Properties and Funds

Commercial property (typically viewed as non residential property) is widely held by institutional investors for its attributes of being seen as a safe haven and strong investment diversification asset class. Non institutional investors have limited opportunity to invest in commercial real estate due to the significant cost of investing in a property.

Investing into a Carpe Diem property fund gives investors direct exposure to the underlying real estate. The assets are structured as trusts to maximise the pre tax yield paid to investors. Typically our funds will aim to pay out 100% of earnings to investors, generally on a quarterly or even monthly basis.

Different asset classes present different opportunities.

Motels

Regional motels offer significant opportunity with high yield and strong opportunity for capital growth. We have now successfully launched three regional accommodation funds with over 500 rooms and assets spread across three states. We have teamed up with RedHill Hospitality Management for actively managed investor exposure to this sector.

Our first motel fund (RRAF1) had a forecast to yield an average 10% p.a paid quarterly for investment for Wholesale and Sophisticated investors and this has since been meaningfully upgraded with 11.8% yield paid in FY22 despite major business interruption early in the year with COVID lockdowns. The earnings yield for FY22 exceeded 15%. RRAF 1 is fully invested in the 72 room John Hunter Muswellbrook Motel, and the 55 room Peninsula Nelson Bay Hotel and Apartments, both acquired on double digit yields. We have substantially increased occupancy and revenue since taking ownership, in line with our value add strategy. Renovation and repositioning works have commenced at the John Hunter Muswellbrook which have meaningfully upgraded the perception of the internal public areas. During the three month NSW COVID lockdowns in 2021 we often had this large property running at 100% occupancy, and during the December 2021 quarter occupancy averaged 78%. This compares to the 48% average annual occupancy it had been running at in the three years prior to our purchase.

Peninsula Hotel and Apartments, Nelson Bay, NSW – Owned by RRAF1

John Hunter Motel, Muswellbrook, NSW – Owned by RRAF1

Our RRAF2 (Regional Accommodation Fund 2) was launched in late 2021and closed fully subscribed. It has a portfolio of 4 motels across VIC, NSW and QLD. RRAF2 has acquired the 55 room Oxley Motor Inn in Dubbo, NSW and the 48 room Boulevard Motor Inn in Mildura Victoria, as well as the 70 room Seagulls Resort in Townsville and 48 room Boulevarde in Mildura.

The Oxley Motor Inn, Dubbo, NSW owned in RRAF2

Boulevard Motor Inn, Mildura, Victoria – RRAF2

Seagulls Resort Townsville, QLD – owned by RRAF2

We launched our RRAF3 portfolio in mid 2023 and acquired a major 62 room property in Cairns which we will quickly reposition through renovation, and a 40 room motel in the key regional city of Armidale in NSW. We expect the Fund to acquire an additional property in 2024 to supplement the portfolio once the Cairns repositioning is complete

Armidale City Centre Motel

Cairns Southside International Hotel

Office

Commercial or office property has been a long term mainstay for property investment. Vacancy levels in 2020 in major markets were at historic lows, driving rents and values higher. The COVID impact of driving work from home (WFH) may impact demand over the longer term however will take years to play out. Emergent value may appear and we are watching closely for value opportunities. We have a strong preference for suburban office assets which we believe will benefit from WFH dynamics due to close proximity to worker homes, low cost, and discount to replacement cost. Our most recent unlisted property fund offering was the Carpe Diem SCA Property Trust offering fund investors an 8% p.a. first year yield paid month. The property is near new and is fully leased with options until 2040 to ASX listed Southern Cross Austereo with 3.75% p.a. fixed annual increases. The Fund offers a forecast average 8.75% p.a. yield to investors.

SCA Canberra Headquarters – held by Carpe Diem SCA Property Trust

Essential Retail Trust

Retail has been an important part of society. It has evolved meaningfully and will continue to do so. Convenience retailing is expanding to smaller offers and more convenient access as evidenced by strong growth in Woolworths and Coles metro store formats. Customers already typically visit a service station for essential access to fuel on a weekly basis. It is anticipated that in store sales will continue to grow at service stations, increasing profitability and ensuring long term viability and opportunity for rent and capital value growth. The Carpe Diem Essential Retail Trust owns 11 properties branded Puma but leased by Chevron (Caltex) with no lease expiry until 2030 and options to 2050. The portfolio rent growth is linked annually to CPI, providing an inflation hedge.

QLD Puma asset owned within the Carpe Diem Essential Retail Trust

Industrial

Industrial property was once the highest yielding commercial asset class but now the most sought after as demand increases for e-commerce retailing direct from warehouse to consumer. As such investment yields are very low reflecting strong demand for the asset class but limiting return opportunity. We are therefore cautious about investing into this asset class unless we have a unique angle which creates a competitive advantage for entry.