Join our Q&A with Carl Burling, managing director of Provincia property fund, which is offering the final $400k tranche for a new investment in East Tamaki.
Q. What does Provincia invest in?
At the moment we are focused on mid-sized industrial properties in the greater Auckland area. The properties are typically in the $3 million to $10 million range.
We specialise in safe properties that can deliver a reliable 6% yield and have an angle to add value. Jack, our asset manager, is very good at finding properties with add-value opportunities. That’s how we’ve been able to generate such outstanding capital gains for our investors.
The capital gain in year 1 was 33% and once the acquisition of our latest property in East Tamaki is completed we’ll be getting new registered valuations, so I’m pretty excited to see what the new share price is.
Q. What doesn’t Provincia invest in?
We don’t invest in second- or third-tier locations like Dunedin, Invercargill, Te Aroha, Hastings, or the Chatham Islands. The yields can be good, but there’s a reason for that!
Even when you have a good tenant like Fonterra or a Government department in a sub-prime location like Te Aroha or Invercargill, when (not if) you lose that tenant you’re stuffed. We’ve seen investors lose hundreds of thousands of dollars just from making this mistake.
We don’t invest in specialist properties like hot-dip galvanising works or chicken farms either, for similar reasons. When you lose your tenant it’s near impossible to find a replacement and if you do, you might have had an empty building for a year or two and you’ve had to offer all sorts of incentives and discounts because they have the bargaining power, not you.
And lastly, we don’t do residential investments or property developing or any high-risk activities.
Q. What makes you happy?
[Laughs] Well, the main thing is knowing we have a good platform in place to provide a steady income stream and capital gains for the years ahead. It’s a long game we’re playing, not a short one.
Return of your money is just as important as return on your money. Security is really important. That’s why we focus on vanilla industrial properties that suit a raft of different tenants.
Q. Will you ever sell properties to realise a good capital gain?
No. Because we’re playing the long game and we’re assembling a portfolio of low-risk industrial properties that in some cases have future add-value opportunities already built in, our strategy is to buy and hold.
Q. Tell me about how the PIE thing works.
The fund is a limited liability company and from 1 October 2018 qualified for and became a Portfolio Investment Entity (PIE).
The main tax benefits resulting from being a PIE is that the income of the fund is taxed at the marginal tax rate of its shareholders (capped at 28%), less any tax deductions from things like depreciation, which are passed straight through to investors and reduces the tax they have to pay.
In addition, any realised capital gains (if not re-invested) are able to be distributed tax-free to shareholders without having to wind-up the fund.
Q. Why did you set the fund up the way you have?
A number of reasons. Some of our private investment clients were struggling to find commercial properties with acceptable returns. We wanted to give them an alternative to direct ownership that was as close as possible to direct ownership and therefore maintained most of the benefits of direct ownership without the hassle.
Secondly, we wanted to minimise the risks for investors so that every investor benefitted from being diversified across every property and every tenant in the fund.
There are some funds out there that are set up as syndicates, for example, and on the face of things an 8% return seems pretty good but you’re only invested in one or two properties. Often second rate properties in second rate locations too. So the risks there are very high and the exit strategy is complicated too. Investors in those funds own units in a syndicate, which are not as liquid or easily sold as shares in a company.
We also wanted to make everything as transparent as possible and give our investors a real sense of ownership. All investors are invited to attend the AGM and they appoint up to two of their fellow shareholder investors to the board.
We keep all investors informed of any new properties we get under contract and if they vetoed the acquisition, we wouldn’t proceed.
As shareholders, the investors really do own the company.
Q. Where can I get more information?
- Visit our Provincia property fund page
- Phone +64 9 522-4936 » (click to call)
- Freephone 0800 522-222 » (click to call)
- Email email@example.com
- Or complete the online form below…