have as much discretionary.

00:17:23.099 --> 00:17:26.180
sort of sales as you think that you know take

00:17:26.180 --> 00:17:29.440
for example you know a high point or chadston

00:17:29.440 --> 00:17:32.319
or a bondi junction they've got supermarkets

00:17:32.319 --> 00:17:35.839
uh they and they they've got a lot of you know

00:17:35.839 --> 00:17:38.700
fresh food stores they've got a lot of non -discretionary

00:17:38.700 --> 00:17:41.740
uses as well health and well -being services

00:17:41.740 --> 00:17:46.220
medical services so the the resilience of income

00:17:46.220 --> 00:17:49.420
of of shopping centers has actually been pretty

00:17:49.420 --> 00:17:53.049
strong so okay so Just trying to get my head

00:17:53.049 --> 00:17:56.430
around it. So you're saying that new shopping

00:17:56.430 --> 00:17:59.750
centers or new assets are being built. The costs

00:17:59.750 --> 00:18:03.150
are essentially higher in order for the shopping

00:18:03.150 --> 00:18:05.269
centers in order to retain their profit margin.

00:18:05.769 --> 00:18:09.390
And you're saying as well that a number of these

00:18:09.390 --> 00:18:12.789
retailers are essentially so big like, you know.

00:18:13.900 --> 00:18:16.220
grosses, coals were worse, et cetera, et cetera,

00:18:16.279 --> 00:18:19.380
that when you stick in a new shopping center

00:18:19.380 --> 00:18:21.140
like, you know, one being built in Ipswich or

00:18:21.140 --> 00:18:23.660
Queensland or something equivalent, that, you

00:18:23.660 --> 00:18:26.839
know, people are flocking there to live, et cetera,

00:18:26.900 --> 00:18:28.299
et cetera, that they're naturally just going

00:18:28.299 --> 00:18:31.240
to have to go to shop somewhere, right? So as

00:18:31.240 --> 00:18:34.200
long as essentially the demand to purchase goods

00:18:34.200 --> 00:18:38.259
is there and then the retailer… or the property

00:18:38.259 --> 00:18:40.680
owner essentially controls the site, they have

00:18:40.680 --> 00:18:43.980
to pass on the cost. So thus the rent is the

00:18:43.980 --> 00:18:46.819
rent. And if you want to be in our shopping center,

00:18:46.920 --> 00:18:50.200
that's just how it is. And you're saying that

00:18:50.200 --> 00:18:52.839
a lot's changed from the COVID times and now

00:18:52.839 --> 00:18:55.539
the demand there from an occupancy standpoint

00:18:55.539 --> 00:18:59.000
is substantially higher unless like another COVID

00:18:59.000 --> 00:19:01.940
thing kind of hits. And then hence, is that the,

00:19:02.039 --> 00:19:05.880
in a nutshell, in terms of the logic on why?

00:19:06.519 --> 00:19:08.579
You're seeing double digits on these assets now

00:19:08.579 --> 00:19:10.559
when that may not have been the case the past

00:19:10.559 --> 00:19:14.700
couple of years? Yeah, I mean, it comes down

00:19:14.700 --> 00:19:19.599
to that supply side issue. You know, it's just

00:19:19.599 --> 00:19:23.319
the good shopping centres are basically full

00:19:23.319 --> 00:19:26.180
and in order to create new supply, rents have

00:19:26.180 --> 00:19:30.440
to go a lot higher. to justify creating more

00:19:30.440 --> 00:19:34.079
supply. And as a result, there's less supply.

00:19:34.319 --> 00:19:38.299
So the retailers are kind of competing more for

00:19:38.299 --> 00:19:41.740
the same space to occupy. Meanwhile, and this

00:19:41.740 --> 00:19:44.119
is a really important point that I haven't mentioned,

00:19:44.380 --> 00:19:46.740
Australia's population growth is still really

00:19:46.740 --> 00:19:50.160
strong. So, for example, Australian population

00:19:50.160 --> 00:19:53.160
growth is one of the highest in the OECD. It's

00:19:53.160 --> 00:19:56.200
probably around 1 .3 % per annum over the next

00:19:56.200 --> 00:19:58.579
five years. That's more than double the rate

00:19:58.579 --> 00:20:03.579
expected in the US. UK and continental Europe

00:20:03.579 --> 00:20:06.500
are sort of close to zero, slightly positive.

00:20:06.779 --> 00:20:09.819
And in fact, countries like China, Japan, Korea

00:20:09.819 --> 00:20:13.059
are actually going backwards in terms of population.

00:20:13.119 --> 00:20:16.779
So population growth is a really important aspect.

00:20:17.299 --> 00:20:20.380
As you add more population to a country, people

00:20:20.380 --> 00:20:23.259
need to consume more space, whether it's in housing,

00:20:23.420 --> 00:20:25.400
whether it's in retail, whether it's industrial

00:20:25.400 --> 00:20:28.470
sheds. or office buildings as well. And that's

00:20:28.470 --> 00:20:32.009
a very long -term, well, it's a super long -term

00:20:32.009 --> 00:20:37.549
trend. Is this rise in, well, yields theoretically,

00:20:37.690 --> 00:20:41.890
is this happening with legacy assets or is this

00:20:41.890 --> 00:20:44.910
predominantly just new builds that they're essentially

00:20:44.910 --> 00:20:49.279
passing on? Well, it's legacy assets. So let's

00:20:49.279 --> 00:20:51.799
say High Point Shopping Center, you know, this

00:20:51.799 --> 00:20:53.839
is an asset that's been around for decades or

00:20:53.839 --> 00:20:57.220
be around for, you know, my lifetime and probably

00:20:57.220 --> 00:21:02.140
longer. You've got, you know, it is, so to answer

00:21:02.140 --> 00:21:05.480
your questions, particularly for existing assets

00:21:05.480 --> 00:21:09.329
that have good... population growth prospects.

00:21:09.430 --> 00:21:12.089
So you've got populations growing all around

00:21:12.089 --> 00:21:15.930
them and they still need to access those sites

00:21:15.930 --> 00:21:21.730
to do their shopping. Right. Okay. So the asset

00:21:21.730 --> 00:21:25.089
which you've purchased, are you forecasting any

00:21:25.089 --> 00:21:27.589
increase in returns from that particular asset

00:21:27.589 --> 00:21:29.329
or is it just on the asset you're looking at

00:21:29.329 --> 00:21:32.009
purchasing right now? So when you talk about

00:21:32.009 --> 00:21:34.990
assets, remember we're investing in funds that

00:21:34.990 --> 00:21:39.019
own real estate. So the Texas Wholesale Property

00:21:39.019 --> 00:21:43.750
Fund, as I mentioned, owns about 40... properties

00:21:43.750 --> 00:21:46.930
across office, industrial and retail. Our next

00:21:46.930 --> 00:21:50.609
fund that we've lined up to invest in is the

00:21:50.609 --> 00:21:53.349
GPT Wholesale Shopping Centre Fund. It's got

00:21:53.349 --> 00:21:55.990
assets like High Point Shopping Centre, Rouse

00:21:55.990 --> 00:22:00.130
Hill Town Centre, MacArthur Square. This is a

00:22:00.130 --> 00:22:02.970
brilliant portfolio of assets. So that will be

00:22:02.970 --> 00:22:06.730
our next sort of fund investment. And we believe

00:22:06.730 --> 00:22:10.329
that both the existing and the new fund is likely

00:22:10.329 --> 00:22:13.119
to do double digits. returns in the short to

00:22:13.119 --> 00:22:16.140
medium term it's crazy how much everything can

00:22:16.140 --> 00:22:18.099
change in just seven months in like a heartbeat

00:22:18.099 --> 00:22:22.779
well yeah i i think i think one of these look

00:22:22.779 --> 00:22:24.559
based on our i'm just saying like in context

00:22:24.559 --> 00:22:26.460
right based in our conversation what you're looking

00:22:26.460 --> 00:22:29.359
at everything out there like that's a sizable

00:22:29.359 --> 00:22:32.740
jump anywhere between like two three some potentially

00:22:32.740 --> 00:22:37.920
like four percent rise in less than a year i

00:22:37.920 --> 00:22:40.720
think that sort of reflects I mean, I'm a pretty

00:22:40.720 --> 00:22:44.819
conservative person. I like to, you know, when

00:22:44.819 --> 00:22:47.319
we launched the fund, we were thinking it's going

00:22:47.319 --> 00:22:49.779
to deliver 8 to 10 over the medium to long term,

00:22:49.859 --> 00:22:52.299
which I think it will. And that's kind of what

00:22:52.299 --> 00:22:56.579
this asset class delivers over the long term.

00:22:56.640 --> 00:23:00.359
But I think what I didn't appreciate is the supply

00:23:00.359 --> 00:23:03.240
side constraints that are coming through the

00:23:03.240 --> 00:23:06.440
system. And I didn't quite appreciate. that the

00:23:06.440 --> 00:23:10.759
rental growth is going to be as strong as it's

00:23:10.759 --> 00:23:12.900
coming, you know, working out it's going to be,

00:23:12.920 --> 00:23:15.980
as it actually is happening and likely to be.

00:23:16.059 --> 00:23:19.240
So, for example, in that sort of 8 to 10, I was

00:23:19.240 --> 00:23:22.339
talking about let's call it 2 .5 rental growth.

00:23:22.519 --> 00:23:24.980
I reckon we're in a period where for the best

00:23:24.980 --> 00:23:27.380
assets, you're going to have rental growth per

00:23:27.380 --> 00:23:31.099
annum of let's call it 4 to 5 and with upside

00:23:31.099 --> 00:23:36.500
risks there. 4 to 5%. per annum per annum so

00:23:36.500 --> 00:23:39.579
if this trend what you've seen continues what

00:23:39.579 --> 00:23:43.039
are you forecasting for you know say 2027 so

00:23:43.039 --> 00:23:46.759
um that's what i'm trying to work out yeah is

00:23:46.759 --> 00:23:50.079
this gonna stabilize essentially in the 11s and

00:23:50.079 --> 00:23:52.099
12s you know for a number of years or are you

00:23:52.099 --> 00:23:55.000
forking asking this you know kind of ticking

00:23:55.000 --> 00:23:58.299
along and growing i would say this double digit

00:23:58.299 --> 00:24:03.640
uh returns per annum are likely to continue in

00:24:03.640 --> 00:24:06.180
the short to medium term how long that is you

00:24:06.180 --> 00:24:09.099
know let's let's call it three plus years um

00:24:09.099 --> 00:24:13.000
it could be longer uh but uh you know it's pretty

00:24:13.000 --> 00:24:17.200
hard to forecast the future so as as you know

00:24:17.200 --> 00:24:21.420
that's my job mate to get you on the market Well,

00:24:21.539 --> 00:24:25.140
you know, I'd be a very wealthy person if I could

00:24:25.140 --> 00:24:27.599
accurately do that. That would be crystal ball.

00:24:27.859 --> 00:24:30.299
Yeah, exactly, yeah. I've got to polish it a

00:24:30.299 --> 00:24:32.039
bit. So you said double -digit growth a couple

00:24:32.039 --> 00:24:33.859
of times. I'm narrowing down on this a bit, right?

00:24:33.920 --> 00:24:35.599
But what does that exactly mean? Because some

00:24:35.599 --> 00:24:37.119
people hear double -digit growth, they're like,

00:24:37.160 --> 00:24:38.960
hey, it's going to pay 18. You're like, no, no,

00:24:39.000 --> 00:24:41.119
no. Like what do you mean by double -digit growth?

00:24:41.640 --> 00:24:44.740
I'm talking about double -digit total returns,

00:24:45.000 --> 00:24:48.599
okay? So that's income. Not growth, apologies,

00:24:48.859 --> 00:24:51.740
double -digit income, yeah. So income plus capital

00:24:51.740 --> 00:24:56.980
growth. let's say you start off with a property

00:24:56.980 --> 00:25:00.160
delivering, let's call it about a, you know,

00:25:00.180 --> 00:25:02.759
six and a half, what you call cap rate. If you,

00:25:02.759 --> 00:25:05.240
if you, no, let's call it about five and a half

00:25:05.240 --> 00:25:09.000
to six cap rate. If you adjust for CapEx and

00:25:09.000 --> 00:25:11.980
things like that, that property, for example,

00:25:11.980 --> 00:25:15.579
is delivering a free cash flow of let's call

00:25:15.579 --> 00:25:19.900
it, you know, four and a half to 5%, right? Then

00:25:19.900 --> 00:25:22.660
you've got, So if you've got and then you've

00:25:22.660 --> 00:25:25.099
got income growth on top of that, let's call

00:25:25.099 --> 00:25:27.859
it rental growth of four to five. So in theory,

00:25:27.980 --> 00:25:29.980
you know, you're talking on an ungeared basis,

00:25:30.200 --> 00:25:36.319
probably about, you know, what, nine to ten total

00:25:36.319 --> 00:25:39.000
return on an ungeared basis. And that's not allowing

00:25:39.000 --> 00:25:42.019
for some of these assets have developments underway

00:25:42.019 --> 00:25:45.279
or, you know, extensions and refurbishments that

00:25:45.279 --> 00:25:50.099
add returns. Like, for example, the. In the GPT

00:25:50.099 --> 00:25:51.980
Shopping Center Fund, they're doing a $200 million

00:25:51.980 --> 00:25:55.700
extension at Rouse Hill Town Center. And that's

00:25:55.700 --> 00:25:58.500
going to generate really strong returns on an

00:25:58.500 --> 00:26:02.779
ungeared basis for investors. Then you might

00:26:02.779 --> 00:26:06.359
also get some cap rate compression. Whether that

00:26:06.359 --> 00:26:09.799
happens in this environment is another factor,

00:26:09.940 --> 00:26:12.400
but you should for the sort of better quality

00:26:12.400 --> 00:26:15.500
assets. So you're talking an ungeared return

00:26:15.500 --> 00:26:18.599
of let's call it nine to 10. When you add a bit

00:26:18.599 --> 00:26:21.160
of leverage on top of that, that's when you get

00:26:21.160 --> 00:26:25.500
to sort of the double digit returns after fees.

00:26:26.200 --> 00:26:28.599
So when you say leverage, people might, you know,

00:26:28.990 --> 00:26:31.289
maybe misunderstanding do you mean you're taking

00:26:31.289 --> 00:26:34.170
leverage in your fund of funds or you mean the

00:26:34.170 --> 00:26:37.049
assets you know which are held in the fund which

00:26:37.049 --> 00:26:41.210
are acquiring hold leverage so currently uh our

00:26:41.210 --> 00:26:44.569
funds there's no leverage at the fund level uh

00:26:44.569 --> 00:26:47.880
we can sort of lever it a little bit for, I guess,

00:26:47.920 --> 00:26:50.839
tactical type reasons, but ultimately for tactical

00:26:50.839 --> 00:26:54.039
purposes, but ultimately the underlying leverage

00:26:54.039 --> 00:26:56.839
of the underlying funds we're investing in are

00:26:56.839 --> 00:26:58.819
very conservative. And I would say it's, you

00:26:58.819 --> 00:27:02.500
know, 25 % or less. So on a look through basis.

00:27:02.619 --> 00:27:06.500
So, you know, this compares to many other property

00:27:06.500 --> 00:27:09.119
strategies we've seen, which has, you know, 50

00:27:09.119 --> 00:27:12.400
% plus in leverage. And obviously that's going

00:27:12.400 --> 00:27:16.819
to be pretty impactful. sort of on the upside,

00:27:17.099 --> 00:27:20.279
but also the downside. If you've got, you know,

00:27:20.299 --> 00:27:22.480
particularly secondary grade assets coming off

00:27:22.480 --> 00:27:25.319
more than, you know, in this environment and

00:27:25.319 --> 00:27:27.599
you've got interest expense going up, you know,

00:27:27.599 --> 00:27:31.079
that would be very impactful for those strategies

00:27:31.079 --> 00:27:33.920
with lower quality assets and higher gearing.

00:27:34.039 --> 00:27:37.140
And this compares to, you know, our sector, which

00:27:37.140 --> 00:27:39.539
is, you know, some of the best real estate in

00:27:39.539 --> 00:27:43.640
the country in lowly levered structures. I love

00:27:43.640 --> 00:27:46.099
this space. You know, if you're Australian, you

00:27:46.099 --> 00:27:48.359
love property. It's so funny. I speak to clients,

00:27:48.480 --> 00:27:50.160
right? And you're having a conversation about

00:27:50.160 --> 00:27:51.660
stuff. Most of you would find this on the other

00:27:51.660 --> 00:27:54.220
and everyone goes, I need to do it. As soon as

00:27:54.220 --> 00:27:57.460
you mentioned property, there is just, you know,

00:27:57.500 --> 00:28:00.380
start ringing and they just start asking questions

00:28:00.380 --> 00:28:02.440
because all Australians love property. But what

00:28:02.440 --> 00:28:04.980
I wouldn't mind unpacking and digging into since

00:28:04.980 --> 00:28:09.140
we're here, do you want to explain to people

00:28:09.140 --> 00:28:13.210
essentially the process of one of these funds

00:28:13.210 --> 00:28:16.089
has an asset, right? And it's just happened at

00:28:16.089 --> 00:28:17.650
Chatswood as well, Chatswood Shopping Center,

00:28:17.789 --> 00:28:20.369
David Jones, if anyone lives around, right? It's

00:28:20.369 --> 00:28:23.490
going through a massive process of a revamp,

00:28:23.509 --> 00:28:25.109
which probably happens, what, every 10 or 15

00:28:25.109 --> 00:28:28.589
years. How does that work from a business standpoint,

00:28:28.869 --> 00:28:32.869
right? Because if we're investing into these

00:28:32.869 --> 00:28:34.950
funds, and I don't know the number, like what

00:28:34.950 --> 00:28:37.829
percentage do you reckon of these, you know,

00:28:37.849 --> 00:28:40.410
assets inside of these funds kind of get a makeover,

00:28:40.450 --> 00:28:42.859
you know? on a year? What are you looking at?

00:28:42.900 --> 00:28:45.359
Maybe 1 in 40, 2 in 40? How many actually get

00:28:45.359 --> 00:28:49.970
makeovers? So as a... Generally, these funds,

00:28:50.049 --> 00:28:53.829
because they core assets, so they established

00:28:53.829 --> 00:28:56.329
assets, established properties, there's a bit

00:28:56.329 --> 00:28:59.210
of developments from time to time. So you can

00:28:59.210 --> 00:29:01.569
expect a low level of development activities.

00:29:01.809 --> 00:29:05.130
Let's call it 5 % to 10%. So, for example, in

00:29:05.130 --> 00:29:07.970
the DEXA fund, they're currently developing Waterfront

00:29:07.970 --> 00:29:10.690
Place in Brisbane. That's a really big sort of

00:29:10.690 --> 00:29:14.569
development. They've got potential future plans

00:29:14.569 --> 00:29:17.150
in the GPT fund. They're doing a $200 million

00:29:17.150 --> 00:29:20.420
expansion. at Rouse Hill Town Centre. So that's

00:29:20.420 --> 00:29:23.440
an expansion to existing asset. In the DEXIS

00:29:23.440 --> 00:29:26.200
fund, which I mentioned, they've been developing

00:29:26.200 --> 00:29:29.359
out the Raven Hall Logistics Precent, which there's

00:29:29.359 --> 00:29:32.259
14 sites. They started off, I don't know, 10

00:29:32.259 --> 00:29:35.039
years ago, you know, basically with a big block

00:29:35.039 --> 00:29:37.339
of land and they subdivided that and built one

00:29:37.339 --> 00:29:39.339
shed and then built another and built another.

00:29:39.519 --> 00:29:45.279
So it depends on the site and what you can do.

00:29:45.339 --> 00:29:46.940
If you're doing a new office building, obviously,

00:29:47.339 --> 00:29:49.579
You know, you press the button and you're spending,

00:29:49.740 --> 00:29:51.140
you know, you're committed to spend hundreds

00:29:51.140 --> 00:29:53.700
of millions. But, you know, let's say industrial

00:29:53.700 --> 00:29:58.420
is quite sort of risk adjusted from, it's good

00:29:58.420 --> 00:30:00.559
from a risk adjusted perspective because, you

00:30:00.559 --> 00:30:04.039
know, you build sheds as you need them. You don't

00:30:04.039 --> 00:30:05.859
have to, you know, build this big office tower.

00:30:05.960 --> 00:30:08.420
You just build a shed incrementally. And I think

00:30:08.420 --> 00:30:10.579
that's similar for shopping centers. You know,

00:30:10.619 --> 00:30:13.140
you can build a bit of extra space. You accommodate,

00:30:13.460 --> 00:30:16.480
you know, you might pre -lease it to JB Hi -Fi.

00:30:16.559 --> 00:30:21.339
or Kmart, et cetera, and fill it with a few specialties.

00:30:21.440 --> 00:30:25.059
So, yeah, there's different development risk

00:30:25.059 --> 00:30:29.380
profiles for each sector as well. Does that answer

00:30:29.380 --> 00:30:31.799
your question? Kind of, yeah. But what I was

00:30:31.799 --> 00:30:33.960
trying to work out is the cash drag, right? So,

00:30:33.960 --> 00:30:37.259
you know, say out of the 10%, let's just assume

00:30:37.259 --> 00:30:39.319
just for basic numbers, right? Let's just look

00:30:39.319 --> 00:30:41.220
at two scenarios. This is the fun part. This

00:30:41.220 --> 00:30:43.920
is what I love learning. So let's just say one

00:30:43.920 --> 00:30:45.799
of the assets is like, I'm just saying Chatswood

00:30:45.799 --> 00:30:47.859
grew up there, right? You know, seeing it happen,

00:30:48.079 --> 00:30:50.539
right? So say Chatswood's in the process of getting

00:30:50.539 --> 00:30:52.880
revamped, right? And let's just say, because

00:30:52.880 --> 00:30:54.420
everyone knows essentially Olympics are coming.

00:30:54.980 --> 00:30:56.720
They're not two assets in the portfolio I'm just

00:30:56.720 --> 00:30:58.319
using because, you know, I've been discussing

00:30:58.319 --> 00:31:00.599
it quite a bit. Let's say, you know, you're building

00:31:00.599 --> 00:31:03.180
one out near, you know, Ipswich. It's a brand

00:31:03.180 --> 00:31:05.859
new. huge shopping center, et cetera, the Queensland

00:31:05.859 --> 00:31:08.240
way, sticking in a Woolworths, et cetera, et

00:31:08.240 --> 00:31:10.039
cetera, a large block of land going to cost $200

00:31:10.039 --> 00:31:15.059
million, right? So how does the numbers, I suppose,

00:31:15.380 --> 00:31:19.779
and is there a cash drag or a drag on the profit

00:31:19.779 --> 00:31:23.920
return investors will be expecting to receive

00:31:23.920 --> 00:31:27.460
based on those two scenarios? I don't know. Maybe

00:31:27.460 --> 00:31:29.420
let's tackle one before we tackle the other.

00:31:29.500 --> 00:31:32.200
But it's just very interesting to understand

00:31:32.200 --> 00:31:35.109
how that you know, works because this is going

00:31:35.109 --> 00:31:37.509
to be continuously happening for the life of,

00:31:37.529 --> 00:31:39.410
you know, holding this fund of funds. Yeah, no,

00:31:39.509 --> 00:31:42.529
that's a really good point. So let's take an

00:31:42.529 --> 00:31:45.109
existing shopping center like Chatswood. So,

00:31:45.130 --> 00:31:48.390
you know, let's say it's worth, I don't know

00:31:48.390 --> 00:31:50.410
what Chatswood is worth. Let's say it's worth

00:31:50.410 --> 00:31:53.609
a billion dollars and they want to spend $200

00:31:53.609 --> 00:31:56.849
million doing an additional, you know, renovation

00:31:56.849 --> 00:32:02.329
or extending the asset. when the when so what

00:32:02.329 --> 00:32:05.710
might happen is um there might also be some tenants

00:32:05.710 --> 00:32:08.809
adjacent to that sort of development that you

00:32:08.809 --> 00:32:10.890
know get some rent abatements and things like

00:32:10.890 --> 00:32:12.809
that because obviously it's going to be pretty

00:32:12.809 --> 00:32:15.029
hard to trade while that sort of part of the

00:32:15.029 --> 00:32:17.509
shopping center is getting uh you know extended

00:32:17.509 --> 00:32:21.230
or rebuilt and also the capital that the landlord

00:32:21.230 --> 00:32:24.710
is is uh spending money to you know paying to

00:32:24.710 --> 00:32:27.829
the the you know the the the construction company

00:32:27.829 --> 00:32:30.549
and to the to the leasing they're paying out

00:32:30.549 --> 00:32:33.650
capital that's not earning an income return straight

00:32:33.650 --> 00:32:37.170
away but what they do is that incremental 200

00:32:37.170 --> 00:32:40.009
million or whatever it is i mean a good example

00:32:40.009 --> 00:32:42.549
is in in rouse hill town center because that's

00:32:42.549 --> 00:32:45.559
in that's in the GPT Shopping Centre Fund, that

00:32:45.559 --> 00:32:48.779
capital that they're spending is going to return,

00:32:49.019 --> 00:32:52.480
give a better total return of the life of the

00:32:52.480 --> 00:32:56.740
project than the existing asset because they're

00:32:56.740 --> 00:32:59.079
taking more risk. So let's say the existing asset

00:32:59.079 --> 00:33:02.940
is likely to do 7 % or 8 % on an ungeared sort

00:33:02.940 --> 00:33:07.240
of basis, you know, and that's a pretty sort

00:33:07.240 --> 00:33:10.079
of, I think, conservative at this time. You know,

00:33:10.079 --> 00:33:13.569
that development might be... you know, low to

00:33:13.569 --> 00:33:16.430
mid double digits on the capital they're spending

00:33:16.430 --> 00:33:18.690
on that development. But then once it's done,

00:33:18.910 --> 00:33:22.309
that asset, you know, that extension will then

00:33:22.309 --> 00:33:24.910
become leased, it'll become income producing,

00:33:25.130 --> 00:33:27.609
and it will actually provide benefits to the

00:33:27.609 --> 00:33:30.089
whole shopping center. So it will actually lift

00:33:30.089 --> 00:33:33.430
the trade of the whole shopping center and improve

00:33:33.430 --> 00:33:36.430
returns for that owner. So you're right, there

00:33:36.430 --> 00:33:40.069
is a bit of a cash drag for the owner for the

00:33:40.069 --> 00:33:43.480
capital that they're outlaying. there so that's

00:33:43.480 --> 00:33:47.299
that's an existing center then going to the example

00:33:47.299 --> 00:33:50.059
of of a sort of a what you call a greenfield

00:33:50.059 --> 00:33:53.099
shopping center you know there's been an owner

00:33:53.099 --> 00:33:56.299
who's you know they've they've found the site

00:33:56.299 --> 00:33:59.480
they've got a service they've got a zone for

00:33:59.480 --> 00:34:03.579
retail you know it's basically a paddock not

00:34:03.880 --> 00:34:06.420
producing any income. So they would build that

00:34:06.420 --> 00:34:08.619
into their cash flows that they've got to spend

00:34:08.619 --> 00:34:13.420
money doing all those, getting those pre -approvals

00:34:13.420 --> 00:34:15.840
and the infrastructure, et cetera. And then they've

00:34:15.840 --> 00:34:18.519
obviously got to spend money on the construction

00:34:18.519 --> 00:34:21.219
and then on the leasing side. So eventually when

00:34:21.219 --> 00:34:24.340
it's done, that asset will be an income producing

00:34:24.340 --> 00:34:27.619
asset that they can either hold or sell. So in

00:34:27.619 --> 00:34:30.500
that second example, the greenfield development,

00:34:30.599 --> 00:34:33.239
that's a lot more risky. So you would want to

00:34:33.239 --> 00:34:38.280
get a higher return for that project. So with

00:34:38.280 --> 00:34:41.619
these two, thanks for that, with these two scenarios,

00:34:41.880 --> 00:34:46.300
whilst these are happening in the fund of funds,

00:34:46.539 --> 00:34:49.780
are these assets held and the costs being incurred

00:34:49.780 --> 00:34:52.500
in these fund of funds whilst essentially the

00:34:52.500 --> 00:34:57.280
development or essentially the refit out is occurring,

00:34:57.440 --> 00:34:59.619
essentially incurring costs for that three or

00:34:59.619 --> 00:35:03.719
five year period, right? So essentially those

00:35:03.719 --> 00:35:06.719
two assets, maybe 10 % of the portfolio may be

00:35:06.719 --> 00:35:09.239
a cash drag in the short term, but then essentially

00:35:09.239 --> 00:35:12.099
it's forecasting to be a longer income producing

00:35:12.099 --> 00:35:15.420
in the longer term. Correct. Right. So just trying

00:35:15.420 --> 00:35:16.699
to get everyone's head around it. So when you're

00:35:16.699 --> 00:35:18.900
going into this thing, assume potentially like

00:35:18.900 --> 00:35:22.719
5 % or 10 % will be a continuous on the negative

00:35:22.719 --> 00:35:27.170
side, but that's to build larger. Income flows

00:35:27.170 --> 00:35:29.849
going forward. Yeah. Is that how that works?

00:35:30.130 --> 00:35:34.349
So that's right. So let's say you don't develop

00:35:34.349 --> 00:35:39.710
those assets. The existing portfolio will be

00:35:39.710 --> 00:35:42.570
returning on an ungeared basis. Let's call it

00:35:42.570 --> 00:35:46.989
8%, 8 % or 9 % on an ungeared basis. When you're

00:35:46.989 --> 00:35:49.710
putting capital into those developments, you

00:35:49.710 --> 00:35:53.710
need a premium. in terms of total return over

00:35:53.710 --> 00:35:56.210
and above what you're earning on these stabilized

00:35:56.210 --> 00:35:59.329
assets. So you're right. Like, there's going

00:35:59.329 --> 00:36:01.690
to be a bit of cash drag in the short term because,

00:36:01.849 --> 00:36:04.449
you know, you're spending capital that's not

00:36:04.449 --> 00:36:07.030
income producing. But when it's all done, when

00:36:07.030 --> 00:36:10.349
the project's complete, you're going to get that

00:36:10.349 --> 00:36:12.690
really sort of good uplift and that's going to

00:36:12.690 --> 00:36:15.730
boost your total returns. Now, remember that...

00:36:18.309 --> 00:36:20.730
Institutional investors are more total return

00:36:20.730 --> 00:36:23.690
focused. They're not worried about, you know,

00:36:23.690 --> 00:36:25.809
are you going to get your five cents per unit

00:36:25.809 --> 00:36:29.929
this quarter and 5 .1 cents per unit next year.

00:36:30.869 --> 00:36:33.590
They're more focused on that total return, income

00:36:33.590 --> 00:36:36.809
plus capital growth. So they're happy when it

00:36:36.809 --> 00:36:40.269
makes sense, you know, to get the manager to

00:36:40.269 --> 00:36:42.429
spend money on developments to earn that higher

00:36:42.429 --> 00:36:46.860
return. That's very interesting. The longer term

00:36:46.860 --> 00:36:48.699
picture of this, they say essentially these types

00:36:48.699 --> 00:36:50.639
of assets are the ones you buy and hold for a

00:36:50.639 --> 00:36:52.179
long period of time and just kind of don't worry

00:36:52.179 --> 00:36:53.679
about it and just let it kind of tick over, right?

00:36:54.679 --> 00:36:59.510
Absolutely. The properties that these funds hold,

00:36:59.610 --> 00:37:02.050
these are trophy assets that you really want

00:37:02.050 --> 00:37:04.809
to hold, I think, forever. I mean, High Point

00:37:04.809 --> 00:37:07.989
is a forever asset gateway. It was built, I think,

00:37:08.010 --> 00:37:09.909
you know, the DEXA's fund has owned it since

00:37:09.909 --> 00:37:13.130
its inception in the mid -90s. I don't think

00:37:13.130 --> 00:37:15.570
it ever wants to, you know, sell that asset.

00:37:15.650 --> 00:37:17.730
It's just a, you know, brilliant asset in the

00:37:17.730 --> 00:37:20.710
heart of the, you know, right on circular key.

00:37:21.429 --> 00:37:23.789
And same with these shopping centers and great

00:37:23.789 --> 00:37:26.389
logistics centers. These are assets. that, you

00:37:26.389 --> 00:37:28.530
know, I believe you hold forever. When I was

00:37:28.530 --> 00:37:32.940
at uni, super, you know, it had held. Carinup

00:37:32.940 --> 00:37:35.980
Shopping Center, I think since the 90s, I think

00:37:35.980 --> 00:37:38.619
Malvern Central, which is another shopping center

00:37:38.619 --> 00:37:41.820
asset, same since the 90s, you know, unless they

00:37:41.820 --> 00:37:44.360
get an absolute knockout offer, why would you

00:37:44.360 --> 00:37:46.619
sell these assets that are just going to continually

00:37:46.619 --> 00:37:50.199
generate nice growing cash flows, you know, into

00:37:50.199 --> 00:37:53.659
the foreseeable future? And remember, as I said,

00:37:53.780 --> 00:37:57.840
rents and ultimately the capital value of these

00:37:57.840 --> 00:38:00.480
assets are linked to inflation, probably above

00:38:00.480 --> 00:38:03.280
inflation. So you've got this nice, steady cash

00:38:03.280 --> 00:38:07.199
flow that's growing and providing this fantastic

00:38:07.199 --> 00:38:11.539
cash flow for its investors. The other thing

00:38:11.539 --> 00:38:13.000
I was turning to a couple of the property guys

00:38:13.000 --> 00:38:16.940
in private credit, what's happening with the

00:38:16.940 --> 00:38:19.940
flow of capital into Australia? And I'm wondering,

00:38:20.019 --> 00:38:23.679
is this also, as well as inflation, creating

00:38:23.679 --> 00:38:25.960
a bit of this tailwind? And where I'm going with

00:38:25.960 --> 00:38:29.880
this is... Over in the States, the Trump administration

00:38:29.880 --> 00:38:32.420
essentially banned Blackstone, I think it was,

00:38:32.440 --> 00:38:35.420
from purchasing blocks of family homes for 350

00:38:35.420 --> 00:38:37.119
grand and selling them to one of their internal

00:38:37.119 --> 00:38:39.820
companies for 700 grand and doubling the rent

00:38:39.820 --> 00:38:43.599
overnight. Homes are for people to live in. I'm

00:38:43.599 --> 00:38:48.960
wondering whether or not the money, which was

00:38:48.960 --> 00:38:51.400
going to the States, has potentially turned its

00:38:51.400 --> 00:38:54.949
gaze onto... And I'm wondering, you know, from

00:38:54.949 --> 00:38:56.469
your perspective, are you seeing that? Because

00:38:56.469 --> 00:38:58.929
I'm hearing quite a lot of it, you know, stuff

00:38:58.929 --> 00:39:01.489
coming from, you know, Korea, Singapore, the

00:39:01.489 --> 00:39:03.809
States, Charter Hall, a lot of the representatives

00:39:03.809 --> 00:39:06.489
are coming across. Blackstone, I think, just

00:39:06.489 --> 00:39:09.269
bought, what was it up in Cairns? They just bought

00:39:09.269 --> 00:39:11.670
the entire island. Right, all got a lease for

00:39:11.670 --> 00:39:15.349
like 100 years. Do you think a lot of the money

00:39:15.349 --> 00:39:18.889
is actually turning its eyes towards Australia?

00:39:19.070 --> 00:39:21.929
And, you know, if so, what's the impact of that?

00:39:22.570 --> 00:39:25.989
Well, I mean, in terms of fundamentals, while,

00:39:26.170 --> 00:39:29.050
you know, we may in Australia complain about

00:39:29.050 --> 00:39:33.610
sort of our economy and what's going on, you

00:39:33.610 --> 00:39:36.329
know, again, you think about Australia at a high

00:39:36.329 --> 00:39:39.630
level. We've got one of the highest population

00:39:39.630 --> 00:39:44.389
growths in any sort of developed country. you

00:39:44.389 --> 00:39:47.190
know, live in a very desirable location. There's

00:39:47.190 --> 00:39:50.269
a rule of law. We're commodities rich. We've

00:39:50.269 --> 00:39:54.429
got a fairly young sort of population relative

00:39:54.429 --> 00:39:57.429
to other populations and sort of an educated

00:39:57.429 --> 00:40:02.610
tech savvy, you know, workforce. So I think Australia

00:40:02.610 --> 00:40:06.420
does offer... you know, a lot of benefits when

00:40:06.420 --> 00:40:08.679
you compare it against a lot of other countries.

00:40:09.440 --> 00:40:13.280
And yeah, I think there'll be continuing interest

00:40:13.280 --> 00:40:16.820
and capital flows into Australia from investors.

00:40:17.320 --> 00:40:20.500
But I think it's also worth pointing out that

00:40:20.500 --> 00:40:25.250
there's many institutional property... sorry,

00:40:25.309 --> 00:40:27.510
institutional investors in Australia, like big

00:40:27.510 --> 00:40:30.929
super funds, that some of them are still underweight

00:40:30.929 --> 00:40:34.789
real estate as well. And particularly, actually,

00:40:34.909 --> 00:40:37.550
I think retail in particular is a high quality

00:40:37.550 --> 00:40:40.829
shopping center. So we're seeing a lot of these

00:40:40.829 --> 00:40:44.309
institutions thinking about their exposure to

00:40:44.309 --> 00:40:49.329
high quality core real estate and how likely

00:40:49.329 --> 00:40:53.420
to be demand going forward as well. Are you seeing

00:40:53.420 --> 00:40:56.460
any foreign interest, interested in the PanGen

00:40:56.460 --> 00:40:59.219
fund of funds? Are you seeing money turning an

00:40:59.219 --> 00:41:00.719
eye over here and then instead of going, okay,

00:41:00.780 --> 00:41:03.360
do I buy direct or, you know, are they coming

00:41:03.360 --> 00:41:06.760
through you or is your view predominantly for

00:41:06.760 --> 00:41:09.860
the advisor and, you know, essentially, you know,

00:41:09.860 --> 00:41:12.320
scalability? Because obviously the larger institutions,

00:41:12.400 --> 00:41:15.159
they can cut the $10 million check to get access

00:41:15.159 --> 00:41:18.199
to these things. So it's a really good question,

00:41:18.280 --> 00:41:22.579
actually. Our fund currently is open. to Australian

00:41:22.579 --> 00:41:26.900
wholesale clients. At some point we will look

00:41:26.900 --> 00:41:32.219
to expand our remit to offshore. wholesale clients

00:41:32.219 --> 00:41:37.559
and speaking to quite a few different people

00:41:37.559 --> 00:41:41.320
and groups who they believe that you know places

00:41:41.320 --> 00:41:44.900
like Hong Kong and Singapore for example could

00:41:44.900 --> 00:41:47.460
be good markets for us for our product particularly

00:41:47.460 --> 00:41:50.719
like Singapore there's a huge amount of you know

00:41:50.719 --> 00:41:54.400
family office money and Australia screens sort

00:41:54.400 --> 00:41:58.500
of very very well so yeah I think I think I think

00:41:58.500 --> 00:42:03.940
our fund can potentially make itself available

00:42:03.940 --> 00:42:06.800
to that sort of capital. And I'm hearing that

00:42:06.800 --> 00:42:10.500
there should be good demand for our fund. I'm

00:42:10.500 --> 00:42:12.260
hearing as well, because of the conflict, a lot

00:42:12.260 --> 00:42:14.260
of money in Dubai is also starting to turn its

00:42:14.260 --> 00:42:15.599
gaze towards Australia. Are you hearing that

00:42:15.599 --> 00:42:19.820
as well? I haven't, but that's good to know.

00:42:19.860 --> 00:42:22.800
Maybe something worth investigating in future.

00:42:23.420 --> 00:42:26.960
Well, you've got to love their lack of tax over

00:42:26.960 --> 00:42:28.940
in Dubai. That's always beneficial. But at the

00:42:28.940 --> 00:42:30.840
end of the day, I think a couple of families

00:42:30.840 --> 00:42:33.059
we were speaking to were like, look, we love

00:42:33.059 --> 00:42:36.059
it over there, but I just don't like thinking

00:42:36.059 --> 00:42:38.659
it's a shooting star in the sky when it's just

00:42:38.659 --> 00:42:44.739
a missile. Yeah, exactly. Okay, so when will

00:42:44.739 --> 00:42:47.119
you think potentially opening up to international

00:42:47.119 --> 00:42:50.000
or is it just going to be domestic for now? I

00:42:50.000 --> 00:42:53.150
think for the time being. It will be domestic,

00:42:53.230 --> 00:42:56.809
but it's something on our radar for future as

00:42:56.809 --> 00:42:59.409
we grow the fund. We want to continue to build

00:42:59.409 --> 00:43:04.949
scale. I mean, there's plenty of potential scale

00:43:04.949 --> 00:43:08.610
within Australia just in the wholesale market.

00:43:08.710 --> 00:43:12.119
Maybe in future we might. to create some other

00:43:12.119 --> 00:43:15.300
products that may enable, you know, retail investors

00:43:15.300 --> 00:43:18.699
to come into our products in future. But for

00:43:18.699 --> 00:43:20.579
the moment, you know, we're seeing good demand.

00:43:21.179 --> 00:43:24.889
But I think we also got to be very... mindful

00:43:24.889 --> 00:43:29.590
to ensure that we are compliant, I guess, with

00:43:29.590 --> 00:43:32.590
investing in the funds that we invest in because

00:43:32.590 --> 00:43:36.989
they have some pretty strict criteria to be able

00:43:36.989 --> 00:43:42.550
to invest in their funds. They've got to, yeah,

00:43:42.849 --> 00:43:47.530
and I guess one reason why it's important for

00:43:47.530 --> 00:43:50.969
us to be structured correctly to go into these

00:43:50.969 --> 00:43:53.980
unlisted institutional funds is that that it's

00:43:53.980 --> 00:43:57.559
a very efficient asset class to access this property.

00:43:57.780 --> 00:44:00.500
And what I mean by efficient is there's essentially

00:44:00.500 --> 00:44:04.760
no stamp duty when you're buying into these incredibly

00:44:04.760 --> 00:44:08.849
high -quality funds. you're buying in essentially

00:44:08.849 --> 00:44:11.590
at the book price and that's without stamp duty.

00:44:11.750 --> 00:44:14.889
So it's a bit like buying Gateway or Highpoint

00:44:14.889 --> 00:44:18.989
without stamp duty. And it's because these funds

00:44:18.989 --> 00:44:22.670
have owned the assets for decades and they've

00:44:22.670 --> 00:44:26.690
already sort of incurred those transaction costs

00:44:26.690 --> 00:44:29.590
as well. That's actually a very important point,

00:44:29.710 --> 00:44:32.619
the stamp duty. We were chatting to a... a number

00:44:32.619 --> 00:44:35.159
of families down at Balmoral Beach. I think one

00:44:35.159 --> 00:44:37.019
of her brothers works for a major. I think it

00:44:37.019 --> 00:44:38.659
was Charter Hall or something equivalent. And

00:44:38.659 --> 00:44:41.360
a number of Americans, when they turned their

00:44:41.360 --> 00:44:43.039
gaze to Australia, they couldn't get their head

00:44:43.039 --> 00:44:44.480
around stamp duty because it kind of doesn't

00:44:44.480 --> 00:44:47.880
exist over there. So are you finding that with

00:44:47.880 --> 00:44:51.699
a number of investors, essentially avoiding the

00:44:51.699 --> 00:44:54.900
stamp duty component is one of the most compelling

00:44:54.900 --> 00:44:58.440
parts of this type of strategy in comparison

00:44:58.440 --> 00:45:03.400
to going direct? Well, I suppose you can't, you

00:45:03.400 --> 00:45:05.219
know, wholesale clients don't have the capital

00:45:05.219 --> 00:45:07.300
to go direct to buy a shopping centre, but is

00:45:07.300 --> 00:45:11.079
stamp duty, you know, a very big draw card on

00:45:11.079 --> 00:45:13.619
having to pay that? Well, I actually think it's

00:45:13.619 --> 00:45:16.920
underappreciated because, you know, if you're

00:45:16.920 --> 00:45:23.260
pricing to buy a property, there's, you know,

00:45:23.300 --> 00:45:25.989
you tend, you would normally. you know, price

00:45:25.989 --> 00:45:28.510
in that 6 % stamp duty or whatever it is, plus

00:45:28.510 --> 00:45:30.909
acquisition costs, and then you price in the

00:45:30.909 --> 00:45:34.469
exit costs at the end. If let's say your acquisition

00:45:34.469 --> 00:45:39.769
costs are 6 % over a 10 -year basis on an ungeared

00:45:39.769 --> 00:45:42.550
sort of property return, so taking away any leverage,

00:45:42.750 --> 00:45:45.230
you know, that's giving you about 60, 70 basis

00:45:45.230 --> 00:45:49.619
points of higher sort of annual IRR. So I think

00:45:49.619 --> 00:45:52.159
it's pretty much underappreciated, the efficiency

00:45:52.159 --> 00:45:55.639
of getting into these type of funds. Well, let's

00:45:55.639 --> 00:45:57.219
keep going with this because like say you're

00:45:57.219 --> 00:45:59.320
in Military Road, right? A number of friends

00:45:59.320 --> 00:46:01.679
essentially do acquisitions along there. Quite

00:46:01.679 --> 00:46:03.719
expensive trying to buy essentially a mixed use

00:46:03.719 --> 00:46:05.400
or do a development, right? You know, that can

00:46:05.400 --> 00:46:08.019
cost anywhere from $18 million to like $40 million,

00:46:08.239 --> 00:46:10.619
right? So if someone has, I know, let's just

00:46:10.619 --> 00:46:13.400
use a number. Say you've got $10 million, right?

00:46:13.719 --> 00:46:15.739
And they're looking at purchasing, you know,

00:46:15.739 --> 00:46:18.300
something commercial. which also can potentially

00:46:18.300 --> 00:46:20.599
produce income around about, you know, the 9s,

00:46:20.619 --> 00:46:26.079
10s, 11s, right? Why would an individual, you

00:46:26.079 --> 00:46:28.420
know, why wouldn't they essentially go direct

00:46:28.420 --> 00:46:30.840
and essentially purchase, you know, the commercial

00:46:30.840 --> 00:46:34.159
asset, right, over, say, you know, doing this?

00:46:34.300 --> 00:46:38.059
Look, the people, in my understanding, the people

00:46:38.059 --> 00:46:40.860
I've been speaking to, This is a real problem,

00:46:40.940 --> 00:46:42.539
right? And this is what they're deciding, right?

00:46:42.820 --> 00:46:45.260
I've got $3 million, which I can lever up and

00:46:45.260 --> 00:46:47.280
go direct, you know, borrow from the bank. My

00:46:47.280 --> 00:46:49.679
assets are great. Or they have the capital and

00:46:49.679 --> 00:46:53.159
can go higher. Why would I do this? Why shouldn't

00:46:53.159 --> 00:46:56.360
I just go buy a commercial property where I essentially

00:46:56.360 --> 00:46:58.420
own it, you know, and get the uplift, et cetera,

00:46:58.500 --> 00:47:02.019
et cetera? Like, why should I fund a fund's large

00:47:02.019 --> 00:47:04.820
shopping centers, et cetera? Or why wouldn't

00:47:04.820 --> 00:47:06.960
I go direct? That's the main question I'm currently

00:47:06.960 --> 00:47:09.300
getting. So there's a couple reasons. One is

00:47:09.300 --> 00:47:13.039
that investor with $3 million can't buy High

00:47:13.039 --> 00:47:15.900
Point or Westfield Miranda or Gateway. They just

00:47:15.900 --> 00:47:19.940
simply can't. And the cash flows and the growth

00:47:19.940 --> 00:47:23.860
prospects, I believe, of the best quality assets

00:47:23.860 --> 00:47:29.820
are just more attractive. There's more tenants.

00:47:30.019 --> 00:47:32.940
There's more people wanting to occupy that space.

00:47:33.059 --> 00:47:38.400
So you're going to have a much more... resilient

00:47:38.400 --> 00:47:40.920
cash flow profile and growing cash flow profile.

00:47:41.159 --> 00:47:43.440
And then when you think about the transaction

00:47:43.440 --> 00:47:48.119
costs, so typically, let's say a property syndicate.

00:47:48.159 --> 00:47:51.019
So an investor wants to, is looking at our fund

00:47:51.019 --> 00:47:53.500
versus a property syndicate. Property syndicate,

00:47:53.519 --> 00:47:56.420
they go off and they buy an office building,

00:47:56.559 --> 00:47:58.820
let's say in Macquarie Park. They'll pay stamps

00:47:58.820 --> 00:48:02.230
on that. There'll be... manager fees on top of

00:48:02.230 --> 00:48:06.210
that that syndicate will tend to be 50 plus geared

00:48:06.210 --> 00:48:10.849
and then from day one your nta is essentially

00:48:10.849 --> 00:48:13.650
around 85 cents in the dollar so it's a bit like

00:48:13.650 --> 00:48:16.349
you know you buy a new car as soon as you drive

00:48:16.349 --> 00:48:19.210
it out the car out of the dealership you know

00:48:19.210 --> 00:48:22.210
you've lost essentially 15 % of the value of

00:48:22.210 --> 00:48:25.429
that asset on day one with a property syndicate

00:48:25.429 --> 00:48:27.849
where you have incurred stamp duty. And this

00:48:27.849 --> 00:48:30.269
is why, you know, I talk about the efficiency

00:48:30.269 --> 00:48:34.010
of our fund. That dollar you put into our fund,

00:48:34.050 --> 00:48:38.219
you're getting a dollar of... asset backed real

00:48:38.219 --> 00:48:40.260
estate you're getting a dollar of nta you're

00:48:40.260 --> 00:48:43.800
not uh you know you're not losing 15 15 cents

00:48:43.800 --> 00:48:46.159
uh straight off the bat and that would apply

00:48:46.159 --> 00:48:48.659
to that investor who's got three million they

00:48:48.659 --> 00:48:51.179
want to buy a five or six million dollar you

00:48:51.179 --> 00:48:53.199
know property they they and they want to they

00:48:53.199 --> 00:48:56.000
gear it up and they they pay a stamp so it's

00:48:56.000 --> 00:49:01.420
it's it's i i think it's a it's a um it just

00:49:01.420 --> 00:49:04.900
shows how attractive it is uh entering into our

00:49:04.900 --> 00:49:09.800
fund into this asset class. Say someone owned

00:49:09.800 --> 00:49:12.840
this for 10 years and they just went direct.

00:49:13.099 --> 00:49:14.980
Because the only issue with platforms, I love

00:49:14.980 --> 00:49:16.739
platforms, got net wealth. The only issue with

00:49:16.739 --> 00:49:19.320
the platform we have to go direct is the platforms

00:49:19.320 --> 00:49:21.800
haven't allowed or figured out fund managers

00:49:21.800 --> 00:49:25.179
to offer essentially like a dividend reinvestment.

00:49:25.300 --> 00:49:26.340
You know what I mean? Like an income dividend

00:49:26.340 --> 00:49:28.440
reinvestment. It's kind of incredibly frustrating.

00:49:28.599 --> 00:49:30.780
So anyone listening that can fix that problem

00:49:30.780 --> 00:49:33.960
with platforms, that'd be fantastic. What health

00:49:33.960 --> 00:49:37.659
fund offers that? No, but yeah, if we go direct

00:49:37.659 --> 00:49:39.320
and then we have to kind of house it, you know,

00:49:39.320 --> 00:49:41.460
via another custodial service, you can't just

00:49:41.460 --> 00:49:43.599
essentially buy it online because it gives you

00:49:43.599 --> 00:49:46.219
the income and then you get a delay based on

00:49:46.219 --> 00:49:48.300
the time to go back into the fund. And depending

00:49:48.300 --> 00:49:50.139
if it's monthly or quarterly, the delays can

00:49:50.139 --> 00:49:52.239
be quite, you know, from 15 days through a day.

00:49:52.300 --> 00:49:54.559
If it's half yearly, it could be nearly like

00:49:54.559 --> 00:49:56.880
six or nine months. It's actually really quite

00:49:56.880 --> 00:50:00.179
frustrating. So, mate, let's just look at the

00:50:00.179 --> 00:50:03.019
math. So say you held a commercial asset. right

00:50:03.019 --> 00:50:04.440
i'm not too sure what they're paying an income

00:50:04.440 --> 00:50:06.380
you're probably a better idea of that right than

00:50:06.380 --> 00:50:11.820
me or they use the fun um with the ability to

00:50:11.820 --> 00:50:17.039
compound like direct and keep on going if over

00:50:17.039 --> 00:50:19.739
say a 10 -year period on both those assets you

00:50:19.739 --> 00:50:22.380
know which one would you be better off with and

00:50:22.380 --> 00:50:24.159
i'm not asking you i'm not this is this isn't

00:50:24.159 --> 00:50:26.659
like it's more like a you know academic exercise

00:50:26.659 --> 00:50:29.699
like you know The power of – sorry, actually,

00:50:29.739 --> 00:50:32.420
first of all, let's do this properly. When does

00:50:32.420 --> 00:50:36.099
yours fund pay distributions? Quarterly. Quarterly.

00:50:36.239 --> 00:50:39.179
Okay. And money goes in monthly or quarterly?

00:50:40.039 --> 00:50:43.320
So applications are monthly, distributions are

00:50:43.320 --> 00:50:46.760
quarterly, and people, investors can choose to

00:50:46.760 --> 00:50:50.440
receive cash or reinvest for new units. And I

00:50:50.440 --> 00:50:52.800
think that you're actually hit the nail on the

00:50:52.800 --> 00:50:56.960
head. If you own or buy yourself a property directly

00:50:56.960 --> 00:50:59.860
or you buy into a property syndicate, you can't

00:50:59.860 --> 00:51:02.599
really reinvest that income if you don't need

00:51:02.599 --> 00:51:06.199
it into the same asset. You have to take the

00:51:06.199 --> 00:51:09.760
cash and then, you know. use it for another purpose

00:51:09.760 --> 00:51:12.880
or find another investment. Because our fund

00:51:12.880 --> 00:51:16.989
is essentially investing in... The units or property

00:51:16.989 --> 00:51:20.929
securities of the underlying funds, it's a bit

00:51:20.929 --> 00:51:25.570
like, I guess, shares. If you own BHP, you can

00:51:25.570 --> 00:51:29.530
just buy a few more shares of BHP with your dividend.

00:51:29.750 --> 00:51:33.670
So I think that's a key difference with our fund

00:51:33.670 --> 00:51:36.409
versus owning a property directly or investing

00:51:36.409 --> 00:51:40.469
in a property. You can truly reinvest. And we've

00:51:40.469 --> 00:51:44.150
got a lot of investors who have just basically

00:51:44.150 --> 00:51:47.329
ticked the bell. DRP box because they just don't

00:51:47.329 --> 00:51:49.989
need the cash and they can just keep reinvesting.

00:51:50.110 --> 00:51:56.909
And I think their total return will be stronger

00:51:56.909 --> 00:52:02.869
than in the other example, assuming that people

00:52:02.869 --> 00:52:05.409
are receiving the cash can't reinvest at the

00:52:05.409 --> 00:52:08.150
same rate, if that makes sense. Have you run

00:52:08.150 --> 00:52:13.460
the numbers? So what's the fund? this is the

00:52:13.460 --> 00:52:16.940
fun part right so you allocate your capital in

00:52:16.940 --> 00:52:20.699
um you get your first distribution and then you

00:52:20.699 --> 00:52:24.420
yeah so say over a 12 -month period but let's

00:52:24.420 --> 00:52:26.860
exclude the first three months right just to

00:52:26.860 --> 00:52:29.980
make it a bit simpler over a four periods you

00:52:29.980 --> 00:52:33.760
receive four distributions and then essentially

00:52:33.760 --> 00:52:39.639
um you dip and then a compounded What would the

00:52:39.639 --> 00:52:41.940
overall percentage return be over a 12 -month

00:52:41.940 --> 00:52:48.099
period? Well, I mean, let's say the total return

00:52:48.099 --> 00:52:53.230
for that year is 10%. 10 % because you're getting,

00:52:53.369 --> 00:52:57.590
let's call it 4 % of income and 6 % capital growth

00:52:57.590 --> 00:53:01.110
to get that 10 % return. So that dollar you put

00:53:01.110 --> 00:53:04.510
in and let's say you redeem it after one year

00:53:04.510 --> 00:53:06.989
and the total return was 10%, that's income plus

00:53:06.989 --> 00:53:11.090
capital, that dollar's worth $1 .10 after one

00:53:11.090 --> 00:53:13.650
year. It's worth more because you're compounding

00:53:13.650 --> 00:53:18.760
2 .5 % every quarter. No, well... I've assumed

00:53:18.760 --> 00:53:22.260
a total return of 4%. So let's call it, you know,

00:53:22.260 --> 00:53:25.960
sorry, a total return of 4 plus 6. If we pick

00:53:25.960 --> 00:53:28.679
up the new asset and assuming that, you know,

00:53:28.679 --> 00:53:30.860
as you said, looking at double digits, let's

00:53:30.860 --> 00:53:34.099
assume that this is what we're discussing, right?

00:53:34.159 --> 00:53:36.539
If I've missed something, that it does 10 % by

00:53:36.539 --> 00:53:39.179
itself. Yeah. But then you take that, you know,

00:53:39.219 --> 00:53:42.619
income. What's income and capital growth? But

00:53:42.619 --> 00:53:44.599
if you take the income distribution, which you're

00:53:44.599 --> 00:53:47.989
going to receive in that 12 -month period. and

00:53:47.989 --> 00:53:51.690
then you do DIP every four times a year and then

00:53:51.690 --> 00:53:55.889
that compounds, it's more than 10 % total with

00:53:55.889 --> 00:54:01.889
compounding on the asset. I think it's still

00:54:01.889 --> 00:54:06.730
10 % assuming that's a total return number. I

00:54:06.730 --> 00:54:09.989
think what you're thinking about is let's say

00:54:09.989 --> 00:54:12.650
- If you stuck a million dollars in at the end

00:54:12.650 --> 00:54:14.150
of that 12 -month period, it's not worth 100

00:54:14.150 --> 00:54:17.570
grand. The income's not 100 grand. The total

00:54:17.570 --> 00:54:20.369
value of those units at the end of the cycle

00:54:20.369 --> 00:54:25.349
will be 1 .1 and a bit. Yeah, that's right. Mathematically,

00:54:25.449 --> 00:54:30.309
that's right. Yeah. Yeah, very, very interesting.

00:54:33.030 --> 00:54:36.869
So what was the name of the new fund which you're

00:54:36.869 --> 00:54:39.690
picking up again? It's called the GPT Wholesale

00:54:39.690 --> 00:54:42.750
Shopping Center Fund. So that's, you know, current...

00:54:42.940 --> 00:54:44.980
Cornerstone Investment is the Texas Wholesale

00:54:44.980 --> 00:54:47.320
Property Fund. Then there's the GPT Wholesale

00:54:47.320 --> 00:54:50.090
Shopping Center Fund. But after that... That

00:54:50.090 --> 00:54:51.909
was my next question. You know, after you filled

00:54:51.909 --> 00:54:54.250
the $25 million for this fund, what are you looking

00:54:54.250 --> 00:54:58.789
at next? Okay. There's a really great opportunity

00:54:58.789 --> 00:55:01.809
set going forward. We'd like to keep building

00:55:01.809 --> 00:55:05.389
the fund to expand into sector -specific funds.

00:55:06.030 --> 00:55:08.349
There's a few industrial funds that we really

00:55:08.349 --> 00:55:13.090
like. There's a land lease fund and a charter

00:55:13.090 --> 00:55:15.989
hall fund. These are the institutional -grade

00:55:15.989 --> 00:55:19.400
industrial funds. So we'd like to pick up. you

00:55:19.400 --> 00:55:22.119
know, one of the industrial funds. And then there's

00:55:22.119 --> 00:55:25.159
a number of really good office funds that we're

00:55:25.159 --> 00:55:28.099
going to look at. And then we're going to just

00:55:28.099 --> 00:55:31.000
keep sort of expanding and building the portfolio.

00:55:31.360 --> 00:55:34.699
But the benefit is we've started from like a

00:55:34.699 --> 00:55:37.340
blank sheet of paper where within the index,

00:55:37.500 --> 00:55:41.699
the unlisted, there's about 16 or 17 funds. We

00:55:41.699 --> 00:55:44.320
really like about six or seven of those funds.

00:55:45.099 --> 00:55:47.320
So we've sort of picked the eyes out of the funds

00:55:47.320 --> 00:55:49.960
we like, and we think not only is the sector

00:55:49.960 --> 00:55:53.719
beta really attractive from a risk -adjusted

00:55:53.719 --> 00:55:57.340
return, I believe that our strategy will deliver

00:55:57.340 --> 00:56:01.420
alpha above that beta because we're investing

00:56:01.420 --> 00:56:03.340
in some of the best funds that have got the best

00:56:03.340 --> 00:56:08.480
real estate and the best managers. Yeah, right.

00:56:10.199 --> 00:56:12.559
So these funds you're looking at, are they also

00:56:12.559 --> 00:56:15.300
spitting out double digits? Because obviously

00:56:15.300 --> 00:56:17.079
they're different asset classes. Industrials

00:56:17.079 --> 00:56:21.400
theoretically should be less over the resi side

00:56:21.400 --> 00:56:23.599
and then office space is an interesting one because

00:56:23.599 --> 00:56:25.420
office space did phenomenally well, then COVID

00:56:25.420 --> 00:56:27.119
happened, then you have the whole work from home

00:56:27.119 --> 00:56:30.000
culture. So the occupancy rate in Sydney and

00:56:30.000 --> 00:56:32.679
Melbourne isn't as high as it used to be pre

00:56:32.679 --> 00:56:37.960
-COVID. So I think industrial, most of the funds

00:56:37.960 --> 00:56:41.989
we're looking at, expecting double -digit returns.

00:56:43.170 --> 00:56:46.469
I think with industrial, you've got to be a little

00:56:46.469 --> 00:56:49.559
bit selective. You've got to own... You know,

00:56:49.579 --> 00:56:51.079
I think going back to sort of what we talked

00:56:51.079 --> 00:56:53.679
about before, I think you've got to focus on

00:56:53.679 --> 00:56:55.860
the really high quality sheds that are close

00:56:55.860 --> 00:56:58.860
to population centres with really good transport

00:56:58.860 --> 00:57:01.639
links because, you know, the tenants, you know,

00:57:01.659 --> 00:57:04.039
the big logistics tenants, they want to be in

00:57:04.039 --> 00:57:06.920
these great locations because they want to, you

00:57:06.920 --> 00:57:10.260
know, minimise their costs, fuel costs and transport

00:57:10.260 --> 00:57:14.219
costs. So I do, so infill Sydney, for example,

00:57:14.219 --> 00:57:18.440
I believe is a really good place to be. And also...

00:57:18.639 --> 00:57:21.019
sort of Melbourne and Brisbane where you're on

00:57:21.019 --> 00:57:24.179
really sort of good – in sort of established

00:57:24.179 --> 00:57:27.239
precincts with really good sort of transport

00:57:27.239 --> 00:57:31.880
linkages. So, yeah, I'm pretty comfortable about

00:57:31.880 --> 00:57:34.820
double -digit returns in the right industrial.

00:57:35.119 --> 00:57:37.860
When it comes to office, I'm a bit more selective.

00:57:38.179 --> 00:57:41.000
I really want to be in the heart of the Sydney

00:57:41.000 --> 00:57:44.219
round gateway or key quarter tower, those type

00:57:44.219 --> 00:57:46.780
of assets, heart of the financial district. I

00:57:46.780 --> 00:57:49.050
want to be in waterfront. place. In Melbourne,

00:57:49.170 --> 00:57:52.769
I really want to be at the Paris end of Melbourne,

00:57:53.050 --> 00:57:56.610
the 120 Collins, the 101 Collins, 80 Collins,

00:57:56.769 --> 00:57:59.210
because there is a bit of competition for space

00:57:59.210 --> 00:58:02.130
there. But there's large parts of Melbourne office

00:58:02.130 --> 00:58:06.269
that I'm a bit more cautious about. So you really

00:58:06.269 --> 00:58:08.710
want to be selective. But what I also didn't

00:58:08.710 --> 00:58:11.369
mention is within the institutional grade space,

00:58:11.650 --> 00:58:14.469
there's other sectors that we'd like to look

00:58:14.469 --> 00:58:17.469
at down the track. There's healthcare, you know,

00:58:17.469 --> 00:58:21.389
hospitals and healthcare, that's a great sort

00:58:21.389 --> 00:58:23.510
of asset class longer term. There's build to

00:58:23.510 --> 00:58:28.610
rent, land lease, which is another sector of

00:58:28.610 --> 00:58:31.369
the living sector. There's student accommodations

00:58:31.369 --> 00:58:35.989
sectors as well. So there are a number of, you

00:58:35.989 --> 00:58:39.010
know, other sectors that we will look at in future.

00:58:41.200 --> 00:58:43.860
Again, though, when you focused on the institutional

00:58:43.860 --> 00:58:48.239
side, these instos tend to offer, you know, own

00:58:48.239 --> 00:58:50.880
the best assets and really high quality governance

00:58:50.880 --> 00:58:55.019
and low gearing. What's the main question you

00:58:55.019 --> 00:58:57.400
kind of get asked, you know, when you're speaking

00:58:57.400 --> 00:58:59.300
with investors that we kind of haven't covered?

00:59:01.880 --> 00:59:08.000
So with rising rates, there is sort of a concern

00:59:08.000 --> 00:59:14.340
around cap rates expansion or cap rate what you

00:59:14.340 --> 00:59:18.960
call softening now that that is a concern more

00:59:18.960 --> 00:59:21.739
for i would say secondary grade assets you know

00:59:21.739 --> 00:59:24.579
the lower quality office buildings or sheds because

00:59:24.579 --> 00:59:27.179
that they've got higher levels of income risk

00:59:27.179 --> 00:59:31.059
and also the owners of these assets tend to have

00:59:31.059 --> 00:59:34.820
higher leverage so you know interest rates can

00:59:34.820 --> 00:59:40.019
uh you know can be a greater concern for strategies,

00:59:40.179 --> 00:59:42.699
what you call non -core strategies. That's got

00:59:42.699 --> 00:59:45.659
secondary assets, higher gearing, and more operating

00:59:45.659 --> 00:59:49.599
risks. So let's say more development activity

00:59:49.599 --> 00:59:53.139
for these lower quality assets. So that said,

00:59:53.500 --> 00:59:57.000
I think the prospects for the sector that we

00:59:57.000 --> 01:00:00.260
are focused on, because of the really great quality...

01:00:01.740 --> 01:00:06.300
real estate and the lower, you know, supply outlook,

01:00:06.539 --> 01:00:09.960
I think the rent growth is going to, is just

01:00:09.960 --> 01:00:12.440
going to be so strong. And there's going to be

01:00:12.440 --> 01:00:15.659
continued strong demand for these high quality

01:00:15.659 --> 01:00:19.659
assets. So I think people have a legitimate concern

01:00:19.659 --> 01:00:23.079
about certain parts of the property sectors.

01:00:23.960 --> 01:00:26.860
But I think we're at Pangean, we're very well

01:00:26.860 --> 01:00:29.780
placed within this environment. So I think that

01:00:29.780 --> 01:00:33.599
that's probably a key area of, I guess, risk.

01:00:33.699 --> 01:00:36.119
And I think we've mitigated the risk. And in

01:00:36.119 --> 01:00:38.579
fact, I think there's more opportunity than risk

01:00:38.579 --> 01:00:42.989
in our space. If anyone else wants to learn about

01:00:42.989 --> 01:00:45.449
the fund or the new raise which you're doing

01:00:45.449 --> 01:00:47.630
for the new asset, what's the best way for them

01:00:47.630 --> 01:00:49.329
to find you and get in contact with you and hit

01:00:49.329 --> 01:00:51.530
you with a bunch of questions? Absolutely. We

01:00:51.530 --> 01:00:55.190
love questions and great questions that you've

01:00:55.190 --> 01:00:57.989
asked Murdoch. So best is to jump on our website

01:00:57.989 --> 01:01:02.989
at pangencapital .com. That's P -A -N -G -E -N.

01:01:03.559 --> 01:01:06.920
capital .com uh jump on there's a lot of materials

01:01:06.920 --> 01:01:10.719
there uh but also you can uh you you can contact

01:01:10.719 --> 01:01:14.380
us uh our phone numbers uh on our website or

01:01:14.380 --> 01:01:16.619
our email address yeah please please reach out

01:01:16.619 --> 01:01:19.780
we'd love to we'd love to hear from you fantastic

01:01:19.780 --> 01:01:22.800
ryan thanks for coming on again um i love chatting

01:01:22.800 --> 01:01:24.800
you you're pretty much my guy to go to when it

01:01:24.800 --> 01:01:29.219
comes to large property infrastructure, shopping

01:01:29.219 --> 01:01:30.760
centers, all that type of stuff. I love hearing

01:01:30.760 --> 01:01:32.400
what's happening in the markets. Thank you very

01:01:32.400 --> 01:01:34.900
much for coming on and I look forward to getting

01:01:34.900 --> 01:01:38.440
you on again in the distant future. Thanks, Murdoch.

01:01:38.440 --> 01:01:53.880
I really enjoyed our chat. Take it easy. The

01:01:53.880 --> 01:01:56.019
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01:01:56.199 --> 01:01:58.099
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