PROPERTY A BEACON IN A VOLATILE WORLD. Adrian Harrington Head of Funds Management Folkestone 14 March 2018

Transcription

1 PROPERTY A BEACON IN A VOLATILE WORLD Adrian Harrington Head of Funds Management Folkestone 14 March

2 FOLKESTONE OVERVIEW Folkestone is an ASX listed real estate funds manager and developer providing real estate wealth solutions for private clients and select institutions FUNDS MANAGEMENT Offers listed and unlisted real estate funds to private clients and select investors with $1.5 billion in funds under management 1 Income, Value-add & Development Funds Listed A-REIT Fund & A-REIT Securities Fund/Mandates Office Retail Enterprise Parks Residential Hotels Seniors Living Government Childcare DIRECT BALANCE SHEET On-balance sheet activities focus on value-add & opportunistic (development) investments Underwriting & Co-investing in Funds Value-add & Development Investments Fees Acquisition, Leasing, Management & Performance Returns & Fees Development Profits, Pref Equity Interest, Mgt Fees 1 As at 31 December

3 REAL ESTATE INVESTING LANDSCAPE Market forces continue to re-shape the landscape Technology, demographic and social is redefining what we build where we build how be build how we buy, operate, manage and sell assets how we live, work and play within real estate assets & communities 3

4 DEVICE USAGE JAN 2017 Percentage of the Adult Population that Currently Use Each Kind of Device We Are Social Sources: Google consumer barometer, January 2017, figures based on responses to a survey 4

5 E-COMMERCE ACTIVITIES JAN 2017 On-Line Purchases We Are Social Sources: Google consumer barometer, January 2017, figures based on responses to a survey 5

6 CONVERGENCE OF TECHNOLOGY Technology Improving At Exponential Rates Processing Power Data Storage Digital Imaging Network Capacity Battery Life Smartphones Drive Connectivity 6

7 BIG DATA / OPEN DATA 7

8 LOCATION INTELLIGENCE IS BUSINESS INTELLIGENCE Where Business Intelligence may find one-dimensional relationships between customer demographics or store and warehouse locations, and perform rudimentary location comparisons, Location Intelligence enables much deeper dives into the relationships between geography and customer data. 80% of all business data contains a location component, it is critical to understand how location affects business. In the combination of geographic and dynamic data, visualised on a map, location intelligence reveals characteristics that may have been otherwise obscured in a spreadsheet environment. Source: Pitney Bowers 8

9 SMART CITIES EMBRACING TECHNOLOGY San Francisco SF Park (parking app) Hong Kong Octopus Card (more than a travel card an ID and payment card) Melbourne Participate Melbourne (community engagement portal) Boston Boston Bump (pothole app) 9

10 SMART HOMES 10

11 TECHNOLOGY CHANGING FACE OF RETAIL Challenges the economics of established business models Forces businesses to change their business models, often to their detriment Operates a broad ecosystem of products and services and doesn t only make money selling its own products Amazon in Australia, it is not going to be as easy as the US Most of the retailers there rolled over but they won t here. Gerry Harvey: Harvey Norman News.com.au 26/04/17 "We have been expecting this for a long time. We have a healthy sense of paranoia. We are not complacent around the competitive risks." Rob Scott: Next CEO of Wesfamers, SMH 20/04/17 11

12 SHOPPING CENTRES BECOMING COMMUNITY CENTRES Shopping centres need not be just a place of selling, but a place where the retail space is complemented by entertainment, cultural and community services. They need to become a community gathering place where people can shop, play and even work and live. In other words a community centre. 12

13 RETAIL APPS TAKE SHOPPING Body Measurement Shopping Centre Offers While You Shop App Track Shoppers Moving Around a Centre Car Parking Reminder App 13

14 OFFICE TECH LOCATING DOWNTOWN Martin Place Becomes Silicon Place Former Westpac Chambers Source: ARF / Folkestone 14

15 LOGISTICS REVOLUTIONING INDUSTRIAL PROPERTY Last Mile Delivery Connecting With The Customer Driving a Shift Towards Super-Sized Distribution Facilities in Key Locations 15

16 SENIORS LIVING - TELEMEDICINE Telemedicine is the use of advanced telecommunication technologies to exchange health information and provide health care services across geographic, time, social and cultural barriers Facilities Ageing in Place and Consumer Directed Care Seniors Living Communities/ Retirement Villages 16

17 SENIORS LIVING 17

18 SENIORS LIVING CONTINUUM OF CARE Source: Folkestone and Productivity Commission 18

19 SENIORS LIVING - FUTURE TRENDS Retirement Village Trends sector consolidation larger villages with bigger apartments more lifestyle facilities - pool, gyms, café/restaurants, cinema, day spa vertical developments increasing/harmonising regulation Aged Care Trends sector consolidation greater emphasis/funding on home care vs residential care move to Consumer Directed Care Federal budget constraints putting more pressure on user-pays Retirement Village Convergence Home Care Residential Aged Care Customers Expectations Will Change As Customers Are Becoming: more educated more discerning more demanding have more money with more choice Convergence Co-location co-location of retirement & aged care Consumer Directed Care 19

20 RETIREMENT VILLAGES MORE THAN JUST REAL ESTATE Village Attributes In The Last 10 Years Organised Community Outings & Activities Emergency Call System Community Centre Pets Allowed BBQ Area Library Resident Communal Garden Visiting Health Professionals Pool Table Gym Hair Salon Craft Room Village Bus Pool Mens Shed Village Accreditation Movie Theatre Bowling Green or Croquet Lawn Village Less Than 10 Years Old Village Greater Than 10 Years Old Source: PwC/Property Council Retirement Census % of Villages 20

21 RETIREMENT VILLAGES NEED TO FOCUS ON THE CUSTOMER 21

22 DIRECT PROPERTY MARKET OVERVIEW 22

23 SOCIAL / DEMOGRAPHICS Sydney and Melbourne growing above trend Population forecasting has consistently fallen short ABS forecast s 1999 vs 2016: Australia m vs 24.2m Sydney m vs 5.0m Melbourne m vs 4.7m Inner city & middle ring population growth stronger than expected Infrastructure has not kept pace Pressure on social services childcare/aged care/schools/medical especially inner & middle ring Greater Sydney Greater Melbourne Greater Brisbane Greater Adelaide Greater Perth Greater Hobart Greater Darwin ACT Total Cities NT -2,696 Demographic Shift Cities Population at 30 June ,005,358 4,641,636 2,349,699 1,326,354 2,066, , , ,294 16,152,336 Net Interstate Migration Change on Previous Year No. % 82, ,770 41,135 9,371 27,428 1,786 1,147 5, , QLD 11,581 Creates social infrastructure real estate investment opportunities WA -7,703 NSW -11,349 SA -6,398 Vic 16,699 23

24 $bn CAPITAL FLOWS Total Australian Non-Residential Investment Activity: Non-Residential Foreign Investment In Australia By Country: 2017 $bn Source: Cushman & Wakefield Strong investor interest continues - $34.1 billion in sales in 2017, up 14.0% on 2016 levels Source: Cushman & Wakefield Foreign investment of $12.2 billion 36% of all transactions Asian lead the investments - $8.4 billion driven by Singapore and China 24

25 Dec-95 Dec-97 Dec-99 Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11 Dec-13 Dec-15 Dec-17 % NON-RESIDENTIAL REAL ESTATE PERFORMANCE Non-Residential Real Estate Yields: Drivers of Non-Residential Property Investment Returns: Retail Office Industrial Other 10 Year Bond Yields Lead up to GFC Source: MSCI/PCA Cap rates at record lows difference between 2007 and now is spread between bond yields Source: MSCI Returns have been driven by cap rate compression rather than income growth 25

26 NON-RESIDENTIAL REAL ESTATE PERFORMANCE Asset Class Returns: Year to 31 December 2017 Non-Residential Real Estate Sectors: Total Returns 2016 and 2017 Source: MSCI Unlisted real estate funds were the second best performing asset class Source: MSCI Other real estate healthcare, carparks etc. outperformed in both 2016 and 2017 Retail lagged for the 2 nd year in a row 26

27 RESIDENTIAL PRICES AND YIELDS Australian House Prices: Major Capital Cities: Australian House Yields: Major Capital Cities: Source: Westpac Sydney house prices negative (-2.0% for the year) for 1 st time since 2012 Source: Corelogic. Morgan Stanley Research Rental yields are slowly lifting from record lows Melbourne house prices continue to hold up (+6.7% for the year) 27

28 RESIDENTIAL - LOANS Investor Borrowing By State: Investor and Interest Only Loans: Source: ABS, Morgan Stanley Research Investor activity has slowed but remains elevated in NSW Source: APRA, Morgan Stanley Research Macro-prudential measures have lowered the share of investor and interest-only loans 28

29 RESIDENTIAL - APARTMENTS Housing Construction By Type: Apartment/Townhouse Approvals: Source: ABS, Morgan Stanley Research Apartments have contributed most of the uplift in Australia's residential building activity Source: ABS/ANZ Apartment market continues to remain elevated, although volatile 29

30 A-REIT MARKET 30

31 TGP AJD GDI IDR RFF PLG AOF LEP CHC ABP ARF NSR HPI GMG CMW CMA GOZ ERF BWP CIP INA SCP FET DXS MGR WFD CLW APZ GPT CDP AVN IOF CQR SCG VCX SGP VVR INM % A-REIT VARIATION OF PERFORMANCE A-REIT 1 Year Returns: To 28 February Folkestone Maxim Held A-REITs* Other A-REITs Source: IRESS *Excludes Real Estate Managers & Developers Securities held by the Fund Wide variation in individual security performance reinforces case for active security selection in the sector 31

32 Industrial Diversified Commercial Specialised A-REITs Retail % (p.a.) % A-REIT RELATIVE PERFORMANCE 15.0 A-REIT Vs Equities - Total Returns: To 28 February 2018 S&P/ASX300 A-REIT Accum Index S&P/ASX300 Accum Index 15.0 A-REIT Sub-Sector Performance: To 28 February Month 1 Year 3 Years Month 1 Year 3 Years 5 Years 10 Years Source: UBS Source: UBS A-REITs underperformed in the month to 28 February 2018 A-REIT sub-sector performance showed wide variation over short term Industrial was the best performer in the past year driven by limited supply and increased demand for assets in metropolitan locations that could potentially service online retailing Retail underperformed due to concerns about the challenging retail environment and the arrival of Amazon 32

33 A-REIT PRICING GMG WFD LEP CHC RFF HPI ABP CMW NSR GDI INA ARF GOZ FET BWP BWR CIP DXS SCP PLG IDR TOT AOF MGR ERF GDF CMA CRR SGP TGP CLW GPT CDP SCG VVR AVN CQR APZ IOF VCX -40% -20% 0% 20% 40% 60% 80% 100% Source: Petra Capital A-REIT Premium/Discount To NTA: March 2018 Some A-REITs such as MGR, DXS and CQR have announced buybacks in February reporting season IOF and VCX already in place 8.0% 6.0% 4.0% 2.0% 0.0% Office (A Grade) Source: Petra Capital A-REIT Cap Rate Movements: 1H17 1H18 1H17 2H17 1H18 Retail (A Grade) Industrial (A Grade) Pubs High quality assets have continued to see cap rate compression but to a lesser extent than the past two years Childcare 33

34 EMBRACING CHANGE FOLKESTONE MAXIM PORTFOLIO WEIGHTING Portfolio Weighting: As at December 2017 Real Estate Developers & Managers Social Infrastructure A- REITs Portfolio (%) Index 1 (%) Relative Weighting Industrial A-REITs Underweight Retail but Overweight Industrial FUND THEMATICS Other Specialised A-REITs Office A-REITs Retail A-REITs Diversified A-REITs Cash TOTAL Underweight Office and Diversified but Overweight Social Infrastructure & Specialised A-REITs 1 S&P/ASX 300 A-REIT Index 34

35 FOLKESTONE REAL ESTATE IQ Real Estate IQ provides our latest thinking on real estate to assist you in navigating the world of real estate markets and issues, to make more informed investment decisions. Visit: 35

36 DIRECTORY FOLKESTONE ASX Code: FLK Website: ABN: Level 14, 357 Collins Street Melbourne VIC 3000 T: Level 10, 60 Carrington Street Sydney, NSW 2000 T: INDEPENDENT BOARD OF DIRECTORS Garry Sladden Non-Executive Chairman Mark Baillie Non-Executive Deputy Chairman Greg Paramor AO Managing Director Ross Strang Non-Executive Director COMPANY SECRETARY Scott Martin Telephone: INVESTOR RELATIONS Lula Liossi Telephone: lliossi@folkestone.com.au REGISTRY Boardroom Pty Limited P.O. Box R67, Royal Exchange NSW 1223 Telephone: or enquiries@boardroomlimited.com.au DISCLAIMER: This presentation has been published for information purposes only. The information contained in this presentation is of a general nature only and does not constitute financial product advice. This presentation has been prepared without taking account of any person's objectives, financial situation or needs. Because of that, each person should, before acting on this presentation, consider its appropriateness, having regard to their own objectives, financial situation and needs. You should consult a professional investment adviser before making any decision regarding a financial product. In preparing this presentation the author has relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources or which has otherwise been reviewed in preparation of the presentation. The information contained in this presentation is current as at the date of this presentation and is subject to change without notice. Past performance is not an indicator of future performance. Neither Folkestone Limited, nor any of their associates, related entities or directors, give any warranty as to the accuracy, reliability or completeness of the information contained in this presentation. Except insofar as liability under any statute cannot be excluded, Folkestone Limited and its associates, related entities, directors, employees and consultants do not accept any liability for any loss or damage (whether direct, indirect, consequential or otherwise) arising from the use of this presentation. If a product managed by Folkestone Limited or its associates is acquired, Folkestone Limited or its associates and related entities may receive fees and other benefits. The author of this presentation does not receive commissions or remuneration from transactions involving the financial products mentioned in this presentation. 36