Commercial property is 33% bigger than the New Zealand share market and more than double the size of NZ Super and KiwiSaver combined…
- Commercial Property
- CoreLogic NZ “New Zealand Asset Classes” (Q2 2020, p6)
- NZ Listed Stocks
- NZX “NZSX Total Market Capitalisation” (31/8/20)
- NZ Super & KiwiSaver
- NZ Super “Fund Size” ($43.77 billion as at 31/5/20)
- Morningstar “KiwiSaver Survey June Quarter 2020” ($66.5 billion, p2)
Many investors, some burned in stock market crashes or finance company collapses, prefer to allocate a larger proportion of their portfolio to the relative security of a tangible asset class such as commercial property.
This asset class is made up of 3 segments…
- Retail (including hospitality & tourist accommodation)
- Office
- Industrial
Of the three, industrial property is generally regarded as the safest and most defensive.
Provincia is a specialist industrial property investment fund.
Cash Yield vs Other Asset Classes
This graph shows the cash yield of Provincia Property Fund vs other asset classes and illustrates one of the key benefits of an investment in Provincia…
- NZX50
- S&P/NZX 50 Index “10 year total return – 10 year price return = 10 year dividend return” (31/8/20)
- Listed Property
- Smartshares NZ Property ETF “Gross Dividend Yield” (12 months to 29/7/20)
- Residential Property (net yield before tax)
- CoreLogic NZ and MBIE “Gross Rental Yield – National” (3.2%, Q2 2020, p23)
- CoreLogic NZ and MBIE “Average Weekly Rent – National” ($445, Q2 2020, p23)
- CoreLogic NZ and MBIE “Average Dwelling Value – New Zealand” ($738,018, Q2 2020, p20)
- Opes Partners “Rental Yield Calculator > Assumptions” (ins & rates 0.3% & 0.48% of property’s value, PM 7% +GST, maintenance $500 p.a., accountant $750 p.a.)
- 5-year Bank Term Deposit
- Interest.co.nz “Charts > Term deposits rates > 5 years” (28/8/2020)
- 10-year Government bond
- RBNZ “Wholesale interest rates – B2 > Secondary market government bond yields” (31/8/2020)
Fund Performance Since Inception
Another reason is the great returns enjoyed by our investors. This table shows the Total Return, which is a combination of the cash yield and capital gains…
Note 1: “Fair Value Gain” is accounting speak for Capital Gain.
Note 2: 2018 results are for the 5 months from Fund inception in Nov-2017 to 31 Mar-2018.
Note 3: Historic performance is no indication of future performance.
Diversified Industrial Property Portfolio
We invest in quality mid-sized ($3-10 million) industrial properties located in growth areas that have sound economics. Our focus is on the ‘golden triangle‘ of Auckland/Hamilton/Tauranga.
Of the 3 categories of commercial property – retail (incl. hospo), office, industrial – industrial property stands out as the safest and most defensive category.
During economic downturns, shops may close down and offices may cut back, but factories and warehouses just keep running… as seen during the Covid-19 pandemic.
Our properties are located in areas with some of the lowest vacancy rates in the country. If ever we were to lose a tenant, we are confident in being able to replace them very quickly.
Case in point: When Early Settler Group moved out of our Airport Oaks warehouse we had two tenants fighting over the space and StoreRite Logistics took over the day after Early Settler’s lease ended.
Investing through a diversified property fund, as opposed to a property syndicate (syndicated property investment), gives private investors a spread of risk over a greater number of properties – rather than being locked into one [often high-risk] property.
As an open-ended PIE fund, your investment is diversified across the entire portfolio and becomes increasingly diversified as the fund acquires more properties.
Dividend Growth
We target a 6% pre-tax cash dividend, paid quarterly, plus capital growth. Importantly, the 6% dividend is calculated on the current share price, which in turn is determined by the value of the fund (which is determined by independent registered valuations of the properties owned by the fund).
If the share price goes up, so does the cash dividend. Your actual ROI (return on investment) depends on the share price at the time you invest.
Actual ROI for Provincia investors is as high as 8.2% (for founding investors)…
- The share price when they invested was $1.00
- The share price is now $1.37
- The 6% dividend calculated on current share price of $1.37 is 8.2 cents per share
- A return of $0.082 on original investment of $1.00 = 8.2% ROI
- Additionally, they now enjoy a tax-free 37% capital gain on the value of their shares
The fund was established in November 2017 at $1.00 per share. In the following two years to October 2019 the share price increased 35%, mainly due to ‘value add’ opportunities. This represents compound annual share price growth of 16.2%.
We are unable to predict future returns, but hypothetically if the share price continues to increase, your ROI will continue to increase too – from a floor of 6% at entry to a high of ???
Our 7 foundation investors are still with us and have no desire to withdraw their funds because… the longer they’re in, the higher their return.
In fact, many of our investors top up their investment whenever we have a capital raise for a new acquisition.
Why don’t you join them?
Value-add Investment Strategy
Our investment strategy is modelled on similar principles to Warren Buffett. We look for good quality but undervalued properties that have future rental growth locked in.
This is our point of difference and the secret to our ability to increase the cash dividend as the share price increases. The increased dividend is funded from rent increases.
Rents often increase as a result of value we’ve added to the property, or value we’ve unlocked because we bought an under-rented property that can be reviewed up to market rent at a future date.
The value of that higher income stream ends up being reflected in a higher registered valuation for the property, which increases Provincia’s share price. And therefore the dividend.
It is a truly virtuous cycle.
Tax Efficient
As a PIE fund, you are taxed as if you own the properties directly. Here’s how it works…
- You are only taxed at your Prescribed Investor Rate (PIR), which is capped at a maximum of 28%.
- You are only taxed on your share of Provincia’s net taxable income, not your actual dividend (unlike term deposits for example, where you are taxed on 100% of the payments to you).
- You share in our tax deductions, e.g. depreciation. This substantially reduces the amount of tax you pay compared to the cash dividend you receive.
- For example, in some quarterly payments these deductions have reduced the tax payable by around one third, which means investors only paid tax on two-thirds of that income.
- Tax is calculated and paid on your behalf, which reduces the amount of paperwork and ‘cognitive load’ required of you.
- As a ‘buy & hold’ fund, any capital gains are tax-free.
Wholesale Fund
Provincia Property Fund is not a retail fund open to the general public. It is a wholesale fund available only to wholesale and eligible investors.
To find out if you qualify as an eligible investor, contact us or click the button below…
The minimum investment is $50,000 and our largest investment to date is $2 million.
The average investment amount across all our shareholders is circa $350,000. Some have invested this in one lump sum, while others started off with smaller investments and topped up at subsequent capital raises.
We’d love you to join them.
Accumulated Fund Growth
This graph depicting fund growth helps visualise the trajectory of Provincia Property Fund…
If you would like to be part of a growth story with like-minded investors, this is the fund for you.