The top-performing property investors that beat the market

Australians love the property – though it’s fair to say that love affair is feeling some strain at the moment. While residential property typically dominates our investments, the broader sector has also benefited from this passion. This comes back to the property being tangible, having a strong growth profile over the past decade, and typically offering a clear income stream. It also simply comes down to an emotional connection, buying into the great Aussie dream.

The last year was not necessarily an easy time to be a property investor.

The Australian real estate sector ended the year down 21% based on S&P Dow Jones Indices. Mortgage holders anxiously watched residential falls as Australian housing values declined 5.3% over 2022 (Source: CoreLogic). Property didn’t look any more encouraging on a global front, as the S&P Global Real Estate Invest Trust (REIT) Index ended the year down 23.6%.

It is, therefore, no mean feat that six of the 17 property fund managers covered by Livewire managed to finish 2022 in the black.

In this wire, I’ll take you through the top five performing funds from last year, and discuss some of the key themes from the results.

How we compiled the list

The following list was compiled using the information provided here.

• In the “Fund type” box, select “Managed Funds”
• In “Asset Class”, select “Property – Australian” and “Property – Global”
• We then sorted the results based on 1-year returns.

Important: We have only covered the funds under Livewire’s umbrella. Thus, it doesn’t represent the entirety of the market. Fund performances are also generally viewed over longer timeframes. Of this year’s top five property funds, three have been around for at least five years and one has just reached five years this month. This information is also purely for information purposes and is not intended as advice. Past performance is not a reliable indicator of future return.  

Source: Morningstar, Livewire Markets fund database

Key takeaways from the results

The top two performing funds were purely focused on Australian industrial property, which speaks to the strength of this sub-sector of real estate.

Industrial real estate typically involves long-held leases from tenants and benefits from the challenges for tenants to relocate or find other suitable building spaces. An additional benefit is how rental is typically structured with regular reviews involved.

“Rent reviews are generally tied not just to inflation but also a fixed rate, and they can be ratcheted up depending on what’s the higher rate. In the past, if the fixed rate was 3% or 4%, that’s the amount that would be applied in low inflationary times, while in high inflationary times, it’s reflected in the CPI,” says Philip Ryan, Managing Director of Trilogy Funds.

Even the third top-performing fund benefited from a portion of its portfolio being allocated to industrial property.

Exposure to office spaces was a value add for funds 3-5 of the top five performers.

“Across Australia, we’re seeing that the occupancy ranges from 40-50% in Melbourne and Sydney ranging 60-70%. Areas like Brisbane and Perth have not been as affected by the lockdowns,” says Miriam Patterson, Head of Office Partnerships at Charter Hall.

All five top-performing funds focused on Australian investments. None of the six global Australian property funds in the Livewire database generated a positive return. This may speak to the fact that Australian inflation is lower than in other parts of the world, and our industrial spaces have benefitted from the world reopening and high demand for supply.

1. Charter Hall Industrial Fund No 4

The fund invests in quality industrial properties in Australian industrial precincts with an emphasis on those positioned near major transport infrastructure. It focuses on properties with high occupancy levels and long weighted average lease expiries (WALEs). Some of its properties have been purpose-built for tenants with long rental terms. It offers quarterly income distributions and requires a five-year minimum investment period.

Some examples of the properties in its portfolio include Patties Food Group in Bairnsdale or Mainfreight Logistics Centre in NSW.

According to Charter Hall, “occupier demand continues to surge (particularly across non-discretionary retail, e-commerce, third party logistics, manufacturing and healthcare), as the sector responds to structurally higher online retailing, advancing sustainability requirements and the evolution of supply chains. The shortage of modern, purpose-built, highly efficient facilities and warehouses will continue over the near-term – placing upward pressure on market rents.”

The fund has had 1-year performance of 9.05% and 5-year performance of 11.68%.

Managed Fund

Charter Hall Direct Industrial No.4 Fund

Australian Property

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2. Trilogy Industrial Property Trust

The trust holds a portfolio of industrial assets such as warehouses and manufacturing, logistics and distribution centres across Australia in established regional and metropolitan precincts. It currently holds 16 properties and makes monthly distributions to investors.

According to Philip Ryan, Manager Director at Trilogy, industrial property is often viewed as the “ugly duckling” of property but typically offers consistency and long-held leases.

“At the end of the day, it’s the quality of the tenant that’s paramount. That’s our number one focus, buying assets to fill with tenants like Komatsu, Tempur Sealy and Stoddart Group,” he says.

The trust has had 1-year performance of 8.47%. It has only just hit its 5-year anniversary, but has otherwise offered performance of 8.53% pa since inception on 1 January 2018.

Managed Fund

Trilogy Industrial Property Trust

Australian Property

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3. AMP Capital Wholesale Australian Property Fund

The fund invests in a portfolio of office, retail and industrial properties that are occupied by corporate and government tenants. It offers quarterly distributions to investors. Some examples of the properties in its portfolio include Casula Mall in Sydney and office and retail space 425 Collins St in Melbourne.

AMP noted in recent reports that capital city industrial markets have benefited across the year from strong broad-based demand, rising replacement costs and falling vacancy. This has also translated to increases in market rents.

The fund has had 1-year performance of 6.21% and 5-year performance of 7.18%.

Managed Fund

AMP Capital Wholesale Australian Property Fund

Australian Property

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4. Charter Hall Direct Office Wholesale A Fund

The fund invests in a portfolio of quality Australian office property, with a focus on CBD and established property markets. It pays quarterly distributions. Some examples of its portfolio include Western Sydney University at Parramatta and the Australian Taxation Office in Adelaide. (They say the only certainties are death and taxes... the latter has to be good for rental payments).

According to Charter Hall, “market indicators and our leasing activity tell us the demand for quality office space remains strong. Workplaces will continue to play a critical role for the majority of businesses and the economy.”

The fund has had 1-year performance of 6.17% and 5-year performance of 10.95% pa.

Managed Fund

Charter Hall Direct Office Wholesale A Fund

Australian Property

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5. MA Secured Real Estate Income Fund

The fund managed by Drew Bowie, Managing Director at MA Financial Group, offers exposure to first mortgage loans secured by Australian residential and commercial property, by investing directly or indirectly via third-party originated special purpose trusts. It offers monthly distributions to investors.

“Defensive in nature with a relatively attractive, resilient return profile, by design real estate credit, especially first mortgage credit, can be shielded from the inflation challenges ahead. It can be an attractive option for investors now both cyclically and structurally,” says Bowie.

The fund has had 1-year performance of 5.44%. It has the shortest history of the top five with an inception date of May 2021. Its performance since inception is 5.37% pa.

Managed Fund

MA Secured Real Estate Income Fund

Australian Property

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I'll be in charge of asking the questions to Australia's best strategists, economists, and fixed income fund managers. If you have questions of your own, flick us an email: content@livewiremarkets.com