New investment opportunity

Our last speaker from the property and income perspective is Mr. Chris Carrigan, Head of Property Investments from Quanta Investment Funds.

The Qantas SE Queensland Office Trust is a high-yielding SE Queensland Office investment with in-built capital growth potential plus several value-add opportunities.

The investment is 99% leased and underpinned by long-term leases to government and ASX Top 50 companies, including some of Australia's most well-known brands.

Chris brings over 20 years experience in acquisitions, investment management, and leasing.

He has held senior management positions with large institutional and corporate real estate investors, including QIC and Melfa Australia Limited.

Chris has been the responsible executive for a portfolio greater than $2.5 billion throughout his career and has been a key driver of growth in these portfolios,

He's gonna tell us the new investment opportunity.

Welcome, Chris.

Thanks, Angelina.

Yes, thanks for letting us, giving us the opportunity to talk today.

We're very excited about that upcoming investment opportunity, but before we do, I was keen to give an idea of who is Quanta, what we do, and the types of investments we, what we invest in.

So just as a little about Quanta,

We're a Brisbane based fund manager.

We've been operating for some, around 10 years under various corporate structures.

Our current portfolio is a little over 300 million in assets under management.

We're a multi-sector specialist, so that means that we're not predisposed to any one sector.

We invest in office, retail, industrial, health,

So we're somewhat agnostic in our approach.

Our investors are wholesale investors.

Their investment in our investments range in size from as little as $40,000 up to our highest investor, which is around $50 million.

And here in Brisbane, we've got an office in Queen Street with around 35 staff where we have

investment management, acquisitions, property management and project management.

So our investments, we most typically invest in retail, industrial, office, but we also invest, take a position in other investment, other sectors, such as health, where the returns and the quality of property matches our investor.

appetite.

Our investment style is typically what's known as core plus to value add and so that's really when you talk about a risk return ratio core plus is very stable commercial asset with long term leases.

Value add is core plus but adds a value twist to it and I've got a couple of practical examples to talk through those two investment styles.

Our market, the markets that we invest in, again, we're not predisposed to any particular market.

We're invested in most states throughout Australia.

We do like to be able to deploy localised management expertise where we can.

So the assets that we've acquired most recently and the assets we're talking about with our new opportunity

are all in Southeast Queensland, very close to our office.

The return profile we look for is to be able to offer investors a strong underlying distribution of 8% or greater, and we pay that monthly.

That's 8% net of fees paid into the investors bank account monthly, and an equity IRR between 11 and 18%.

That varies depending on the profitability or the value add aspects of the investment.

So our funds, we're transitioning the style of investments we offer to investors.

We no longer look at pooled open-ended funds that don't have a defined exit date.

We strongly believe that

an investment strategy has a origination phase, a value creation phase and an exit phase.

And typically we're finding that's in five to 10 years.

So we return investors equity to them out of that investment at the end of that five to 10 year period.

That seems to be the overwhelming preference of our existing investors.

And they also rather than investing in pooled funds

they like the choice of defined assets where they know which assets they're going to invest in rather than being blind to the actual assets when the manager picks them and grows the funds through a pooled fund.

So this is our portfolio, 21 properties spread across all but three states in Australia.

They're in eight trusts and yeah,

currently valued in the order of $310 million.

To explain the difference between those two investment styles of core plus and value add, this is two retail assets we acquired last year.

The property on the right is a convenience centre service station and has medical assets and it has long-term leases

medical tenants, service station tenants, and doesn't have expiries for a long time.

And so it doesn't have a lot of value add to it, but it's a safe, secure, safe harbour.

And that's a classic call plus investment.

We offered that at 6.5% distribution to investors, which reflects the low risk nature of that investment.

Another core plus investment we made during the year was the Launceston Everyday Retail Centre, which was 100% leased to the likes of Super Cheap Auto, BCF, Beacon Lighting, Rabobank.

The strategy with this asset is, again, it's core plus, so it's long-term leases.

There isn't a construction or value-added twist to it.

It's renew the leases, achieve rental growth on renewal and then sell that asset on a higher net income in four or five years time.

So 157 Ant Street was a third deal we did last year and this is a very good example of a value add investment case.

We bought a building that was previously owned by a Goldman Sachs entity

It was 48% leased, so there was some leasing risk in it.

We acquired the building with a prospective tenant in hand.

We completed, we purchased the building with a leasing commitment that really took occupancy up to about 90% by the time we settled the property.

So there was a lot of value delivered by

by purchasing up.

We bought at a price that reflected that the building was only 50% occupied, but returns are based on, and the capital growth is based on having a tenant that takes out most of the vacancy.

We've since leased the rest of, in the nine months that we've owned this asset, leased the rest of the building.

So that's now 100% occupied.

We bought the building for $39 million.

spent 7 million it's now valued at 59 million so it's been a very compelling value add investment style.

So if I move to the South East Queensland office trust which we are bringing to the market, this is an office investment of two assets and it will only ever be two assets in a single trust that will be

has an investment horizon of five to seven years.

It's 99% occupied and over 70% of the area is to either state government or some of the best tenants in Australia.

So the property in the top right hand corner there includes Queensland head office for Bunnings, Queensland head office for Coles, Queensland head office

for Wesfarmers.

It includes Panasonic, National Australia Bank and some other private sector tenants.

So the property on the bottom, sorry, right hand corner is predominantly leased to state government.

So between the two properties, we've got a very robust mix of tenants and

there is inbuilt capital within their inbuilt capital upside in their leases through fixed rent reviews so the rent will grow.

We think that when we renew these leases, there is room for rental growth.

And there's also some surplus land that comes with the limestone street tenancy on the bottom right, that we believe we can get a DA on and sell in

in the medium term to a developer when the developer market returns more strongly.

So that's really, they're both South East Queensland so our management teams are very close to both assets.

As I say, it's a five to seven year investment and we will be looking to close investment applications in August

settled the properties in late September.

So that's the South East Queensland Office Trust.

Why South East Queensland?

South East Queensland is a very strong economy at the moment.

It's one of the strongest economies in Australia at the moment.

net migration in South East Queensland is the highest in the country.

And of course there's what we're calling the golden decade of growth for South East Queensland coming up with unprecedented levels of infrastructure, the Olympics coming up and construction in that area.

So it is a very compelling, it's a very compelling place to invest.

And we think that over time,

that in addition to the net income growth and the value add initiatives that we have at that property, South East Queensland as a precinct to invest is going to be very strong.

Thank you, Chris.

Now you explained why South East Queensland, but can you explain why office?

So the office sector, we look, we're agnostic, as we were saying, we look at

easily over a hundred deals a year and end up doing usually only three or four deals.

And we look at mostly industrial, retail and office.

Office has had a genuine reset in pricing that the other sectors haven't seen yet.

So price of shopping centres is not as strong as it was, but it's got a long way to go in terms of being

in terms of reset and certainly the same with industrial pricing just has not reflected the change in the interest rate environment in those sectors.

Office has had unquestionably had a reset and the price that we've paid for these assets certainly reflect is below book value for

for the vendor that's selling these, which had a 2021 or 2022 valuation, I should say, sorry, and also well below replacement cost.

Secondly, contrary to what's happening in other capital cities, the leasing markets for office space in Brisbane is very, very robust.

So we're seeing a lot of activity as

As Anne Street, Anne Street's a good example.

We took a building from 48% to 100% occupied in nine months.

The tenant market is very active.

Rents are growing.

There's pent-up demand in office post-COVID in Southeast Queensland.

That really underpins the office, really the persuasion towards buying office at the moment.

And you mentioned Ipswich and Upper Margaret.

Why are Qantas targeting these two markets?

So for all our investments, whether they be in South East Queensland or elsewhere, we target markets that have a deep pool of tenants, because at the end of the day, the occupier risk is a key component of commercial property investment.

We want markets where there are a lot of tenants.

We want markets where the number of tenants are growing.

And we want to invest in markets where supply is constrained.

And for different reasons, both of these assets fit that market well.

There's very limited supply, sorry, very limited competing vacancy in both markets.

They're both very tightly held.

well-leased markets.

The tenants in there, there's more tenants that want to get into particularly Mount Gravatt than there are opportunities for high quality office accommodation like the office buildings we're buying.

And thirdly, supply is very heavily constrained.

Currently, with the current developer market, there's low

ability for competition to be built in these areas.

Well, thank you, Chris.

Good to see you today and take care.