TOL - 27th Apr, 2024
The asset class growing like a mushroom in our own backyard (and how to access it)
Conditions couldn’t be riper for this asset to blossom - but you may not know what it is. Watch this episode of The Pitch to find out.
As recession fears fade away into the distance in both Australia and large parts of the world, investors are turning their attention to finding capital growth once again. You can see this in large swathes of the markets - from growth stocks to residential property prices, and from Bitcoin to select areas of the commodities complex.
But one often overlooked opportunity for growth is emerging all across Australia - industrial property. And unlike some assets, this is growth that is a) tangible and b) can be seen across both regional and urban areas. In a lot of cases, these assets are also being tenanted by large firms that will end up requiring a lot of space (and as much location certainty as possible).
So how can you access this opportunity - and what makes for a good investment in the space?
In this episode of The Pitch, we'll get the answers to these and other questions from Clinton Arentz, Head of Lending & Property Assets at Trilogy Funds.
edited transcript
Hello, I'm Hans Lee from Livewire Markets and welcome to The Pitch. Joining me today is Clinton Arentz from Trilogy Funds. Clinton, let's talk about the opportunity for industrial property that's going to come out over the next five years.
What do you think is the single biggest reason that investors should consider allocating a portion of their portfolio to industrial property?
Arentz: I'd argue it's probably one of the most dynamic asset classes in Australia at the moment. I mean, one thing that comes to mind is the regional growth. These companies are expanding across the country, getting closer to their customers and expanding into major regional growth areas, which is to some extent a COVID function as well. So it's the asset class to get into in that sense if you want that sort of national growth perspective.
Lee: If you're bringing up regional growth, is it covering all states and all different cities and towns?
Arentz: It's quite extraordinary. I've got the luxury to be able to travel around the country, look at these premises, and we've got assets in Darwin, in central Queensland, in Brisbane, in Melbourne, and South Australia.
Everywhere I see is high demand for more premises from certain tenant groups, but also a preparedness to go to the regions where they can get workers and where the population centres are growing.
What metrics do you use to find a good quality location and a good quality tenant?
Arentz: They tend to operate in clusters so companies will want to work together in certain types of industries. So Central New South Wales, for example, in and around Western Newcastle, is a good example.
There's a whole cluster of quite smart industrial companies there. Some of them work in mining services and we've tapped into that market too, quite significantly. In almost every state, there are these higher regional growth areas. There are major new road networks, there are new hospitals, and there is a tremendous amount of growth, all of which needs industrial premises support.
How do you, as an investment manager, seek out that capital growth?
Arentz: We look for these areas that we think have growth ahead of them. We also look for areas that aren't glutted with land. And that's nowhere at the moment. So, it becomes increasingly harder to find these assets.
But we look in these regional growth areas, as I say, and we look for assets that have been perhaps overlooked to some extent, might be a bit out of favour for whatever reason because they're not as fashionable or funky as major CBD assets and not necessarily on investors' minds. But they certainly perform well because the underlying company is a strong, long-term, good-performing company with strong financials. Typically, that's what we look for.
Does the size of the project matter when it comes to a portfolio of properties like this?
Arentz: Well, to a point, size matters a lot. If you want diversification to achieve diversification, you need a certain scale. We've scaled up to 15 properties now, or $250 million in assets under management, and we're getting that economies of scale now in terms of our management costs. We're also getting the diversity we wanted and we're getting a nice spread of income streams from a range of different industry sources.
You don't buy for the sake of it, but we buy selectively to add value to the Trust and we're always looking to maintain the running return of the Trust. We're always looking to grow where we can. So that's a very key part of our decision-making criteria.
Tell us about an asset that you have invested in that signifies the opportunity that exists in the industrial property space today.
Arentz: There's a range I could think of but one good one is in central New South Wales, in behind Newcastle. There's a manufacturing group that is refurbishing old trucks for the mining industry, but they now run an operation where they convert those trucks to electric operations. They've now brought on a whole bunch of new customers who all want their diesel trucks converted to electric trucks.
So, this is a high-growth industry with a lot of potential ahead of it, and that's just one example of quite a sophisticated business operating in our fairly simple industrial warehouse-type premises.
Find out more about Trilogy Funds here.
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Hans leads the team's coverage of the global economy and fixed income. He is the creator and moderator of Signal or Noise, Livewire's multimedia series dedicated to top-down investing.
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Hans leads the team's coverage of the global economy and fixed income. He is the creator and moderator of Signal or Noise, Livewire's multimedia series dedicated to top-down investing.
Expertise
Hans leads the team's coverage of the global economy and fixed income. He is the creator and moderator of Signal or Noise, Livewire's multimedia series dedicated to top-down investing.
Expertise
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