Michael Weaver - Investment Innovation Institute

Michael Weaver, Head of Private Markets, Sunsuper

Real Estate Profile – Sunsuper

In Conversation with Michael Weaver

Each year, thousands of Australians pull into a Discovery Holiday Park, not knowing that they actually own part of the brand. Should they happen to be one of the million-plus members of the $66-billion Sunsuper they will be an ultimate owner of the holding company.

Discovery Holiday Parks owns 65 sites, typically located in a picturesque coastal holiday resort, and operates some 220 Top Parks camping and caravan parks across Australia.

Sunsuper first bought into Australia’s holiday leisure sector in 2012 through a 28 per cent stake in Discovery Parks. At the time, the business owned 30 parks.

In 2014, Sunsuper bought out its co-investors, Next Capital, Allegro Funds and funds managed by Macquarie Group, to lift its stake to over 90 per cent. And in November 2018, Discovery Parks forged a deal to acquire Top Parks, which licenses its brand and provides services to 220 sites, to create Australia’s largest network of caravan parks.

“It is a big business (today), and, for us, a successful investment,” says Michael Weaver, Head of Private Markets at Sunsuper. “It has the ability to continue to grow over time, and we will continue to fund its expansion.”

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We have invested, not to operate the aged care facilities but to own the real estate behind them

Sunsuper has made a head start into a number of niche sectors of the property market, which are now increasingly important to super fund managers who are looking for alpha in an effort to maintain high returns for members.

In aged care, Sunsuper formed a partnership with Brisbane-based Catalyst Health two years ago. “We have invested, not to operate the aged care facilities but to own the real estate behind them,” says Weaver.

Catalyst is developing centres offering 100 to 200 beds, some of which can provide services such as NDIS in addition to residential aged care.

Weaver says the industry remains ‘quite fragmented, but improving’, with many larger centres today being able to offer customers improved services.

“Aged care is changing,” he says. “Generally, around the world, they are going from smaller to larger sites, so you can get better amenities that people expect, and better care and service.

“We can fund the property development. That is quite important for a good operator. It is hard for them to find the dollars. But you do need to partner with the right operator.”

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Ageing demographics around the world have seen the need for aged care – for the time between being self-sufficient at home and in a hospital – is growing.

“If users of aged care have a better experience, then it is good for everyone,” says Weaver. “It becomes a more sustainable operation and a good long-term business.

“But aged care properties are more illiquid than shiny office towers, so you do need to have a premium – higher returns.”

The Brisbane-based fund entered the UK aged care market two years ago with a similar strategy. It is currently undertaking due diligence on a portfolio of aged care centres in Continental Europe.

“We are hopeful of closing the deal towards the end of this year,” says Weaver.

As in Australia, the aged care sector is under-developed in Europe, he says.

Investment criteria is based on the structure of the contract with the users and consideration of operator risk, he says, adding: “We are very cognisant of the operational risks in the underlying investment.”

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We have invested about $1.5 billion into these new areas [of multifamily, medical centres and self-storage]

In addition to leisure/tourism and aged care, Sunsuper is invested in multifamily, medical centres and self-storage.

“We have invested about $1.5 billion into these new areas,” Weaver says. “And we are looking at residential, both in the US and Europe. We have deployed money on the ground in the US. The Americans have a long record with multifamily.”

Sunsuper invests through the US manager, Berkshire, based in Boston, and through generalist managers such as Heitman and Stockbridge. As well as equity, Berkshire invests Sunsuper capital in US multifamily real estate debt.

Weaver says: “We started to get more serious around these different investment sectors around five or six years ago.

“It is more difficult to implement strategy, because you need specialist managers and operators and you need to spend more time on research. But we have been fortunate in having a good team internally to do that. And having the right partners has been really helpful.

“Picking the right partner is critically important and a constant challenge,” he says.

Given that bond rates are so low and that traditional asset classes are getting expensive, niche investments produce acceptable returns, says Weaver.

Yet even so, Sunsuper’s search for alternative asset classes has not eclipsed its interest in traditional assets, he says. “In the last few years we have continued to look to do both.”

Premium office towers, industrial/logistics assets and shopping centres remain the staples of Sunsuper’s real estate investment, which was valued at over $6.5 billion at June 30, 2019.

“One of the largest investments we have made is in Australian Technology Park (ATP) in Redfern, an inner Sydney suburb. ATP is largely leased to Commonwealth Bank for 15 years. It is a joint investment with developer Mirvac and AMP Capital.”

ATP is Sunsuper’s single biggest single property exposure. “Our second building at ATP will also be tenanted by Commonwealth Bank and will be finished next year. The first has just opened.”

The billion-dollar development is planned to house three buildings, with the smaller third building also incorporating Australia’s first rooftop farm.

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There has been a bifurcation of the market. The really large centres are generally trading well, as are those with convenience shopping. It is the centres in between that are struggling

The fund still has ‘good exposure’ to shopping centres, even though they are it is going through some challenges, says Weaver.

“There has been a bifurcation of the market. The really large centres are generally trading well, as are those with convenience shopping. It is the centres in between that are struggling.

“We generally invest in Australian retail through different retail funds, managed by AMP Capital, GPT and QIC.”

In 2017, Sunsuper made its first direct investment in retail, in Marketown in Newcastle, NSW. Weaver says the centre caters mainly to convenience shopping.

Some 30 per cent of Sunsuper’s real estate portfolio is directly held, with the balance through a large number of funds run by managers.

“There are so many good operators and they can help us find scalable investments,” says Weaver.

“We think good opportunities can come from different paths. We don’t want to be too prescriptive on doing things because you will then possibly miss out on good opportunities.

“We like to partner with some of the smartest operators and managers in the world, because we know that we cannot be the smartest operator in every asset class from an office here in Sydney.”

Today, 35 per cent of Sunsuper’s real estate investment is located offshore. Weaver expects that figure to rise to around 50 per cent in years to come.

“We are now finding there are often better opportunities offshore,” he says. “That said, Australia has had a great run for a long time. And we are comfortable with the exposure we have here.”


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