Simplicity Living completes new homes, thematic fund ramps exposure

Since inception two years ago, Simplicity Living has completed 210 homes for long-term rent, with another 878 in build and development.

Development is funded through Simplicity’s KiwiSaver scheme (currently 10th biggest according to Morningstar with around $4b AUM) and its managed funds (around $2b AUM).

All of Simplicty’s KiwiSaver funds, bar the default option, include Simplicity Living shares in their top 10 investments ranging from 2.99% for high growth to 1.35% for conservative.

The recently completed Mt Albert apartments are one of six projects including Pt England, Onehunga, Mt Wellington, Remuera and Morningside. Simplicity is also looking to expand to Hamilton and Queenstown.

Shane Brealey, managing director of Simplicity Living says the 51 homes were built in 12 months, at least 30% below average build costs, and well in excess of the building code.

The cost per unit for a Simplicity Living 2.5 bedroom apartment is $550,000 (including GST) compared to an average of around $700,000, he says.

“That difference drops to the bottom line for Simplicity investors,” he says. “There’s no construction margin which is around six or seven per cent, no developer margin which is 20%.”

The company is able to achieve this through its vertically integrated model from sourcing the land to construction, to tenanting and managing properties.

Brealey says returns are based on three components; year-one yield of around 5% on cost of delivery the project, a 2.3% per annum growth in rentals and the value of the asset being 30-35% higher than the cost of delivering the asset.

“The valuation of our portfolio is continually adding to the returns of KiwiSaver investors. So it's not just that 5% Standing yield. It's also effectively the development profit or the surplus that a developer or a builder would normally take as a margin because

Simplicity is building it themselves. Everything goes to the benefit, after our hard costs, to the members.”

Brealey says all 38 of the 51 apartments have been allocated and all will be allocated within two weeks.

Simplicity managing director Sam Stubb’s says its latest fund, Home and Income which launched in October last year, now has a 5% exposure to Simplicity Living and is aiming for up to 25%.

The thematic fund aims to invest in income generating assets and as well as Simplicity Living, it will also include community housing bonds and residential mortgages.

The fund allocates 25% in growth assets (rental property) and 75% in income assets (40% cash and cash equivalents, 10% community housing bonds and 25% residential mortgages).

With a risk profile of three, a minimum investment of $1000 and a suggested three-year horizon, the fund will take several years to achieve its target asset allocation, and will have a higher weighting to cash and equivalents as it builds up to its benchmark asset allocations over time.

Simplicity says the option is suited to investors seeking steady growth through exposure to the New Zealand residential rental property market and residential mortgages.