New Zealand’s unlisted property fund sector continues to perform well despite the tough economic conditions, as investors seek reliable returns backed by strong tenant covenants.
Charlie Oscroft, Syndications Director at Colliers International, says six substantial proportionate ownership schemes have settled in recent weeks.
“All six schemes settled during the nationwide coronavirus lockdown – an outstanding result for a period that saw much of the property market on hold.
“This demonstrates that there is still very strong investor appetite for well-managed syndication schemes that offer good monthly returns.”
Oscroft says the lockdown has brought a renewed focus on the strength of tenant covenants.
“Government tenants are particularly sought after due to their resilience. This was the case with Oyster’s two most recent schemes, both of which are underpinned by long leases to government departments.”
Colliers International marketed the Pastoral House and Home Straight Park proportionate ownership schemes on behalf of Oyster.
Pastoral House comprises an 18-level multi-tenanted commercial building, situated in the heart of Wellington’s parliamentary precinct.
The property, which was purchased for $77 million and settled on 30 April, is underpinned by a 15-year lease to the Ministry of Business, Innovation and Employment. Investors are forecast to receive annual pre-tax cash distributions of 6 per cent, to be paid monthly.
Home Straight Park comprises a 2.9ha modern office complex with two government anchor tenants, located within Hamilton’s Te Rapa commercial precinct.
The properties were purchased for $69.5m and settled on 1 May. The scheme offers forecast annual pre-tax returns of 6 per cent, to be paid monthly.
Oyster’s Capital Sourcing Manager, Rich Lyons, says Oyster was pleased to be able to settle on both properties.
“The exposure to government tenants for both of these investments was most appealing to our investors,” he says.
“We remain confident in the long-term value of Oyster’s quality property investments and are committed to active management to maximise their value to our investors over time.
“Our investment philosophy is simple, we look to acquire quality, well-located property with strong tenant covenants.
“In the current low-interest rate environment, unlisted property will remain sought-after given they are income-generating investments which offer monthly returns – many investors are looking beyond traditional bank deposits due to the downward pressure on returns and not all will be comfortable with the recent volatility of local and global share markets.”
The recent lockdown period also saw the settlement of four other property syndication schemes managed by three different providers. These were:
- Silverfin’s syndication of 257 Fraser Street, Tauranga, which was purchased for $20m and comprises a Countdown supermarket and smaller retail tenancies. The scheme, which settled on 14 April, offers projected pre-tax cash returns of 7 per cent.
- PMG’s $52.9m Generation Fund, which comprises three industrial properties in Hamilton, Wellington and Christchurch, tenanted by national and multinational companies including Coca-Cola Amatil, Euro Steel and Torpedo7. The scheme offers projected pre-tax cash returns of 5.80 cents per $1 unit.
- Two new schemes from Mitchell Mackersy including Nick Scali’s industrial facility in Tauriko, Tauranga, and the Ministry of Education’s office in Whanganui.
Oscroft says these schemes again showcase the importance of strong tenant covenants.
“Government tenants and essential services, such as Countdown and Coca-Cola Amatil, continue to remain attractive to syndicators and ultimately investors.
“While the full impacts of the current economic downturn remain to be seen, there are encouraging signs that the syndication sector will continue to perform well into the future.”