In conversation with... Hamish Wehl
Hamish Wehl is Cromwell’s Head of Retail Funds Management and the Fund Manager for the Cromwell Direct Property Fund (DPF/ Fund). He joined Cromwell in 2009 as a financial analyst, working on each of Cromwell’s ‘back to basics’ syndicates, and was part of the team that developed Cromwell’s first open-ended unlisted property fund (DPF) in early 2013. He lives in Brisbane with his wife and three young children.
How did you get started in property?
I graduated from the University of Queensland with a dual degree in Commerce and Business Management. I started as an accountant with Johnston Rorke, which became Pitcher Partners - Cromwell’s auditors for 20 years. Working in Johnston Rorke’s business services team provided a great grounding for me and I got wide exposure to many industries, including property. I qualified as a Chartered Accountant in 2006.
I then went overseas to London for a few years. While there, I worked for the private, pan-European real estate investor, Mansford LLP, as an analyst on their French and German real estate funds. Having made up my mind property was where I wanted to be, I subsequently completed a Masters of Philosophy in Real Estate Finance at Cambridge University.
When did you join Cromwell?
In 2009. After completing the Masters, my wife and I decided to return to Australia, and arrived back in the immediate aftermath of the GFC. It wasn’t the best time to be looking for a job in property!
Cromwell, however, had gone through the stapling in 2006 and a prudent approach to property had left it as one of the best positioned A-REITs post-GFC. I was impressed with the culture, governance and approach to risk management.
I got involved as a financial analyst looking at reforecasting, acquisitions and divestments, examining the deals and making sure we got the best possible outcomes for securityholders and investors.
I was involved in all of Cromwell’s ‘back to basics’ trusts, including the Riverpark, Ipswich City Heart, Box Hill and Property Trust 12 syndicates, as well as the purchase of Qantas Global Headquarters for $143 million in 2010 and the NSW Office Portfolio for $405 million in 2013 and the associated securityholder capital raisings.
How did the Cromwell Direct Property Fund come about?
Cromwell had a successful run of unlisted, fixed-term syndicates from 2009 to 2013. The investors in those trusts were providing us with continuous feedback and an open-ended fund with liquidity was one of the ideas that we thought had potential.
The Fund was launched in October 2013, initially with investments into the syndicates, but with the medium-term aim of purchasing direct assets. The first of which, Allara Street in Canberra, was purchased for $16.8 million in July 2015. We have averaged about one asset per year since. The Fund now has gross assets of approximately $380 million.
One acquisition a year - why so slow?
We are very focused on protecting our investors’ capital - $1 in must equal $1 out. We want to make sure, as best as we can, that we manage downside risk and protect against capital loss.
We also don’t have a growth or assets under management target. The Fund doesn’t need to be a particular size by a particular date. That pressure, once removed, makes a big difference in behaviour and as a result we have been extremely careful when it comes to acquiring properties.
Tell us more about DPF and what makes it different?
Well, DPF is an open-ended fund. We make 0.5% of the fund available each month for investors to withdraw their investments, so up to 6.0% a year. This means if something unexpected happens, investors can withdraw their investment, or at least some of their investment, up to this point.
The Fund is designed to hold cash to fund those redemption requests. While holding cash creates a drag on returns, we believe this is a much better solution for investors. To make sure we are able to do this we have to manage the Fund’s cashflow carefully.
Currently, the Fund’s property assets are 99% occupied to quality blue-chip, State or Commonwealth government tenants. Their leases include fixed rental escalations and the Weighted Average Lease Expiry is 8.2 years. While in a market downturn the unit price may drop as valuations reduce, we are comfortable that we have set the Fund up to continue to provide investors with appropriate risk-adjusted distributions all the way through.
In your opinion, what is currently the biggest challenge for investors?
For an investor concentrated on capital preservation and obtaining an income, it’s hard to know where to invest. SMSFs have approximately $170 billion in cash and term deposits at the moment and, at best, the term deposits will be earning 1.80%.
With interest rates dropping around the world, income investors are being squeezed and the only option if you want a higher level of income is taking on more risk.
I find talking to investors, however, that they are all either wary of, or are already fully invested in, equities. That often leads them to property, and either a residential investment, which is obviously a large amount, or potential unlisted property, where they are not directly exposed to the equities market.
Of course, if the property market crashes, as it did during the GFC, valuations will reduce. However, if the fund has locked in its lease income from quality tenants and has conservative gearing, it should be able to reliably pay a consistent income return to its investors.
Where do you see DPF in three years?
That’s a difficult question. It’s impossible to accurately predict markets. I would like to think we are continuing to follow the investment philosophy with which we set up the Fund: to purchase quality properties, with quality tenants, manage gearing and provide investors with a prudent, risk-adjusted return. In the end, it’s all about delivering for investors, and if we continue to do so, I will be happy.
What do you do to relax?
I have three young children under eight, so I’m not sure I ever get to relax! Weekends are spent in a blur of sports and other commitments.
When I was young my parents used to take my siblings and I to Fraser Island and I’ve tried to continue that tradition with my kids too. They happily spend hours on the beach and in the water and there are no screens around, which I like. I find fishing is a great way to spend time with family and friends, chasing the next fish or reeling in the one that got away!