Thematic Property Investing: Episode 1
What is Thematic Property Investing?
The process of identifying long-term trends that you think will shape the future and investing in them.
The principle methodology is to invest where the world is going tomorrow and not where it is today.
Property is a long-term investment decision that is relatively illiquid. There are clear advantages to applying Thematic Property Investment principles in all deals we consider for ourselves and our investors. We want to ensure any sector we invest in will continue to be a viable asset class into the future with a continued demand from investors.
Muse Capital has developed a range of themes that support our investment strategy. We are choosing to share these themes by regular episodes on our thoughts; commencing with Service Stations.
Service Stations - Why do Investors like them?
Service Stations have been a popular asset class amongst investors in recent times.
Global covenants, typical lease terms of 10-15 years with multiple options, single tenant assets under-pinned by triple net leases, main road exposure etc.
There is a lot to like about Service Stations from an investment perspective; which has motivated investors to competitively invest in the sector, driving investment yields to significantly tighten to the 4.50-6.75% initial yield range.
The Investment Outlook - Fossil Fuels
It is clear to us at Muse Capital that fossil fuels have a limited shelf-life. It is no longer a question of "if" fossil fuels will be replaced, it is a question of "when" they will be replaced.
Whilst a 10-15 year lease to a global covenant may be of little concern right now, given the rapid change of both consumer and government sentiment towards the industry, can we assume that Service Station Investments will be as highly sought after in 2024? We think not. Here are some reasons why:
Today the cost of running a car on fuel is $1.50/litre. The cost of running an electric car is $0.33/elitre. As electric car technology develops, this is further predicted to decrease. There is significantly less margin to be made by Service Stations converting to electricity. Reduced profitability results in a lower ability to pay rent. Economic change.
Emissions produced from electric cars are half that of petrol cars, even when charged from an electricity grid that uses coal as its primary energy source. Electric vehicles charged using solar or wind are completely emissions free. Social change.
Electric vehicles are being designed to charge directly from the power grid, allowing consumers to charge at home or work, largely negating the need/frequency to visit a Service Station. Accessibility change.
Governments are announcing plans to phase out the sale of petrol and diesel cars. Norway by 2026, Germany/Netherlands by 2030, Scotland by 2032, France/UK by 2040. The simple suggestion of Australia identifying a date will send shock-waves through the Service Station Investment market. Government policy change.
In 5 years, we firmly believe that Service Stations will not be as attractive an asset class for investors. As a result, yields are likely to be softer with an ever diminishing buyer pool for these assets.
Service Stations are likely to suffer similar fates to Video Ezy / Blockbuster; with the exception that Service Stations are a highly specialised asset class that are difficult to re-purpose.
This month alone Muse Capital has had five (5) approaches to purchase Service Stations. Applying our Thematic Property Investment Principles, Muse Capital won't invest our money in Service Stations; and we won't invest yours in them either.
Thematic Property Investing: Episode 2
Why do we like Childcare Centres? Highlights of the next episode:
Australia's average population growth is consistently one of the highest of any OECD countries. Looking at World Bank data, Australia grew by 1.59% in 2018, double that of many other countries, including the United States (0.7%) and the United Kingdom (0.7%).
South East Queensland has consistently outperformed the Australian population growth rate. In the 10 years to 2018, the population has increased by 2.3% per annum.
0-4 year old long day care participation rate is currently at 35%, growing annually by 2-3%. There is enormous scope to increase the total number of children in care.
Childcare is fundamentally a human interaction - we don't believe there is a foreseeable technological threat to the industry that would affect property values.