Department of Social Services moves into Soward Way - Cromwell Property Group
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Cromwell Insight Magazine | Autumn 2018
Department of
Social Services
moves into
Soward Way
INSIDE 6 10 12 14
The 2018 How retirement Matching your The Australian
Australian can shift lifestyle to your high net worth
economic & perspectives on investment investment
property outlook property strategy landscape 2017
investment
CONTENTS
3 CEO update 16 What is CEREIT?
4 In brief 18 Cromwell Property Group Foundation - call for nominations
6 The 2018 Australian economic & property outlook 20 Poland to continue to prosper
10 How retirement can shift perspectives on property 23 Soward Way, Greenway
investment 24 The rising importance of sustainability to the
12 Matching your lifestyle to your investment strategy commercial real estate industry
14 The Australian high net worth investment landscape 2017 27 Cromwell’s Half Yearly Results at a glance
Keeping up to date
LinkedIn.com
Insight Magazine
YouTube.com
Cert no. L2/0008.2010
Published by Cromwell Property Group
www.cromwell.com.au/insights
If you would like to receive the next Insight Magazine in your letterbox,
go to www.cromwell.com.au/insights to subscribe.
Cromwell Property Group (ASX: CMW) is a Real Estate Investor and Manager with
operations on three continents and a global investor base. The Group is included in the
S&P/ASX 200. As at 31 December 2017, Cromwell had a market capitalisation of $2.0
billion, a direct property investment portfolio in Australia valued at $2.5 billion and total
assets under management of $11.2 billion across Australia, New Zealand and Europe.
Insight Magazine is published by Cromwell for our securityholders, investors and financial
planners in Australia. It is distributed quarterly and features our view of the Australian
property market, industry trends, news and education. We also share our achievements
and report on the progress of each of our investment funds.
This report has been prepared by Cromwell Funds Management Limited, ABN 63 114 782 777, AFSL 333214 (“CFM”)
and Cromwell Property Securities Limited, ABN 11 079 147 809, AFSL 238052 (“CPSL”), both of which are wholly
owned subsidiaries of Cromwell Corporation Limited, ABN 44 001 056 980.
All statistics, data and financial information are prepared as at 31 December 2017 unless otherwise indicated. All
dollar figures shown are in Australian dollars unless otherwise indicated.
While every effort is made to provide accurate and complete information, Cromwell does not warrant or represent that
the information is free of errors or omissions or is suitable for your intended use and personal circumstances. Subject
to any terms implied by law that cannot be excluded, Cromwell accepts no responsibility for any loss, damage, cost
or expense (whether direct or indirect) incurred by you as a result of any error, omission or misrepresentation in the
document.
This document is not intended to provide investment or financial advice or to act as any sort of offer or disclosure
document. It has been prepared without taking into account any investor’s objectives, financial situation or needs. Any
potential investor should make their own independent enquiries, and talk to their professional advisers, before making
investment decisions.
Past performance is not a reliable indicator of future performance. In particular, distributions and capital growth are not
guaranteed.
Various unlisted funds are referred to in this document. At the date of this document, the funds are not offered outside
of Australia and, in some cases, New Zealand.
Neither CFM nor CPSL receive any fees for the general advice given in this document.
Cromwell Property Group (“Cromwell”) comprises Cromwell Corporation Limited, ABN 44 001 056 980 (“CCL” or “the Company”)
and the Cromwell Diversified Property Trust, ARSN 102 982 598 (“DPT” or “the Trust”), the responsible entity of which is CPS.
Contact Brisbane Office Sydney Office Melbourne Office
1300 276 693 Cromwell House Level 14 Level 5
invest@cromwell.com.au Level 19, 200 Mary Street 167 Macquarie Street 700 Collins Street
www.cromwell.com.au Brisbane QLD 4000 Sydney NSW 2000 Melbourne VIC 3008
2
28 Stock Talk: Westfield-Unibail-Rodamco 38 Cromwell Phoenix Property Securities Fund
31 INVESTMENT REPORTS 39 Cromwell Property Trust 12
35 Cromwell Direct Property Fund 40 Cromwell Ipswich City Heart Trust
36 Cromwell Australian Property Fund 41 Cromwell Riverpark Trust
37 Cromwell Phoenix Core Listed Property Fund 42 Cromwell Phoenix Opportunities Fund
CEO update
Dear Investor,
On 28 February 2018, Cromwell reported half-year statutory profits, before the write down of
Paul intangibles, of $155.5 million, up 1.5% on the prior comparable period. Operating profit, which
Weightman is considered by the Directors to best reflect the underlying earnings of the business, was $76.8
MANAGING DIRECTOR/ million, equivalent to 4.32 cents per security (cps).
CEO
Importantly, distributions paid to securityholders in the half were unchanged at 4.2 cps.
The five-year investment, and divestment, programme we commenced in 2013 with the purchase
of Northpoint and our New South Wales government portfolio, the planning and construction
of the new Department of Social Services building in Canberra and the investment made into
Europe and Singapore, have all come to fruition at the same time.
Cromwell looks very different now to what it did in 2013. We are a real estate investor and
manager operating on three continents with a global investor base. We have over 370 people
working from 29 offices in 15 countries, managing $11.2 billion in assets across more than 330
properties and 4.2 million square metres (sqm).
Despite this growth, we remain deeply committed to creating value and providing sustainable
returns for our investors and securityholders. We aim to provide an attractive combination of
stable long-term cashflows, demonstrated asset enhancement capabilities and transactional
profits, and low risk exposure to European economic growth and Asian capital flows.
The establishment of a presence in Singapore, and the successful IPO of Cromwell European
Real Estate Investment Trust (CEREIT), means that Asia will be an increasing source of capital
for the business. These new sources will increase our ability to connect capital to real estate
opportunities and grow our funds management business.
In this edition of Insight, we present the 2018 Australian economic and property outlook, examine
how your attitude to investing in property might change upon retirement, look at the recent
economic performance of Poland, as well as the industry wide push behind sustainability. The
Cromwell Property Group Foundation is also calling for nominations for causes that align with its
mission. Full details are included inside.
Yours sincerely,
Paul Weightman
3
In brief
Christmas Giving Albury’s Regent Cinema Cromwell proudly supports
ECONOMIC
GO
VER
NANCE
Programme
COMMUNITY restored to former glory Gold Coast paratriathlete
CO
M FY18 TARGET
Cromwell’s sustainability
€
/
234,500 Cromwell has invested $475,000 Sara Tait
MU
E
NITY
framework focuses on how we can to restore Albury’s iconic Regent
Sara Tait is an inspirational young
NABILITY engage with key stakeholders and Cinema to its former glory.
G IS CONNECTED woman who will be competing in
make a positive contribution to the Supported by Jason Smith
the Commonwealth Games on the
local communities in which we Construction, the works revived
Gold Coast as part of Australia’s
operate. the external façade and restored
paratriathlon team. Not only has
This Christmas, we once again the original paintwork of the
Sara made the Commonwealth
raised and donated funds to heritage-listed building.
Games team following a number
charities that Cromwell staff were The works and colour scheme of successful placings in
directly or indirectly involved with. were approved by award winning paratriathlons around the country,
Each charity chosen received a heritage architect Noel Thomson. she has also been announced as a
donation to go towards a project Originally constructed in 1926, baton bearer in the Queen’s Baton
or initiative that will make a the Regent Cinema Centre has Relay as it makes its way to the
difference. been an Albury mainstay for more Opening Ceremony in April 2018.
We collectively raised, volunteered than 90 years. As the only cinema As a corporate sponsor of Sara,
and contributed approximately within a 65-kilometre radius, it is Cromwell has recently rallied
$30,000 / €20,000 to 12 different a significant venue within the local its business partners to donate
charities across Australia, the community. funds to provide her with a new
United Kingdom, Holland, France, The restorations meant it was a custom made bike. This has
Germany, Poland, Denmark and great choice for the premiere of allowed Sara’s training regime to
Sweden. the Australian comedy movie, The continue positively in the lead up
Charities nominated included the BBQ, starring Shane Jacobson, to the Games, with a win for Sara
Cure Brain Cancer Foundation, Magda Szubanski, Manu Fieldel in the recent qualifying St Kilda
Alzheimer’s (Dementia) Australia, and Julia Zemiro. More than 1,000 Paratriathlon event.
O.S.E (Organisation of Ecological people attended the first screening We wish Sara the best of luck at
Rescue), Ronald McDonald Huis of the film, prior to its national the Commonwealth Games and
VUmc, Bolle Kids, and LandAid. release on 22 February 2018. know she’ll do Australia proud.
Cromwell congratulates everyone
who took the time to give back to
their local community this past
year.
4
Cromwell Phoenix Wakefield Private Hospital Cromwell sponsors ACT PCA
Opportunities Fund closed to and Clinic acquired OMR breakfast
investment Cromwell has finalised the The Property Council of Australia
purchase of Adelaide’s Wakefield held their bi-annual Office Market
On Friday 26 January 2018, the
Private Hospital and Clinic from Report in each state across the
Cromwell Phoenix Opportunities
Australian Unity for $50 million. country at the start of February.
Fund closed to all further
investment, after reaching its self- The significant 8,712 square metre Cromwell sponsored the breakfast
imposed cap of $40 million. site will suit a wide variety of uses held in Canberra, which provided
and purposes as a redevelopment an overview of the current position
Distribution reinvestment and
opportunity due to its versatile of the ACT and national office
redemptions from the Fund are still
Capital City zoning, premier markets, and the outlook for 2018
available, however no new money
location and multiple street and beyond.
will be accepted into the Fund.
frontages. This highly anticipated event
The benchmark-unaware Fund
The major tenant, Calvary Health revealed the latest results from the
provides its investors diversification
Care Adelaide, is one of South Property Council’s January 2018
by investing in listed microcaps,
Australia’s largest providers Office Market Report. This data was
predominately outside the ASX 300.
of orthopaedic, cardiac, and dissected by the industry’s leading
As at 28 February 2018, the Fund
neurosurgical services. The sale experts, with the implications for the
had returned 21.5% per annum
was finalised on 14 December year discussed at length.
annualised since its 2011 inception
2017, and was the largest For more on what’s expected in
(after fees and costs, inclusive of
healthcare repositioning and 2018, see Cromwell’s economic and
franking credits).
redevelopment transaction in property outlook in this edition of
Current investors can contact South Australia last year. Insight (page 6).
Cromwell Investor Services Team
on 1300 276 693 with any questions
regarding the closure, or visit the
Fund’s web page at
www.cromwell.com.au/pof.
Destination Outback 2018 – Call for sponsors
Later this year, the Cromwell Property Group Foundation, in partnership with FDC Construction & Fitout, will
again participate in Destination Outback. Between 10 and 17 August, participants will travel from the Collie
Hotel in Central NSW, to Longreach in Outback Queensland, and back to the Armatree Hotel just north of
Dubbo. It is anticipated that the distance travelled over the eight days will be in excess of 3,000 kilometres.
Destination Outback is run to support causes that are important to the rural communities visited throughout
the drive. In order to raise money for these causes, we would like to offer our Insight readers the opportunity
to sponsor the vehicles our team will be travelling in on this incredible journey.
For sponsorship and pricing opportunities, please contact the Cromwell Property Group Foundation, at
Foundation@cromwell.com.au.
5
The 2018 Australian
economic & property
outlook
GDP flat while economy rebuilds
Rebuilding the non-mining industries that suffered
through the mining boom is taking time and involves
significant industry and regional differences.
The rebuild is slowly being led by dollar-exposed
industries such as tourism and education services,
with Australian GDP growth averaging only 2.5% over
the last five years.
Going forward, a downturn in residential building will
take over as the main factor constraining growth.
Overview Growth is expected to continue to average 2.5%
over the next three years, with employment growth
While Australia is still working averaging 1.5%.
through an extended period of slow
economic growth, the rest of the Stronger growth in Australia must wait for now
world is strengthening. In Australia, despite experiencing a credit squeeze
rather than a financial crisis and a downturn rather
The key drivers for Australia than recession, business confidence is still moderate.
continue to be the rise and fall There has been a lot of action on the building and
mining side of the investment equation, but businesses
of the mining production and
have not yet really started to invest for growth.
investment cycle, tentative business
The signs are positive,
investment for growth, the impact but investment is
of the Australian dollar and the tentative. Equipment
prospect of rising bond rates. investment remains soft,
but computer-related
Overall for property markets, as investment in software,
interest rates rise, the search for computer system design
and related services are
yield will transform into a search for picking up.
assets which will experience strong
The next stage is a shift
rental income growth. from cost containment
to growth. The
missing elements are
6
Europe faced a harder road, not just because of
debt, but largely because of the emergence of cost
imbalances in a fixed exchange rate system. After
the introduction of the euro, costs blew out for many
strengthening demand and profitability, and also the countries, while Germany kept costs contained. That
emergence of capacity constraints. Businesses are left Germany hiding undervalued in the euro and other
starting to invest, but primarily just to catch up on economies uncompetitive, with higher costs.
maintenance investment.
Labour costs have since pulled back in the high cost
Non-mining demand and profits, while picking up, countries, reducing the cost imbalances and allowing
remain soft. Investment in increasing capacity and a rebuilding of Eurozone economies. Now, European
servicing growing demand are required to accelerate growth is improving though it remains to be seen how
economic growth. quickly stronger growth will translate to business
investment.
Given the impending negative impact of a residential
downturn, growth will remain slow at least until The impact of Brexit on the UK remains uncertain.
non-mining business investment builds sufficient Not only will the UK lose some European markets,
momentum to take over as a primary driver of growth. but some businesses currently located in the UK will
relocate. With trade agreements to be negotiated, the
The Australian Dollar to remain a little high question is about the size and timing of these impacts.
A stronger world economy driving demand for mineral
A phase of rising interest rates has begun
exports will keep the dollar at a level which constrains
Interest rates, overseas comparison, 3-month bank bills
the competitiveness of many domestic industries. The 8%
rise in US interest rates relative to Australian rates 7%
Forecast
could lead to some moderation, but an exchange rate 6%
Australia
higher than USD$0.70-$0.75 will slow the structural 5%
change required. 4%
UK
3%
World growth to strengthen 2%
US Germany
1%
It has been a long, hard road for Western economies 0%
since the Global Financial Crisis (GFC). It is only now -1%
Japan
that investment is chiming in to accelerate growth 99 01 03 05 07 09 11 13 15 17 19 21
worldwide. Source: BIS Oxford Economics, RBA, AFR, Haver Analytics
Having been the primary driver of post-GFC growth, Interest rates, overseas comparison, 10-year government bonds
China’s growth is now slowing. However, despite all 7%
Forecast
the doom and gloom stories, growth is likely to slow 6%
only moderately, particularly given that stronger world 5%
growth will boost Chinese exports. That augurs well 4%
Australia
for Australian commodities. 3%
US UK
In the US, it was always going to take a decade 2%
to absorb the excess capacity created during the 1% Germany
financial engineering boom which preceded the 0%
Japan
GFC. The US economy is already strong and now, a -1%
99 01 03 05 07 09 11 13 15 17 19 21
decade on, it’s looking as though business investment
Source: BIS Oxford Economics, RBA, AFR, Haver Analytics
is starting to build momentum. US growth will
strengthen further as investment kicks in.
7
State of property cycle by sector and city
PEAK PEAK
RE
TA
SY
IL
D
MEL
BNE OFFICE
PER INDUSTRIAL
RETAIL
MEL
SYD
CA
E
AD
N
BN
E
TROUGH
The rise in US rates has started, with further rate Though bond rates have started to rise, and while
rises expected in coming years. With a buffer between investor demand remains strong with the prospect of
Australian and US cash rates, Australian rates need some further firming of yields, rising bond rates will
not directly follow US rate rises. Australian cash eventually lead to a softening of yields and prices.
rates will stay at current levels for a while yet, before
This will create a headwind for investment markets.
a strengthening Australian economy and the threat
Expected returns will be lower. This will transform
of rising inflation cause the RBA to raise rates.
the search for yield into a search for income growth to
Australian bond rates, however, will track US rate
drive future prices and returns.
rises.
PROPERTY BY SECTOR
Worldwide inflation has remained contained as growth
There have been few surprises in the property markets
has strengthened. This is not the new norm as wages
in the last year. The exception is the shift in sentiment
will eventually pick up as labour constraints emerge.
against retail property. Triggered by the concern about
In Australia, the labour market is a lot weaker than the
the entry of Amazon into the Australian market, this has
employment figures suggest. Given the relatively low
caused a polarisation in attitudes towards the sector.
growth, inflation will remain contained for some time
yet. Industrial
Industrial property has come into its own as an
Implications for property markets institutional investment class. It was a major
INVESTOR DEMAND WILL BE DENTED BY RISING beneficiary of the period of falling interest rates
INTEREST RATES and firming yields. The GFC cleaned out industrial
Low interest rates worldwide have driven strong property, allowing returns to build from a low base.
demand for assets, not just property, but also
However, it became apparent that new roads
infrastructure and equities. Indeed, in the majority of
infrastructure had opened up large tracts of industrial
markets, most of the capital growth experienced was
land (often zoned but not serviced). Broadly speaking,
driven by firming yields rather than any underlying
as yields firmed, leasing competition from developers
income growth.
led to a fall in rents, even while firming of yields
allowed residual land values from development to rise.
8
The problem is that softening yields will put pressure mean that net additions to the volume of office
on development rents, as a means of offseting the space available to let has decreased.
impact of these softening yields and to maintain
The market will stay tight for another few years
prices, as well as to to underwrite development
until sufficient stock comes on to satisfy demand.
feasibilities. Further, availability of land will limit
This environment provides an opportunity to
capital growth. Recent strong historical returns are
upgrade and add value to properties, either
unlikely to continue. While returns remain solid, they
through repositioning, refurbishment or
are unlikely to meet current institutional benchmarks.
redevelopment.
Retail
While not as tight on the supply side as Sydney,
Investor sentiment has turned against the sector,
the strength of the Victorian economy is boosting
largely triggered by the aforementioned entry of
demand for Melbourne commercial property.
Amazon into the Australian market. To that, there
is also the weakness of household income and Melbourne retains its comparative cost advantage
expenditure, and hence, retail sales growth. over Sydney in the provision of back-office services
for national operations. Accordingly, office
Moderate total shopping centre income growth has
employment and net absorption of office space
to be shared between current centres, moderately
will be stronger than Sydney in the medium term,
increasing supply and also the large inroads being
underwriting a solid performance.
made ‘into the pie’ by increasing levels of internet
shopping. All of this will put pressure on centre A long period of oversupply has finally come to
incomes. an end in the Canberra market. Vacancy rates
have tightened for commercial space in Civic.
The key to performance is control over the catchment.
However, given government dominance of tenancy
The outlook for the strongly performing ‘super’
requirements, Canberra remains a two-tiered
centres looks solid, but there is increasing risk. All
market with a dichotomy between occupied space
centres are locked into a competitive refurbishment
and obsolete space not suitable for government or
cycle to maintain their catchment. This increases
commercial tenants.
costs and poorly performing centres will do badly.
Perth, Brisbane and Adelaide all have vacancy
Apart from the super centres, large format retail (e.g.
rates over 15%, and it will take a few years
Bunnings) have the best prospects in an asset class
to absorb the current oversupply. Individual
facing issues.
investment opportunities will arise, but overall, the
Office markets in all three will be difficult for some time.
The office markets are cyclical and remain out of sync
with each other. Summary
Sydney remains the pick of the markets. It presents Investors need to work hard to find good
the best opportunities for investment and, more investment opportunities. In most cases, expected
particularly, for development. returns are around current hurdle rates. The
Sydney and Melbourne office markets provide
Demand has been moderate. But returns have been
some ‘undervalued’ opportunities given expected
strong, underwritten by supply shortages driving
future rental and income growth, particularly for
rental growth. A gap in development post-Barangaroo,
value-add strategies. Their cyclicality, however,
in addition to withdrawals of stock for residential
means that an exit strategy will be required.
development, the Metro rail and office redevelopment,
9
How retirement can shift
perspectives on property
investment
Changed risks and tax scenarios When it comes to disposing of a property, whether it is a
retiree’s home or investment property, sequencing risk
in retirement can cast familiar needs to be considered. Timing can make a significant
investment opportunities in a new difference to retirement income for investors looking
to fund their retirement with the profit from a property
light. So how does retirement sale.
change the view on investing in
Crystallising wealth during a downturn in the market
property? And what are the main can mean investors will have much less to fund their
risks retirees should consider retirement and may have to keep working for longer to
make up for the loss. Selling at the top of the market
when updating their investment could mean boosting a super balance with a large
strategy? lump sum, but this could be problematic from a tax
perspective due to the $1.6 million pension balance cap
Entering into retirement doesn’t just require adjusting introduced in 2017.
to new tax obligations, it also calls for a shift in mindset For investment properties, if an investor holds on to
around investing. Individuals often become more their property until they retire, they may not have to pay
cautious and risk averse when it comes to investing capital gains tax. However, it may impact their Aged
after they retire, driven by a concern that they will Pension entitlements.
outlive their savings.
This concern, referred to as longevity risk, is well- Property investment in retirement
founded. The average Australian male will live to 80
Borrowing to invest may be a favoured investment
years old, the average female to 84 years, and both
pathway for wealth accumulators — primarily due to
will need enough savings and investments, including
the regular returns and capital growth — but it presents
super, to provide an income for up to 20 years after
complications for retirees and investors nearing
they retire1. New tax scenarios and obligations
retirement. For example, if borrowing to invest within
mean investors must recalibrate familiar investment
a self-managed super fund (SMSF), limited recourse
strategies around property, shares, bonds and annuities
borrowing arrangements can increase the amount of
as they prepare for retirement.
debt held by the fund and potentially counteract the
financial stability many retirees want.
Australians’ love affair with property ownership
Given the uncertainty around the timing and nature of
Property represents one of the largest components of retirees’ needs, liquidity can be one of the key drivers
household wealth in Australia2. By the time they reach for many retirees’ investment decisions. Direct property
retirement age, 77% of Australians will own the home investment is relatively illiquid, because investors can’t
they live in3. But, reports on household wealth indicate sell a bedroom if they need to raise additional funds for
that the majority of retirees do not have adequate living expenses, travel or medical costs.
diversification across their pool of assets.
1. Australian Bureau of Statistics: Life Tables, States, Territories and Australia, 2014-2016 http://www.abs.gov.au/ausstats/abs@.nsf/mf/3302.0.55.001
2. Australian Bureau of Statistics: Income, wealth and expenditure over time, Australia, 2015-16. http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/by
Subject/6523.0~2015-16~Feature Article~Income Wealth and Expenditure Over Time (Feature Article)~100
3. Australian Institute of Superannuation Trustees Expenditure patterns in retirement, August 2016.
10Tax minimisation strategies also need to shift as Considering new investment opportunities
retirees move from high income tax brackets into the Retirement casts a new light on investment choices.
lowest, but with a new set of rules to abide by. It’s important that retirees look beyond familiar
For example, holding onto a negatively-geared investment options in order to diversify and spread
investment property may be effective while an their risk across multiple sectors, geographic regions
investor is still working, but less so when they’re a and asset classes. Without a regular source of
retiree looking to generate positive income from their income, retirees need to minimise their longevity risk
investments. by looking for investments that offer both returns and
capital growth. The relative security and guaranteed
Tax on property syndicate investment earnings can income from term deposits and annuities can be
be deferred for up to seven years, which can be a appealing to many retirees, but the trade-off for this
helpful strategy when an investor plans to move from confidence is lower interest rates or higher premiums.
a high income tax bracket into retirement’s no-tax
environment (within a SMSF in pension phase) during Property remains a viable asset class for retirees.
that seven-year period. Investing in a listed property Commercial property investment through listed trusts
trust also provides greater liquidity than direct or managed funds (including unlisted property funds or
property, because it can be partially sold like any other property syndicates) can deliver many of the benefits
listed investment. of the residential sector, but through a fundamentally
different investment proposition with potentially
The lack of diversification associated with investment advantageous structures and greater diversification.
properties can also attract higher levels of risk than
many retirees are prepared to accept. A large amount
of capital held in the one asset class, commonly Before making the decision to invest in a commercial
contained to a narrow geographic area, can be property fund, it’s important to do due diligence.
problematic. This can include looking at the track record of fund
managers, reviewing the range of assets held by the
fund or trust, understanding the exit strategy and
checking the gearing levels within the fund’s underlying
investments. If the investment is held within a SMSF (in
pension phase), due diligence for retirees also means
checking that any investment decision fits within the
obligations that allow them to draw an income from
investments at a reduced tax rate.
All investments carry risk. Before making an investment
decision, you should assess, with or without your
financial or tax adviser, whether the investment fits your
objectives, financial situation or needs.Matching your lifestyle to
your investment strategy
By Victoria Kuok
SMSF specialist advisor at the SMSF Association.
The lifestyle silver bullion for those with the An accumulator’s lifestyle
commodity bug, or a portfolio investment approach usually
investing approach of securities. Because an SMSF involves tax optimisation through
aims to lower the reflects the trustees’ investment active income streaming
philosophy, it is arguably a from personal assets into
risk profile of an “lifestyle fund”. superannuation assets. The
SMSF by reducing A lifestyle fund, in terms of
objective is to maximise the use
of both concessional and non-
its exposure to investment management, would
concessional contributions for tax
growth assets as the be expected to have an investment
strategy that caters to individual
concessions.
investor approaches circumstances - particularly the For small business owners, there are
retirement. fund’s investment time horizon. further contribution opportunities with
The lifestyle investing approach the 15-year asset exemption and the
Self-managed superannuation aims to lower the risk profile of small business retirement exemption.
funds (SMSFs), as their name the fund by reducing exposure
suggests, are managed by trustees With capital injected into the fund
to growth assets as the investor
who are generally members. The over the working life, it makes
approaches retirement.
freedom to take control over one’s sense to actively allocate assets
own retirement savings and the As SMSF trustees, you will naturally to maximise returns. A long time
flexibility over what is allowed to be take an active interest in your fund’s horizon allows for a high tolerance
done are the main advantages of activities and ensure your fund meets to risk and volatility.
this retirement investment vehicle. its investment objectives. This differs
A retiree lifestyle investment
to a large superannuation fund,
An SMSF may invest in a wide approach, on the other hand, is
where the investment range of a
range of assets. These can be designed to minimise the impact
lifestyle fund is broadly determined by
commercial properties for the of adverse market movements,
the member’s age.
small business owners, gold and knowing that the fund is less likely
12to recover from losses given the To manage these investment It is important that the investment
shorter time horizon. objectives, review the investment strategy of an SMSF caters for
strategy and consider the each member’s risk profile and
The timing of when this loss
following: adheres to a set of long-term
happens also affects investment
targets (also known as strategic
outcome. This is known as 1. How much will the pension
asset allocation), and is managed
sequencing risk. For example, if a member require in
within an investment range that is
member experiences a 20% loss retirement?
flexible enough to allow for asset
five years before retirement and
price movements.
another member 15 years after 2. Will there be accumulating
retirement, the former member members to contribute cash to The dynamic asset allocation
will run out of money several maintain the income stream of approach involves rebalancing
years earlier, even though they the pension member? a portfolio to bring the asset
experience the same 7% annual allocation back to its long-
return over the period. 3. Are there any foreseen term target. In practice, this
capital drawdowns such as involves taking profits in the
While retirement is a turning point medical care or aged care best-performing assets, while
for most people, given they have accommodation that will increasing investments in
spent decades working and saving require funding from the underperforming assets.
for retirement, retirement is only SMSF?
a milestone on an investment The objective is to reduce
journey. This journey is prolonged 4. How much personal savings fluctuation risks and achieve
when multigenerational members are outside the SMSF that the returns that exceed the expected
are within the fund. pension member can access rate of return. For this approach
for daily living? to be effective, trustees must
As members retire, many expect
regularly align their portfolio to
to live on earnings and preserve
5. Does the pension member their investment strategy.
their capital. To illustrate this,
have outstanding debts that
the minimum annual drawdown The flexible nature of an SMSF
they expect the SMSF to pay
rate for a 65-year-old is 5%. If means that rebalancing can come
off?
the member achieves average in the form of moving in and out
net returns of 7%, the member of cash or non-cash assets via
6. Does the SMSF generate
will have increased earnings by contributions and rollovers to
sufficient earnings to cover
$70,000 for a $1 million pension inject capital, or conversely, via
pension payments?
account. This will cover the $50,000 lump sums and income streams
minimum pension. to extract capital. These capital
7. What are the member’s
movements will alter asset
To achieve the expected rate of return, individual risk profiles and
allocation and has a rebalancing
it is important to maintain growth that of the SMSF as a whole?
effect.
asset allocation during retirement.
8. How does the SMSF deal with As you can see, there are several
Reducing growth asset allocation inflation? considerations when it comes to
can significantly impact the earning
matching your lifestyle to your
capacity of accumulated wealth 9. How long until each member investment strategy. Speak with
during retirement, and can expose reaches retirement? your investment manager or
the SMSF to running out of money
financial adviser to formulate your
and reduced investment value 10. Does the pension member asset allocation strategies.
(investment risk). have access to welfare such as
the Age Pension?
This article has previously appeared on Morningstar.com.au
This article has been prepared by Morningstar Australasia Pty Limited for general use only without
reference to your objectives, financial situation or needs. You should seek your own advice and consider
whether the advice is appropriate in light of your objectives, financial situation and needs.
13The Australian high net worth
investment landscape 2017
Australian stock market expectations for the next 12 months
(excluding dividends) vs All Ordinaries Index among HNW Investors
The Investment Product and Advice Needs Survey,
by leading independent research house Investment
Trends, is an online survey of Australian investors.
In 2017, the Survey had 6,182 respondents, of which
1,483 identify as High Net Worth (HNW) investors and
collectively control over $5 billion in investable assets.
A HNW investor is defined as someone with more than
$1 million of investable assets, defined as assets which
they control excluding their own home, own business,
and retail superannuation funds, but including Self-
Managed Super Fund (SMSF) assets. Asset allocation
Individual direct shares are the most commonly used
asset type, with most (86%) HNW investors holding
In September 2017, Cromwell these in their investment portfolios. Cash accounts
again invited its investors to and different types of property investments are the
participate in the Investment other widely held assets.
Trends Product and Advice Needs Besides staple investments like direct shares and online bank
Survey. Highlights of the survey accounts, a considerable proportion of HNW investors’ assets are in
property investments
are presented here. Direct shares (not through
a managed fund)
86%
Other bank accounts 68%
The wealthy have got wealthier High interest savings accounts 60%
Direct residential property
INVESTOR SENTIMENT 51%
Term deposits 46%
The total level of investable assets controlled by HNW
REITs 38%
investors in Australia reached a five-year high at $1.72
Managed funds 37%
trillion, up 12% over the last year. This increase is driven
LICs 34%
by those in the higher wealth brackets ($2.5 million plus)
EFTs 24%
who are more likely to cite accumulated business profits
Other fixed interest 21%
and share investments as the largest drivers of their
Direct commercial property
wealth. 18%
Direct interest in private 14%
companies
Concern levels with financial markets have dropped
Alternative investments 12%
to the equal lowest levels in nearly 10 years. Despite
Other listed investments 9%
this, HNW investors’ outlook for the Australian equities
market remains low. The average HNW investor
expects capital gains of just 2.8% from equities over
the next 12 months (excluding dividends).
14However, in general, HNW investors have had a To generate an income in retirement is the third most
smaller proportion of their overall portfolio allocated widely cited goal among HNW investors, but is the top
to individual direct shares with property establishing a investment performance goal among SMSF members.
clear lead as the largest asset class.
Asset Class 2014 2015 2016 2017 The recent trend among HNWs to become increasingly defensive
with their investment goals has slowed. Half of HNWs intend to
Cash and cash 17% 16% 15% 17% prioritise growth investments in the year ahead
equivalents 100%
Other
Individual direct shares 31% 31% 32% 28% 90% 15% 15% 14% 13% 15%
80% Maximising capital
growth
Property (all types) 31% 32% 32% 34% 70%
34% 37% 36% 35% 34% Achieving a balance
Managed funds 7% 7% 6% 7% 60% of capital growth &
managing risk
50%
Other investments 14% 14% 15% 14% 40% Building a
sustainable income
30% stream
20% 40% 35% 36% 37% 36%
Protecting my
Interestingly, the 17% allocation to cash and 10% assets/income
9% 10% 12% 12% 13% against market falls
cash equivalents represents $290 billion or the 0%
2013 2014 2015 2016 2017
highest absolute level of cash holdings since 2009. [n = 2415] [n = 2889] [n = 2583] [n = 2304] [n = 1460]
HNW investors have indicated that they consider
approximately a third of this as ‘excess cash’, or The recent trend among HNW investors to become
monies that would normally be invested, but are more conservative with their investment objectives
currently sitting on the sideline. has slowed. Half of HNW investors say their primary
Investor goals investment goal for the year ahead will be either
building a sustainable income stream or protecting
The overwhelming majority of HNW investors (79%) their assets/income against market falls. This
have one or more specific performance goals in mind response has remained steady over the last year,
when it comes to their portfolio. The most commonly following an increase between 2014 and 2016.
cited goal is to beat inflation (25%), while a fifth want
to achieve a specific annual return, targeting returns
of 8% p.a., on average.
Most HNW set a performance goal for their portfolio. A quarter
of HNWs say their goal is beat inflation. 20% say their goal is to
achieve a specific return
To beat inflation 25%
To achieve a specific return each year (% of portfolio) 20%
To generate an income in retirment (% of portfolio) 18%
To beat the prior year’s return for my portfolio 14%
To generate an income in retirement ($ based) 14%
N/A, I dont set performance goals for my portfolio 21%
15Milano Nervesa, Lombardy, Haagse Poort, The Hague,
Italy The Netherlands
Bischofsheim (An der Steinlach), Herstedvang 2-4,
Frankfurt, Germany Denmark
What is CEREIT?
Cromwell European an aggregate lettable area of CEREIT’s Structure
1.1 million square metres (sqm) CEREIT is externally managed
Real Estate with over 700 leases. by Cromwell EREIT Management
Investment Trust “The successful IPO of CEREIT is Pte. Ltd. (‘the Manager’), a wholly-
owned subsidiary of Cromwell
(CEREIT) is a an innovative and transformative
deal,” said Cromwell CEO Paul Corporation Limited.
diversified Pan- Weightman at the time. The Manager focuses on
European REIT “It’s the first Euro denominated strategic functions such as
REIT on the SGX-ST and the largest capital management, portfolio
which listed on the REIT IPO in Asia since 2013 by construction, compliance, investor
Singapore Exchange market capitalisation.” relations and finance.
Securities Trading “It substantially grows Cromwell’s Cromwell’s European business, in
global funds management its capacity as property manager
Limited (SGX-ST) on platform, with a sizeable presence of CEREIT, provides the Manager
30 November 2017. in Singapore, the fastest growing with asset, facility and capital
wealth management centre in Asia,” management services through its
he said. extensive platform of experienced
Cromwell Property Group owns local asset managers in five
35% of the units of CEREIT. “CEREIT also secures different countries.
approximately one third of our
CEREIT invests in a diversified existing European assets under Future Objectives
portfolio of income-producing management with longer term CEREIT’s objectives are to provide
real estate assets in Europe, capital, and allows us to grow our Unitholders with regular and stable
across office, light industrial and platform in Italy, the Eurozone’s distributions, and to achieve long-
logistics sectors. CEREIT’s portfolio third largest economy, with an term growth in Distributions per
currently comprises 74 assets in additional €400 million in assets Unit (DPU) and Net Asset Value
five European countries, covering under management,” he added. (NAV) per Unit.
16De Ruijterkade, Amsterdam, Milano Piazza Affari, Koningskade, The Hague,
The Netherlands Lombardy, Italy The Netherlands
Parc Des Docks, Paris, France Bischofsheim (An der Kreuzlache),
Frankfurt, Germany
Naverland 7-11, Copenhagen,
Denmark
Breakdown by Asset Classes 1
others
Breakdown by Geographies1
Denmark
IPO Portfolio Key Facts
10.5% 5.8% Germany
7.7% Netherlands
Light
Office Industrial/logistics France
Light 34.5% Italy
• Total Portfolio Value1
Industrial/
Office
Logistics 22.1% France
Italy ~€1,386 million
42.1% 47.4% Others5
Germany
Netherlands
Denmark
29.9% • Lettable Area
~1.1 million square metres
No single asset class or geography accounts for more than 47.4% and 34.5% of the total Appraised
Value5, respectively. • Assets
74 properties across two
major asset classes
The relationship between the key parties is shown below.
• Leases
700+2
• Countries
5 European countries
• Tenure
Predominantly freehold,
Perpetual Leasehold3 or
Continuing Leasehold4
1
Based on Appraised Value as at 30 April 2017.
2
As at 30 April 2017.
3
A “Perpetual Leasehold” is for an indefinite period of time and the ground rent has been paid off perpetually (which type of leasehold is most similar to a freehold situation).
4
A “Continuing Leasehold” is agreed in principle for an indefinite period of time but has a fixed ground rent paid to the land owner which must be re-agreed at the end of a certain period,
which may result in a termination if the leaseholder and the land owner do not agree on the new ground rent.
5
Others include three government-let campuses, one retail asset and one hotel in Italy.Call for nominations
Underpinning Cromwell’s values is the belief that we have a
responsibility to support the communities in which we operate.
Cromwell has a long history of supporting charitable organisations,
and continues to build on this legacy through the Cromwell Property
Group Foundation (Foundation).
Foundation history Previous beneficiaries have included the Trigeminal
Since its inception in 2014, the Foundation has donated Neuralgia Association Australia, Alzheimer’s Australia
almost $500,000 to causes that align with its mission Dementia Research Foundation, Neuroscience
to benefit organisations that conduct research into, or Research Australia, and Parkinson’s NSW.
provide support to, causes relevant to the mature aged
community. Nominations now open
The Foundation donates to organisations that might You can now nominate a cause or charitable
ordinarily miss out on the spotlight and whose organisation for consideration. To submit a charity
work will benefit from the level of support that the for consideration, complete the nomination form and
Foundation can provide. follow the nomination process outlined over the page
by 1 May 2018.
Foundation Committee Chair, Jodie Clark, said the
Foundation is proud to provide philanthropic support to Please note the following key considerations:
lesser known charities and causes. 1. All nominees must confirm their Deductible Gift
Recipient (DGR) Status
“The Foundation’s mission aligns closely with the
2. The nominees must support the mature aged
profile of our investors,” she said.
community
“Last year we were delighted to support Active 3. The funds must be allocated to a specific project
Rehabilitation Physiotherapy, the Australian Liver and ‘make a difference’
Foundation, Pink Angels and the Black Dog Institute to 4. Successful nominees commit to providing
a total of $144,000.” Cromwell with regular updates
Beneficiaries - Cromwell Foundation Donation Breakdown
Year Organisation Donation Sum
2017 Black Dog Institute $19,250
Pink Angels $19,250
Griffith University (Active Rehabilitation Physiotherapy) $55,500
Australian Liver Foundation $50,000 $144,000
2016 Trigeminal Neuralgia Association Australia $30,000
Alzheimer’s Australia Dementia Research Foundation $50,000
Australian Liver Foundation $50,000 $130,000
2015 MS Research Australia $50,000
Neuroscience Research Australia $20,000
Australian Liver Foundation $50,000 $120,000
2014 Trigeminal Neuralgia Association Australia $50,000
Parkinson’s NSW $50,000 $100,000
$494,000
18Cromwell Foundation supports the fight
Nomination Process against Parkinson’s
Parkinson’s disease is still not clearly
Submission lodged at
understood. In Australia, it is the second most
www.cromwellfoundation.org.au/charity-application,
common neurodegenerative condition behind
with information provided on the charity name,
nominee and background. dementia. There are currently more than
100,000 individuals living with the disease, and
another 32 people are diagnosed every day. Over
the past six years, the prevalence of the disease
Submission received by the Foundation
has risen by 17%.
Committee. Does the proposed charity align
with the Foundation’s mission? The Foundation has made two notable donations
in the fight to curb Parkinson’s disease.
In 2014, $50,000 was donated to Parkinson’s
NSW, and used to fund an initiative designed
YES NO to help sufferers keep their symptoms under
Contact is made with The charity is control. This included the development of an
the charity requesting informed that it does online exercise program that can be used by
supporting not align with the housebound or geographically isolated patients.
documentation for a Foundation’s mission
specific project or and the process ends. Parkinson’s NSW CEO, Miriam Dixon, stated
initiative. that “The program is designed to be used safely,
without the need for supervision, by all patients
of Parkinson’s, whatever their level of physical
The proposal is disability.”
finalised by the
The Foundation’s donation also funded the
Committee and
presented to the upgrade of the Parkinson’s NSW website,
Foundation Board. which now includes a directory of services,
ranging from hospitals that provide Deep
Brain Stimulation surgery, to activities that are
available to the Parkinson’s community.
The Foundation Board
advises the outcome of Further, in 2017, the Foundation donated $55,000
the submission. to Active Rehabilitation Physiotherapy to support
one of the first human research projects in the use
of Photobiomodulation Therapy (PBMt) to enhance
the results of standard physiotherapy for patients
SUPPORTED NOT SUPPORTED with Parkinson’s.
Contact is made by the Contact is made by the
Foundation Committee Foundation Committee Research conducted by a team of Australian
advising the proposal advising that the Physiologists at the University of Sydney
has been successful, proposal has been suggests that protective, regenerative and
and discusses details unsuccessful, with the potentially reversal effects of PBMt on nerve
for donations to be charity encouraged to
cells exist in a range of neurological conditions,
made. reapply next year.
including Parkinson’s.
Donations are made,
with updates on the Donations to the Cromwell Foundation of more
progress and than $2 are tax deductible. To donate, request
outcomes of the a grant or seek more information, visit
project encouraged. www.cromwellfoundation.org.au
19Poland to continue to prosper
Almost three decades removed Poland GDP growth outperforming Europe
from communist rule, Poland has 7
6
emerged as the growth engine of 5
4
3
the Central European economy. 2
1
From its inclusion in the EU, to
0 Poland
-1 Poland (forecast)
-2 Euro Area
its strong future growth forecast, -3
-4
Euro Area (forecast)
European Union
European Union (forecast)
there are numerous reasons that -5
‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15 ‘16 ‘17 ‘18 ‘19 ‘20 ‘21 ‘22
highlight Poland as a potential
Poland’s GDP per capita growth has been the
investment destination. fastest in Europe over the last 10 years
80%
History 75% Poland
% of European Average
Poland (forecast)
Poland’s long, often dark history has been wrought 70%
with hardship. The formal beginning of World War
65%
II was marked through the invasion of Poland on 1
September, 1939. By the end of the war, Poland had 60%
lost over 6 million people, more than 20% of its pre- 55%
52%
55%
56%
61%
63%
65%
67%
68%
68%
68%
69%
73%
75%
76%
77%
78%
war population. 50%
‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15 ‘16 ‘17 ‘18 ‘19 ‘20 ‘21
44 years of communism followed, prior to its
collapse in 1989 after Poland’s first partially free and
democratic elections since the end of the war. The
early 1990s saw significant reforms that allowed the
country to transition from its socialist-style planned
economy into a market economy.
The two-and-a-half decades since has seen Gross
Domestic Product (GDP) rise from USD$1,731 per
capita in 1990 to USD$12,399 per capita in 2016. This
20 Warsaw CBDwas the fastest growth amongst all OECD nations. While it is unclear whether Poland will remain the
GDP per capita is still only just over a third (34.8%) largest net recipient of funds in the EU bloc’s post-
of the European Union (EU) average, leaving strong 2020 budget, the Polish government is increasingly
upside for future growth to occur. focusing on facilitating growth and development on its
own terms.
Poland and the European Union One such example is the decision to not renew a
Poland joined the EU in 2004, along with nine other contract that sources nearly two-thirds of Poland’s
nations. Between 2007 and 2013, Poland received gas from Russia, thereby ending a reliance that has
approximately €67 billion, making it the largest spanned 74 years. From 2022 onwards, Poland’s gas
beneficiary of the European Cohesion Policy through will be sourced from liquefied natural gas (37% - up
this period. For the period of 2014 to 2020, this on 2017’s 11%), its own production (20%), and a newly
allocation has been increased to €86 billion. formed reliance on Norway (43%).
However, Poland’s time in the EU hasn’t all been
smooth sailing. Late last year, the European The past positioning the future
Commission triggered an unprecedented sanctions The ongoing resilience of the Polish economy has
procedure against Poland, contending that the Polish positioned it well for continued expansion. Throughout
government had effectively seized control of the the 2008 Global Financial Crisis (GFC), Poland was
judicial system. the only EU member that did not fall into a recession.
In 2009, while the GDP of the EU declined by 4.5%,
While there are serious concerns about the threat
Poland’s grew by 1.6%.
to the independence of the judiciary, market
commentators have considered it unlikely that this At the onset of the GFC, Poland’s public debt was
divide will escalate, with Hungary in particular vowing below 50% of GDP, low in comparison to other
to vote down any further European Commission action. European countries. This, in part, was the result of
a clause written into the country’s 1997 constitution
Mastering their own destiny limiting government borrowing to 60% of GDP.
Through the two years of Poland’s dispute with the EU, Coupled with a large and growing domestic economy,
there have been no adverse effects to the economy. increasing domestic consumption, a business-friendly
A surge in Polish domestic investment last quarter political class, very low private debt and a flexible
was a sign that the economy was unaffected, even as currency, sound economic management saw Poland
tensions heightened. avoid recession.
21A strong economic horizon Polish economy at a glance • Strong private consumption
• The past 25 years has seen the has been a key driver of growth,
A decade on from the GFC, the Polish economy double in size, having reached nearly 5% in
Polish economy is forecast to with GDP per capita growing 2017.
remain one of the fastest growing from 32% to 60% of the Western
• Total investment volume in
European economies throughout European GDP per capita.
Poland in the commercial
2018. Growth is set to remain • GDP growth was 4.4% in 2017 property sector reached over
strong at 3.8%, down slightly on and is forecast to be 3.8% in €4.7 billion in 2017, with the
4.4% in 2017. The key growth driver 2018, prior to moderating to 3% retail market representing a
until 2021. 40% share.
for the economy now is private
consumption. • Sixth largest EU economy and • Between 2001 and 2014,
only country in the region to avoid average retail expenditure was
In Q4 2017, growth surged to its a recession during the GFC. growing at 6.1%, compared to
strongest level in six years, powered 0.8% in Germany and 3.3% in
• Unemployment was 6.7% in late the UK.
by a mix of consumer demand and 2017, reaching decade lows due
an investment rebound. This is to strong job growth. • Highly educated workforce,
expected to continue in 2018 with which will benefit from the
global trend to higher skilled
investment growth set to reach
work and therefore have a
4.5%. higher disposable income.
The labour market continues to
tighten, with the unemployment
rate sitting at 6.7% as of November
2017. This is largely the result of
profound changes in the labour
Poland as an investment Foreign investors see Poland as an
market. Poland’s population is attractive investment destination
ageing, meaning fewer workers destination
due to its economic stability,
in the labour force. Additionally, Market demand, market cost, educated workforce, potential
technological and structural change exchange rate, sovereign credit consumer base, as well as its
in the economy is changing the and trade credit risk ratings for strategic geographic position being
demand for workers. Both of these Poland are all significantly lower surrounded by Germany, Slovakia
‘push and pull’ factors have resulted than the respective emerging and the Czech Republic.
in a decreasing unemployment rate. market averages. Additionally,
Poland’s score of 62.0 on the As Poland continues on the
A comprehensive series of growth path that was kick-started
Corruption Perception Index is
education reforms Poland has just over two decades ago,
far better than the emerging
pursued since the early 1990’s GDP and living standards have
economies average of 38.0.
has also given rise to a highly- further to rise. Even as growth
skilled and largely educated In 2017, Poland’s zloty surged 5.4% tightens slightly through 2018, the
workforce. These reforms have against the Euro, the second-best likelihood is that it will continue to
been so successful that they are, performance amongst emerging be well above the EU average for
in part, responsible for the rising market peers. the immediate future.
employment and wage pressures
that mean real income is growing
faster than inflation.
22 Old Town Warsaw, PolandYou can also read
