Defy the downturn: The listed property fund manager targeting double-digit investment returns

Australian listed property has had a pretty torrid time in recent years, particularly those landlords with portfolios of office towers, shopping malls and warehouses. Valuation declines were initially driven by the pandemic, but the challenge has now moved onto the broader economic climate of rising inflation and interest rate hikes.

A key point, though, is that just as Australian real estate investment trusts defy a catch-all definition, so do the different property sectors listed above. REITs are not homogenous entities, and neither are their performance profiles. For example, shopping centres with a strong emphasis on luxury goods retailers struggle more in a tighter economic environment than those underpinned by consumer staples retailers.

Shifting the tenant mix of acquired retail assets is just one way that ASX-listed real estate fund manager, Elanor Investors Group (ASX: ENN), seeks to maintain and enhance the returns it delivers to investors. 

In the following interview, Michael Baliva and Matt Healy, the group’s co-head of real estate and head of retail, development and mixed use, explain how the fund is forecast to deliver annual distributions of 7% p.a. to investors since launching and are targeting a total return of beyond 13% p.a. They also discuss the appealing attributes of the convenience-based retail asset that underpins their newest fund.

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Edited transcript

Michael Baliva: Elanor Investors Group is an ASX-listed real estate fund manager. It has $2.8 billion of investments under management in various sectors, including office, healthcare, accommodation hotels, and convenience-based shopping centres. We're very much focused on repositioning those centres. Our focus is on originating well and delivering superior performance from those investments to investors. We are very proud of our track record of being able to deliver 22% annual returns to investors, based on our realised retail investments to date. We're very proud of our track record.

We pride ourselves on originating investments well, coming up with very clear investment strategies, and then focusing on our execution using our executive team of 22 people across development, leasing, and asset management to really focus on delivering that outperformance on a risk-adjusted basis for investors.

We're very excited about originating Riverton Forum, relative to some other recent transactions in the Perth metropolitan area. We are buying the asset using very favourable acquisition metrics, and with our capability internally, we are very confident that the fund will be able to deliver superior risk adjusted returns, starting with a 7% average distribution over the life of the fund, and with a target return of 13% plus per annum over the investment horizon.

Matt Healy: The Riverton Forum is a dominant convenience-based asset located 11 kilometres from the Perth CBD, that sits on a strategic parcel of land that's 6.3 hectares in size. The asset itself is underpinned by two strongly performing anchor tenants, a recently refurbished Woolworth supermarket, and a to-be refurbished Big W discount department store. Both those majors are trading above benchmark with a lease expiry profile of 7.2 years, which we really like, because those strong fundamentals provide the basis for us to improve the tenancy mix of the asset moving forward.

The income that is generated from the asset is very sustainable, over 93% of the income is generated from defensive non-discretionary goods and services and essential needs. The asset already has a high level of occupancy of 98%, and with our integrated in-house platform of leasing, asset management and development, we see opportunity to further improve what is already a very strongly performing core shopping centre by introducing more medical, health, wellbeing, personal services, and retail services. This will also build on the advantages driven by the positive changes to the demographics of the area.

We see the opportunity for us to leverage our market-leading capability to add value to what is already a very, very strong investment. We've originated the asset at such a compelling metric, a 7.25% core capitalisation rate, which to Michael's point, compares very favourably to recent transactions in and around the locality of Riverton Forum. For investors, this presents an opportunity to leverage off Eleanor's origination and market-leading asset management capability to drive consistent, safe and reliable distributions of 7% per annum with a total return of upwards of 13%.