This article is from the Australian Property Journal archive
THE Australian Retirement Trust, the nation’s second-largest superannuation fund, has revealed that it has written down the value of its office investments by up to 20%, as the commercial property sector braces for a valuation shakeup this year.
ART, which manages $240 billion of assets, said its Australian offices investments has seen material downward movements ranging between 5% to 20%. Unlisted property comprises only around 9% of its total portfolio.
ART chief investment officer Ian Patrick said despite property valuation adjustment the fund has delivered a 10% p.a. return for its Super Savings Balanced option for the 2022/23 financial year.
Patrick highlighted how the fund’s proactive and robust approach to valuations would set the fund up for future success.
“Our prompt action during the previous financial year to adjust our private equity valuations to reflect market conditions set us up for success this year and I similarly believe that our early action on property this financial year will do the same.
“A combination of structural and cyclical changes have influenced supply and demand dynamics in the property sector. In light of those challenges, we proactively sought updated valuations in line with our valuation policy. The outcomes are aligned with our expectations, with the office sector specifically experiencing material downward adjustments due to capital market disruption and decline in occupancy,” he added.
Patrick said despite the challenges in the office sector, the diversification in the property portfolio into alternative property sectors such as industrial property, US Residential debt strategies and aged care has helped balance outcomes.
ART is the latest super fund to be hit by the office asset repricing with Cbus last week revealing it has written down property investments by as much as 10%.
Meanwhile the Australian Real Estate Investment Trusts sector is bracing for more adjustments with billions already wiped for the balance sheets of some of the major landlords, including Charter Hall.
This is because Australia hasn’t seen significant write-downs compared to other global markets, according to Benjamin Martin-Henry, head of real estate research, Pacific, MSCI, said in a recent Australian Property Journal’s latest Talking Property podcast.
Fitch Ratings last week said office valuations will be the key focus this year.
“Office valuations will be the key focus in Australian REITs’ results for the financial year ending June 2023 (FY23), as the sector grapples with uncertainties and structural changes amid the rise in flexible working, alongside a higher interest rate environment,” Fitch Ratings analysts Kelly Amato and Mikhail Lyamin said.
Despite the expected repricing, S&P Global Ratings insists that Australian landlords remain in better shape than global peers.
“We believe this region’s office-focused REITs are in better shape than global. Based on our stress tests, most rated REITs have some financial buffer against scenarios of sharper declines in rents and asset value,” said Simon Wong, credit analyst at S&P Global Ratings.
Just three out of 15 office-focused REITs or landlords across Australia, Hong Kong, mainland China, Japan, and Singapore had negative rating outlooks.
