The appeal of consistent returns in uncertain times

Right now, investors face plenty of unknowns. But amid the uncertainty, commercial property is one investment that can bring welcome predictability to a portfolio.

There is no shortage of ‘what-ifs’ that may impact investment markets at present. While the economic outlook is healthy, question marks remain over the likely direction of inflation and interest rates.

Adding to the unclear outlook, at some stage this year we’ll head to the polls for a Federal election.

It can add up to plenty of uncertainty – something that can make investment markets jittery, and make forward planning difficult for investors.

However, one type of investment can provide consistent returns, and that’s commercial property funds.

The advantages of commercial property investment

One of the benefits of investing in commercial real estate is that leases tend to span long periods, often three to five years, typically with an option to renew.

For investors this provides a high level of certainty with regard to rental income, cash flow and net yields.

The downside of direct commercial property investment in Australia, is the high cost of getting into the market.

Individual investors may only have sufficient capital to buy a single commercial property. This tends to concentrate risk as it often means focusing on one geographic market, and potentially relying on the success of a single (often small) business for rental income.

The solution to these drawbacks can be investing via a commercial property fund.

Commercial Property Funds – the advantages

Investing in a property fund involves pooling your capital with that of likeminded investors. The fund manager will select the underlying property – or properties, and manage the portfolio on behalf of investors.

The advantages of a commercial property fund  for investors can be considerable.

High quality properties

With greater depth of financial resources, a managed fund is able to invest in high quality properties in desirable locations – properties priced well beyond the reach of most individual investors.

As a guide, industrial complexes, warehouse/logistics facilities, and retail shopping centres are among the sort of properties a managed fund may invest in.

Quality tenants

Quality buildings in top locations tend to attract national or multinational tenants with proven long term business models. This enhances the certainty of rental income for fund investors. And, as these types of businesses are keen to avoid the cost and disruption of relocating, investors can be confident of receiving regular returns generated by ongoing rents coupled with minimal vacancy periods.

Diversification

Large commercial properties often have the capacity to attract multiple tenants bringing diversity to a managed fund’s mix. The property fund may also invest in several properties spread across a variety of locations. This creates further diversity which can lower risk for investors.

A fund manager’s expertise

In addition to negotiating robust leases with tenants, the fund manager will also have the skills needed to identify sites where value can be added in the future, or which offer sustainable features for tenants, further supporting capital growth.

The upshot for investors is that a commercial property fund can deliver consistent, predictable returns – and the prospect of healthy capital growth. Yet it requires far less capital outlay than purchasing a commercial property directly. There is also no need to take on a large debt, and investors don’t face any of the ongoing costs associated with the fund’s underlying properties.

Considerable investor interest

Damian Collins, Chairman of Perth-based Westbridge Funds Management, says, “We are seeing considerable investor interest in our unlisted property funds, and this is not surprising given the level of uncertainty many Australians are facing at present.

“All investors like to be able to plan ahead in order to manage their personal cash flow. So it can be very rewarding to discover that a commercial property fund can advise what returns will look like – and just as importantly, when those regular returns will be paid.”

Monthly distributions

Mr Collins points out that Westbridge Fund Management has achieved several key pluses for investors through its commercial property funds.

By way of example, the Westbridge Diversified Fund No. 4 holds two assets at present including adjoining industrial distribution facilities in Broadmeadows, Victoria, plus an office/warehouse logistics facility in Canning Vale, WA, which is fully leased to Blackwoods, a subsidiary of Wesfarmers Limited.

The Fund has just announced it has acquired a third asset for the Westbridge Diversified Fund No. 4 portfolio – a multi-let retail complex located 17km south east of the Perth CBD in the rapidly growing area of Southern River. The complex comprises a freestanding Dan Murphy’s, a family-style tavern/bistro and 10 specialty tenancies including Baskin Robbins and LJ Hooker, in a high-profile corner site close to a major arterial link. The property is directly adjacent to an Aldi supermarket and situated opposite a Woolworths.

An added plus, is that the retail complex is on two separate titles, offering the possibility of selling the buildings individually offering flexible exit strategies for the future.

“These are three very compelling properties, and as such, they have attracted household name clients, says Mr Collins. “And we are looking to add to the fund’s portfolio in the year ahead.”

For investors in the Westbridge Diversified Fund No. 4, a key point of appeal is the fund’s distribution target.

“We have targeted distributions of 7% per annum paid monthly,” explains Mr Collins. “We are upfront with our investors about both the return and the timing of regular payments.

“Feedback from our investors confirms that this level of predictability is highly valued, particularly in light of the volatility of other asset classes including equities. Property returns are not immune from interest rate rises and other factors, however consistent rental income and good quality tenants allow investors to plan ahead with confidence.”

For more information visit westbridgefunds.com.au.

This information has been prepared by Westbridge Funds Management as a general guide only. It does not constitute an offer for sale, or solicitation for the purchase of securities, financial products or other investments. It should not be relied upon to determine or to make decisions about the investment objectives, financial situation or individual needs of any person. Westbridge Funds Management recommends investors seek professional advice before making a decision to invest. All investment carries risk and investors should assess the risks of investing in any fund before deciding to invest. Manager, Responsible Entity and Product issuer: Westbridge Funds Pty Ltd ABN 33 652 852 214 AFSL 533936. Mair Property Funds Limited ABN 48 151 957 676 t/a Westbridge Asset Management. Mair Property Securities Limited ABN 28 091 623 862. AFS Licence 238386. Momentum Wealth Projects Pty Ltd ABN 29 090 792 439 t/a Westbridge Urban.