With the wall of cash dividends hitting investors’ accounts over the coming months due to surging iron-ore prices, there is one question top of mind: What to do with the cash?
Industry analysts are predicting the dividend windfall from BHP Limited (ASX: BHP), Rio Tinto (ASX: RIO) and Fortescue (ASX: FMG) could top $65 billion over the year, in addition to the $7 billion from the Big 4 banks. With the current cycle of almost zero cash rates, the race is on to find sustainable income-producing investments.
Amid the noise of an exciting investment market, there are solid, high-yielding investment opportunities in the periphery of the action that offer both security and good returns.
How to find property assets that stack up
Australians love affair with property has become even more pronounced since the initial shock of the COVID-19 pandemic panic set in. We are both staying and investing locally. House prices from the east coast to the west coast have sky-rocketed and commercial and industrial assets are in hot demand with a raft of banks and non-bank lenders ready to lend money.
The level of appetite and competition in this space is highlighted in Stamford Capital’s latest Debt Capital Markets Survey, which tracks lender sentiment and the latest trends in the real estate debt market.
Based on responses from over 100 lenders, including banks, non-banks and private financiers, the survey found a “dramatic swing from the bleak outlook a year ago” when capital dried up, leverage levels decreased and lending criteria tightened.
Carried out in March this year, the survey found lending appetites were back at pre-COVID levels with increasing deal competition from a growing pool of non-bank lenders expected to compete more heavily on price and force down interest margins.
Private capital chasing higher yields in the booming property market has seen a large increase in the number of new non-bank lenders offering construction and investment loans this year.
While the pool of debt is available, and still relatively cheap, the trick is trying to find the property assets that stack up. This is where an experienced property fund manager can sort the wheat from the chaff. Sourcing the asset is one thing, knowing if you are paying too much is another. Selectivity is the key.
Mining the macro and geographical factors
Looking at macro factors and geographical location is also vital. Where are the industrious activities happening? City or regional, coastal/ports or mining? The mining industry for example has seen a significant uptick since June 2020. Mining exploration in Western Australia is almost at record levels and the capital raising pipeline is strong.
The Australian Securities Exchange notched up 42 IPOs in mining-related businesses over the past 12 months to April 2021 and despite the Covid-19 pandemic, is well ahead of other hotspots including Toronto, with 28, and London with two, according to data compiled by Bloomberg.
With the recent news of a $500 million investment in the Kalgoorlie-Goldfields region by Lynas Rare Earths, along with a $400 million commitment from Evolution Mining (ASX: EVN) for the acquisition of a collection of Northern Star (ASX: NST) mines on the western side of Kalgoorlie, and BHP recently revealing it has struck a deal to supply nickel from the region to Tesla, the region is experiencing a level of sustainable economic activity not seen for many years.
So, it appears on a macro level, locations near to, and supporting the burgeoning mining exploration and production sector seem sensible. Resources need resources, including human capital. But accessing large commercial and industrial assets in those regions is not an option for many individual investors.
A golden commercial opportunity
It takes a skilled property fund manager to find the asset and assess it on its merits.
In the case of commercial property, is it tenanted, to whom, and for how long (WALE)? What are the costs associated with acquiring and managing the property? What is a fair acquisition price and how will it be funded? If everything stacks up, then a due diligence process will follow. Lenders are appointed and capital is raised (normally to the tune of 50% debt funding by banks/lenders and 50% by investors).
For both groups, returns need to be negotiated. And in the case of capital provided by investors, a yield or distribution based on the rental income received will be passed on monthly or quarterly, for the life of the investment, which usually stretches to between five and seven years.
Perth-based M/Group has recently gone through that process on a macro and financing level and plans to invest in a large format, fully leased 6000 square-metre commercial asset in Kalgoorlie, Western Australia forming the Boulder Road Property Trust.
In the heart of the Goldfields, Kalgoorlie is home to 30,000 people, swelling to 40,000 in boom times. With three national tenants locked in for a WALE (Weighted Average Lease Expiry) of 8.08 years, the fund is targeting monthly distributions to wholesale investors of 8% pa for a period of seven years (unless the asset is sold prior and capital returned). That’s 7.5% higher than the current cash rate. Importantly, the tenants are high quality and essential to the locals and the resource sector – RSEA, Autobarn and Heatleys.
M/Group’s Latest Investment OpportunityRead more
A brand new opportunity to invest in an income asset fund and partner with M/Group in the acquisition of a newly constructed, fully leased, large format retail property.
Learn more about how this property and its tenants will service their community, while providing investors with a target distribution of 8% p.a paid monthly by visiting: www.boulderpropertytrust.com.au
Four Wins in a Row for M/ConstructionRead more
M/Construction hit a quadfecta at this year’s Master Builders Australia 2021 Excellence in Construction Awards when the company took home its fourth ‘gong’ for ‘Best multi-unit development’; this time for its work on Quest Apartment Hotel, Ascot in the $10-20 million division.
This high-profile, 112-room purpose-built property is the second Quest apartment building to be entrusted by the apartment hotel giant to M/Construction and has significantly strengthened an already strong relationship between the two organisations.
The project faced many challenges, notwithstanding planning holdups with Covid-19 lockdown restrictions, a complete review of all materials and their delivery timeframes due to supplier delays and being located on a busy intersection where traffic management was required.
M/Construction director, Mr Michael Read, said the sheer prestige of the building and the work that went in to finish it to the highest caliber makes this year’s award win even more gratifying.
“Our work is often likened to that of a well-oiled machine, where all the many components are coordinated with such great precision that result often exceeds expectation,” he said.
“In the case of Quest Apartment Hotel, Ascot, we faced enormous challenges that might have crippled another building company. However, our advanced systems and processes were so well executed that we finished the job on time and to an extraordinary standard.”
The development program saw the company introduce a unique construction methodology whereby one entire floor was competed every two weeks, enabling for services to start work weeks earlier than usual.
In assessing the project, the award judges considered quality of construction, project management, value for money, innovation, and site management – all which M/Construction excelled.
The Master Builders Award accolade is equally reflected in the client’s response of being impressed by the process and end results. Shortly after completion Quest was announced as “Oceania’s Leading Serviced Apartment Brand 2020” in the World Travel Awards further highlighting their strong and consistent brand through their premises.
“Many might query what makes M/Construction so different to other companies within the marketplace and the answer is evident in the way we conduct our business towards achieving outstanding results time after time,” Mr Read continued.
“We are extremely pleased by this latest award win, as it truly cements M/Construction’s credentials not only in apartment buildings, but also serviced apartments where quality and consistency are on show.”
“We thank the MBA for its acknowledgement and look forward to working on many more great construction projects.”
The Quest Apartment Hotel, Ascot is an $18.5 million project built on a 2,211sq.m site with a project area of 8,072sq.m. It was completed in just over 15 months.