Listed property trust industry should be more stable in 2012

The property funds management industry has undergone significant change over the past three years as a result of corporate activity and restructuring. While the highly leveraged position of several funds caused distress and ultimately failure such as those run by Allco and Babcock & Brown, some funds have been subsumed by competitors or new entrants. Other fund managers have elected to strategically exit the industry such as Westpac and Macquarie.

Corporate activity in the unlisted retail property fund industry has been substantial. Table 1 shows the ranking of the five syndicate and unlisted property trust managers with highest funds under management in each of 2008 and 2011. 

Table 1 - Ranking of Property Syndicate and Unlisted Retail Fund managers

Source: PIR 

Since 2008, Multiplex has sold its retail funds management business to the Canadian Brookfield Asset Management; Centuria and 360 Capital Management split the Becton funds between them; Mirvac first acquired both PFA and Domaine, then sold its retail funds management business to APGF; and Macquarie sold its retail funds management business to Charter Hall. Centro has undertaken a restructure of its Australian assets and funds into a new listed entity, Orchard is seeking a corporate solution and Australian Unity has acquired retail property fund management rights from both Westpac and Investa. 

The performance of the industry is also reflected in the change in the respective size of the industry. In 2008, funds under management totalled $18.5 billion. By 2011, asset sales, fund closures and asset write-downs left the industry with $13.3 billion, a reduction in size of 28%. The assets controlled by Centro in the unlisted property funds industry have been reclassified into the A-REIT industry, further reducing the size of the unlisted industry. 

Despite Westfield splitting out its new Retail Trust and the strategic exit from property fund management by ING, the A-REIT industry has experienced comparatively little change on its leader-board, with only one new name in the top five since 2008 as a consequence of the decision by Macquarie to exit property funds management. 

Table 2 - Ranking of A-REITs

Source: PIR 

Over the three-year period, total assets in the A-REIT sector reduced by 20% to $129 billion, but the proportion of the assets held by the five largest managers increased significantly. This can be largely attributed to the dominance of Westfield, which increased its share of the A-REIT’s assets from 25% in 2008 to 34% in 2011. 

Corporate activity, strategic fund manager exits and excessive leverage, some culminating in corporate failure, have all translated into significant changes in the property funds management industry, particularly in the unlisted property sector. Following this shakedown, a more stable 2012 is in prospect for the property funds management industry. The enduring value of property investment is derived from the underlying assets which provide the return performance notwithstanding the overlay of gearing and fund strategies.

Mark Wist is senior asset consultant at Atchison Consultants.