Industrial property - an appealing option for investors

Article supplied by Macquarie Goodman Group

Australia’s ageing population is one reason why property and real estate as an asset class should be on most investor’s – and their advisors – radar.

Property investment through ASX listed entities provides a mix of diversity, low risk, steady income and liquidity that most investors approaching retirement seek as part of their portfolio– whether investing directly or through a DIY super fund.

In fact, UBS recommends that Australian investors seeking a diversified investment portfolio should have on average 8.5 percent of their investments in commercial real estate.  However, UBS research indicates only 15 percent of Australian investors have achieved that weighting.

The investment vehicle that’s ideally suited for investment in property was pioneered in Australia - the Listed Property Trust (LPT).

The leader in industrial property – and Australia’s biggest industrial landlord - is Macquarie Goodman.  It owns, manages and develops industrial property and business space throughout Australia, Asia, the United Kingdom and Europe.  It has over 500 properties under management, primarily consisting of office parks, business parks, industrial estates and warehouse and distribution centres.

Among its top 25 customers are major international and local names such as – Toll Holdings, Linfox, Coles Myer, Woolworths, Coca-Cola, TNT, Hewlett-Packard and Unilever.

Macquarie Goodman uses an internally-managed business model i.e. all its operations – funds management, property management and property development are run from within the company by its own staff.  This gives the group more flexibility and provides an operating and capital structure that facilitates access to growth opportunities and ultimately better returns to investors.

This also gives Macquarie Goodman a more diverse earnings base.  While around 60 percent of its profit comes from property investment and management- which includes rent - its own internal development team that builds and develops and modifies property for its customers generates around 20 percent.  The other 20 percent comes from fees earned through its funds management activities.

More than 22,000 retail securityholders, and many of Australia’s largest superannuation funds, have chosen to invest in Macquarie Goodman which is ranked as the largest industrial property group listed on ASX and has been one of the outstanding performers in the LPT sector.

Macquarie Goodman is now demonstrating that its Australian business can be successfully replicated internationally.  In the 2006/07 year it forecasts that 40 percent of its earnings will come from offshore - 30 percent from Europe and 10 percent from Asia and New Zealand.

While Australia has operated LPT’s for well over a decade, many countries are only now allowing their equivalents -Real Estate Investment Trusts (REIT’s) – to commence operations. This, and the fact that in many countries industrial property has not reached the level of maturity as in Australia gives Macquarie Goodman a distinct advantage.

According to the recently released Russell/ASX Long-Term Investment Report, LPT’s have been the best performing asset class for investors.  In the 10 years to December 2005 LPT’s produced the best after tax return of any class of investment - an average annual return of between 10.4 and 12.6 percent (depending on the investors tax rate).

If this return can be produced from the Australian market far from the LPT concept having run its course, the opportunity exists for this performance to be duplicated – and possibly exceeded -  when Australian LPT’s move to the global stage.