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Fortify your portfolio with Core Plus Real Estate

  • June 12, 2024
  • by Sponsored
QIC Fund Manager – Core Plus Strategies Charles Occhino

As the inflation storm continues, defensive assets that can help to provide stable returns through economic headwinds are proving popular amongst investors.

Many are looking towards real estate, and especially Core Plus Real Estate funds, that can offer a defensive investment backed by a non-discretionary tenant base.

Charles Occhino, who runs the Core Plus strategies team at QIC, said the Core Plus Real Estate can offer a stable investment underpinned by non-discretionary spending.

“Albeit not widely known, QIC Real Estate has operated in this sector for many years, providing investors a strategy that can be complementary to Core.”

Mr Occhino said QIC’s Core Plus investments strategy focuses on properties valued below $300 million, including neighbourhood, sub-regional and large-format shopping centres, well located industrial assets,  and other alternative sectors, all of which are backed by a majority non-discretionary tenant base.

These are tenants who provide goods and services that people rely on to fulfil everyday needs, so in turn, enjoy relatively stable income yields, often regardless of economic conditions.

Through the year, household spending increased for non-discretionary by four per cent and decreased for discretionary by 0.1 per cent, according to the Australian Bureau of Statistics.

“When your income is underpinned by non-discretionary spend in a high inflationary environment, it should result in  a stable cash flow,” Mr Occhino said.

“We aren’t generally susceptible to large capital swings, given that these assets not only trade regularly but they’re also underpinned by non-discretionary spend.”

This stability, coupled with the potential for rental reversion and value-added development, can offer a risk-mitigated return that is highly appealing to investors, Mr Occhino said.

“In our view, not only are they defensive, but they’ve also got great rentalreviews.

“For reduced risk, you’re able to kick off a potentially strong yield.”

The defensive nature of Core Plus assets was particularly evident during the COVID-19 pandemic.

“A big spotlight was placed on this attribute during COVID when initially valuations were hard hit.

“But pleasingly, our core plus assets remained open for trade because they were deemed as providing essential services ,” recalls Mr Occhino.

Furthermore, as inflation and interest rates stabilise, more capital is likely to flow back into the market, Mr Occhino said, potentially firming up cap rates and, in QIC’s view, enhancing the value of Core Plus assets.

“We believe that when either inflation or interest rates come under control, , money should come back into that market again, which will then subsequently help firm those cap rates,” Mr Occhino said.

With generally lower asset value, QIC considers Core Plus assets as being able to provide investors with greater ability access liquidity.

Mr Occhino said investors are seeking products that not only deliver returns but also offer transparency and strong governance.

“If you can offer a product that has a high level of governance with high levels of liquidity and strong returns it can give gives investors better confidence to come in and out of the sector,” Mr Occhino explains.

“At QIC, we have conviction that there is benefit in having a core real estate exposure complement by a core plus strategy.

“Core Plus investments generally provide that stable income distribution yield, and we’re seeing an increased level of interest.

“It’s sector and geographically agnostic. If there is a good outcome for investors, if we believe in the thematics, we will invest.”

To find out more about QIC’s Core Plus Real Estate Strategy, visit: https://www.qic.com/.

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