Stay the course

December 8, 2016

The interest rate guessing games continue but Sentinel will be staying the course.

We took a strategic decision three years ago to stay with variable interest rates, when almost all the so-called experts were saying to lock into fixed rates. People ask what will we do when interest rates rise? They still do not understand. Interest rates WILL NOT/CANNOT rise in the foreseeable future.

When international sovereign debt has increased seven-fold in the last seven years, how can rates go up? Irrespective of what happens in Australia, there are so many competing international forces, Brexit, wars, terrorism, low growth around the world, 25% of world GDP in negative interest rates, on and on it goes. In the international context, Australia still provides the highest interest rates in the industrialised world. At the REIW conference in Singapore we were given details of a major Japanese institution who has issued USD$12B of 40 year bonds at 0.78%! I know there is a lot of pain out there and plenty more volatility, but this presents a great opportunity to keep making money. Sentinel will continue to operate out in front of the chasing pack by recycling money through strategic asset sales and purchases.

The large listed funds, notoriously slow movers to change, are buying our retail assets as stock is very short. Fortunately, we have plenty of stock because we were buying while they not only sat on their hands, but critiqued us for our buying. The wheel will continue to turn and they will be chasing our regional/tourism assets in coming years too, as inbound tourism growth continues to ‘blow the doors off’. As an example, foot traffic at our DFO Cairns property acquired earlier this year is up 25% on the same time last year.

All the more reason to stay the course.