Nina: Hello and welcome to our Fund update on the Barwon Disability Accommodation. My name is Nina Dunn and today I am joined by Joss Engebretsen who is the portfolio manager for the Barwon Disability Accommodation Fund.
Welcome Joss. Now as you are well aware we’ve recently had a change in government. Does this affect the portfolio in any way, in particular to the National Disability Insurance Scheme?
Joss: Hi Nina. Well the Specialist Disability Accommodation sector continues to be a very exciting space to be building a portfolio right now. Not only does it provide competitive financial returns to investors, based on rents that are inflation-linked and backed by the Commonwealth Government, the accommodation we fund, build and acquire is making a substantial difference to the quality to the standard of living of our residents.
This quarter has been particular interesting with the change of Federal Government and, with it, the appointment of the Honourable Bill Short MP as the new Minister for the NDIS. Minister Shorten has had a long relationship with the NDIS, having been part of its establishment under the Gillard Government, and holding the role of Shadow Minister for the NDIS over the past 3 years.
Minister Shorter is very aware of the important role investors play in the build out of the SDA sector. To date he has made it clear he wants to get participants discharged out of hospital and into vacant SDA by processing the backlog of applications, improve resourcing at the NDIA to quick decision-making for new approvals, and also urgently review decisions stuck in limbo in the Administrative Appeals Tribunal. We of course welcome Minister Shorten in his new role, and look forward to his efforts to improve the NDIS experience for all stakeholders.
Nina: Thanks Joss. It sounds like the change in government hasn’t affected the NDIS and they are all supportive to make this best experience for all SDA participants.
Joss, can you talk me through how the recent inflationary pressures everyone is experiencing, along with rising interest rates, will affect the Barwon Disability Accommodation Fund?
Joss: The SDA market continues to rapidly evolve and mature requiring us at Barwon to remain rather dynamic in our approach to partnering with the right groups and acquiring the right assets.
As investors would be aware, there continue to be significant headwinds for risk assets in the face of persistent inflation and the RBA’s use of monetary policy in an attempt to stem the inflationary pressures. Whilst this environment might provide headwinds for the majority of risk assets, we see opportunity for SDA in this environment.
From an inflation perspective, investors in the SDA sector are protected by the inflation-linked, government backed, rents which as of July 1 increased by 5.1%, in-line with the March 2022 CPI print. From an interest rate perspective, we believe the significant rise in retail lending rates over the past 6-months will actually open up opportunities to acquire better properties with less competition from other residential purchasers who have bid-up and out-bid SDA developers over the past 3 years.
Nina: Ok, we’ll you’ve just provided a good update on the current macro-economic backdrop, talk me through the Fund’s most recent performance and acquisitions it has made.
Joss: In terms of our portfolio here at Barwon, we are very proud of what we have been able to achieve in under a year in the sector. In the June quarter the fund was able to make its first distribution to investors, and we see that continuing to build over the course of FY23 to provide an over 5%. Since our first capital raise in August 2021, we’ve committed all the capital having secured 4 transactions encompassing 37 dwellings across 4 locations which will support up to 55 people with disability.
We currently have 2 locations in operation, housing 14 participants, one in Arana Hills in the northern-suburbs of Brisbane and our most recent acquisition in the popular suburb of Ryde in Sydney. Both of those properties are on pass-through agreements and have been operating very well since they were acquired in the first half of this year. Our other 2 locations, High Wycombe in the eastern suburbs of Perth and Dandenong in the south-eastern suburbs of Melbourne, are progressing very well through the construction phase despite a very challenging environment for builders. These two assets will add an additional 39 places to the portfolio as they come online in the first half of 2023. Both of these properties are on fixed rent headleases with high-quality SDA providers and we look forward to seeing participants moving in next year.
Nina: Sounds like it has been a busy 12 months for the Fund with all those acquisitions. Are there more acquisitions in the pipeline?
Joss: I’m happy to say yes there are. We are on a mission to build an exemplary portfolio of SDA assets and as such, undertook a recent capital raise to support this strong pipeline of opportunities.
We were delighted by the overwhelming support for the fund in this recent capital raise hitting our fund raising target with both existing and new investors into the fund. In terms of prospects – one thing is clear, there is a plethora of SDA opportunities to assess out in the market –Barwon has assessed over 100 opportunities in the last 10-months. In the face of a changing economic environment, more so than ever, asset selection is absolutely paramount and our number 1 focus is to ensure investors achieve sustainable and durable returns. As the Oracle of Omaha once said “If you don’t like the pitch, don’t swing. You can stand at the plate, with the bat on your shoulder, doing nothing but waiting for the perfect pitch.” … and that’s we’ll do, one pitch at a time. Fortunately, we’ve got a number of high-quality, high conviction, opportunities we are looking at right now and we look forward to sharing those with investors when they are secured and due to come into the fund.
Nina: Thanks Joss for a great update on the Barwon Disability Accommodation Fund.
If you are interested in finding out how you can invest, please reach out to Barwon’s distribution team.