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Thank you to ASA Real Estate Partners for sponsoring today’s episode and keeping all of our content free. This episode discusses specific funds and investments. It is general information only and not financial advice.
From a $26M microcap to a $320M Dexus exit
Tim Slattery is co-founder and managing partner of ASA Real Estate Partners, which he runs with Alex Abell and chairman Chris Aylward. He and Adam were lawyers together at Freehills. Tim was previously CEO of APN Property Group (ASX: APD), a specialist real estate fund manager chaired by Aylward. In May 2021 Dexus agreed to acquire APN for $320M, or 91.5 cents a security.
Tim: “It was small, like $26M. It had grown aggressively, and then the GFC had caused a whole lot of challenges, so it was being reset.”
Tim: “We just tried to pick the sectors that were a bit unloved. Industrial real estate in 2013 was 8% yields with good assets. Most of the growth was organic, incremental stuff. We didn’t do any M&A or use a lot of debt. It was just keep delivering returns, and word of mouth.”
Tim on the Dexus approach: “Darren, the CEO of Dexus, just called up and said, if we offer you guys a big premium, would you stick around? And I’m like, well Darren, obviously we’re going to take that to shareholders, but you probably need to tell us what you mean by a big premium.”
The healthcare assets nobody wanted, and a $58.5M exit
After ING left Australia post-GFC, APN took over management of the ING Real Estate Healthcare Fund, which became the ASX-listed Generation Healthcare REIT. In June 2016, Canada’s NorthWest Healthcare Properties REIT bought the fund’s manager, Generation Healthcare Management, from APN and senior executives for A$58.5M.
Tim: “We bought the management rights for about $3M. The management team had about a 30% stake, and then we sold it to NorthWest about five years later for $58.5M. So that was an amazing transaction.”
Tim: “The healthcare thing we invested into in 2010, they couldn’t give the assets away. You had these great co-located healthcare assets, 50% owned by the likes of Epworth, and they couldn’t give them away. It was 70 cents in the dollar we bought the assets for. They had 15-year leases.”
Adir on why you’d go into property: “You’ll have this chance to go and do this deep work and learn about this thing. And you’ll discover things that nobody else knows about, or they’ve written off, and you’ll have this chance to be right.”
Industrial had its run. Retail is the one you can’t build more of
Commercial property is valued on cap rates, which work like a rental yield: a building worth $100M that earns $7M a year in rent is on a 7% cap rate. Industrial, retail and office move in and out of favour with interest rates, tenant demand and new supply. Victoria also charges foreign owners an absentee owner surcharge on land tax.
Adir: “There is nothing more cyclical than real estate, in my view.”
Tim on industrial: “Big picture, we don’t see the same rental growth coming through most of those markets as there has been for the last three or four years, because supply’s responded. There’s more vacancy, there’s more stock. Some of the incentives are like 30%, which is basically you do a leasing deal for ten years and you get three years’ worth of rent back.”
Tim on retail: “70% of our portfolio is in retail, and it’s been a very good place to be. Everyone thought Amazon was going to kill the bricks and mortar shops. But for the type of retail which is essential daily needs, you’ve got to go to the supermarket, you’ve got to go to the pharmacy.”
Tim on Melbourne office: “The institutions don’t want to invest in Victoria, there’s this land tax stuff, office is on the nose, work from home. But there are some gems within there: great buildings, great environmental credentials, really good tenants. And they’re super cheap.”
APN Mark II, and the tenants who can’t live in hospital
Slattery, Abell and Aylward named ASA after their three surnames. In 2024 Australian Unity handed management of its Diversified Property Fund, then about $520M, to ASA. The renamed ASA Diversified Property Fund has run since 2006 and holds assets including Blackburn Square in Victoria, Dog Swamp Shopping Centre in Perth and the Wyong Twin Service Centres on the M1 in NSW, with a weighted average lease expiry of 8.3 years. The federal Budget proposes replacing the 50% CGT discount with inflation indexation from 1 July 2027.
Tim: “The fund’s about $600M of assets. The 10-year performance to June was 9.3% per annum, and it pays about a 7% distribution yield. It’s also been fully tax deferred in the last year.”
Adir: “So you might be the singular beneficiary of these CGT changes.”
Tim: “It doesn’t feel like that, but maybe.”
Tim on the next fund: “It’s a social infrastructure portfolio. It’s basically assets that look after people. You can’t live in hospital long term, and you can’t live at home because you need care. They’ve changed the rules, so if you’re a 20-year-old who’s had a car accident, you can’t live in aged care.”
Tim: “There’s government funding programs: the TAC, WorkSafe, and a very specific component of the NDIS. The government saves probably 70% by putting these people in a facility like this, which is purpose built.”
Adir: “There are not that many better ways than making money out of creating that kind of facility for people that have been through these terrible tragedies.”
Tim on the name: “Chris was like, this is a hard asset market. People want to know who they’re dealing with. So we just put our names on the door.”
Find Tim: asarep.com