This article is from the Australian Property Journal archive
Big money continues to flow into the Australian retail unlisted property trust sector, according to a comprehensive report by Property Investment Research.
According PIR’s Unlisted Property Funds Review (Retail Investments), in 2005, the sector grew a massive 30% from $13 billion to $17.1 billion in total assets.
The report profiles open and closed ended trusts available for retail investment with over $20 million in assets.
According to the report, the flow of capital into unlisted property in 2005 has been the largest annual capital raising increase in the sector’s history.
Meanwhile, the average size of capital raisings has also increased by 77% from $35 million in 2004 to $62 million in 2005.
Eight out of the top 10 funds by size now have total assets in excess of $300 million each with the top four boasting in excess of $500 million in assets.
PIR’s head of client services John Nicoll said the continued growth of unlisted property funds and syndicates indicates the average Australian investors’ appetite for property investment has not waned, as they continue to seek the benefits of professional management of quality assets in regulated investments.
He added that there are number of reasons the sector is enjoying growth, including continued increases in funds fuelled by compulsory superannuation contributions investing in property assets, the relatively high returns available from the investment property market and a relative predictability (low volatility) of returns.
“The introduction of the Managed Investments Act may also have assisted in this growth by enhancing the perception of securitised property as a relatively secure investment, as has increasing independent research into the sector,” Nicoll said.
According to the report, the sector is shifting towards open-ended trusts and hybrid funds over traditional syndicates.
Growth of open ended unlisted trusts is outstripping closed ended syndicates with 30% per annum growth for syndicates over the last five years compared to 50% for unlisted trusts.
While sector specific funds are still popular, there is a prevalence of diversified funds propping up in the last three years.
In 2005, diversified funds made up 25% or $5.4 billion of funds by value.
According to the report, all the top ten fund managers by size have a diversity of fund types other than unlisted property, including Property Securities Funds and various types of Mortgage Funds.
The growth in the sector has also been assisted by investments to non-core property assets such as leisure, residential development and retirement assets.
While the sector has enjoyed continued growth, the report found the actual first year Return On Equity has declined over the last three years.
According to the report, excess demand is pushing property values higher and reducing the running yields on properties, particularly for the retail sector.
The average actual first year ROE was 9.13% for the 2003 financial year and has since decreased by 59 basis points to 8.54% in 2005.
Meanwhile, total returns have decreased from 15.2% in 2002 to 14.78% in 2005. Although average distributions have declined steadily over the last four financial years, the decline has been offset by an increase in capital gains, resulting in fairly stable total returns.
“Those funds which wound up in recent years or will be wound up in the near future, at a time when asset values remain generally high, are expected to deliver solid internal rates of return to investors.
“However, the majority of funds which were launched recently have purchased underlying assets on higher values, which may limit their ability to achieve the potentially higher returns of earlier funds unless property values grow at a similarly higher rate,” Nicoll said.
Like the LPT sector, the lack of investment grade assets in Australia is further contracting yields and it is expected that the unlisted property trust sector will head offshore for better yields.
“Australia is believed to have been the largest foreign investor in United States real estate in 2005, with $US8.9 billion invested.
“The listed property trust sector is currently 39% invested in the United States market and we expect to see an increasing number of unlisted property funds buying and securitising US property assets, especially given the arbitrage between the US borrowing rate under 5% and the yield on the properties around 8%,” Nicoll concluded.
At the end of 2005, Cromwell is the largest unlisted property fund with total assets of $768 million, followed by the Centro MCS 32 fund with $762.5 million and Multiplex Capital NZ Property Fund with $698.7 million.
Centro is set to overtake Cromwell with its new fund, the Centro MCS 38, a $1 billion fund investing in shopping centres in the US. Centro has already bought seven shopping centres from Westfield for $700 million to seed the fund.
By Nelson Yap
|
Top 10 Fund Manager
|
|||||
|
|
2005 Ranking
|
2004 Ranking
|
FUM ($M)
|
% of Total Sector
|
|
|
Centro MCS
|
1
|
1
|
4,490
|
0.262
|
|
|
SAITeys McMahon
|
2
|
7
|
1,390
|
0.072
|
|
|
Cromwell
|
3
|
3
|
970
|
0.057
|
|
|
Multiplex Capital
|
4
|
9
|
760
|
0.044
|
|
|
Macquarie Direct*
|
5
|
2
|
700
|
0.041
|
|
|
Aust Unity
|
6
|
8
|
680
|
0.04
|
|
|
Investa
|
7
|
5
|
650
|
0.038
|
|
|
Becton
|
8
|
6
|
630
|
0.037
|
|
|
MFS
|
9
|
–
|
630
|
0.037
|
|
|
Westpac
|
10
|
4
|
510
|
0.03
|
|
|
Total
|
|
|
11,410
|
0.656
|
|
|
* On 1 January 2006, Macquarie rolled several of its syndicates/unlisted property trusts into the Macquarie Direct Property Fund, which has been categorised by PIR as a Hybrid Fund and not an Unlisted Property Trust. Thus, from 1 January 2006, Macquarie had $477 million of funds under management in the unlisted property funds sector.
|
|||||
|
Top 10 Unlisted Property Funds
|
|||||
|
Responsible Entity
|
Fund Name
|
Est. Year
|
Type
|
No. of Prop.
|
TA ($M)
|
|
Cromwell Corporation Limited
|
Cromwell Diversified Property Trust
|
2003
|
DPS
|
19
|
768.0
|
|
Centro Properties Group
|
Centro MCS 32
|
2003
|
DPS
|
14
|
762.5
|
|
Multiplex Capital
|
Multiplex Capital NZ Property Fund
|
3004
|
URF
|
33
|
698.7
|
|
Centro Properties Group
|
Centro MCS 36
|
2005
|
DPS
|
30
|
588.8
|
|
Centro Properties Group
|
Centro MCS 28
|
2003
|
DPS
|
2
|
344.6
|
|
Property Funds Australia
|
PFA Diversified Property Trust*
|
2003
|
URF
|
15
|
334.0
|
|
Trinity Funds Management
|
Trinity P.T.
|
1999
|
URF
|
17
|
317.7
|
|
Australian Property Custodian Holdings Limited
|
The Prime Retirement & Aged Care P.T.
|
2001
|
URF
|
18
|
300.0
|
|
Permanent Investment Management
|
Grocon Property Trust Australia
|
2005
|
URF
|
1
|
226.1
|
|
Macquarie Bank Limited
|
Macquarie Martin Place Trust**
|
2002
|
DPS
|
1
|
233.6
|
|
*The PFA Diversified Property Trust is listed on the Bendigo Stock Exchange.
|
|||||
|
**The Macquarie Martin Place Trust has subsequently been incorporated into the Macquarie Direct Property Fund.
|
|||||
|
Source: Property Investment Research
|
|||||
