Other big Australian investors likely to follow suit, say analysts
(SYDNEY) Australia's sovereign wealth fund is beefing up its property portfolio through acquisitions at home and overseas, sources and local media said yesterday, leading analysts to suggest that more big investors may follow suit.
The Future Fund, which holds A$58 billion (S$69.7 billion) in assets, is looking to buy a stake in the Bullring shopping centre in Birmingham, UK, and is also looking at the Lakeside Joondalup shopping centre in Perth, deals that could be worth more than A$800 million, according to The Australian newspaper and sources.
Signs of stabilisation are emerging in the global property market.
Westfield Group, the world's largest shopping mall landlord, said last month that it was cautiously optimistic about the outlook, echoing other Australian firms, while there are signs of improvement in the US and UK markets, according to analysts.
'This is a sign of things to come. There will be more purchases. There are prospective investors sitting there with cash ready to invest,' said Ken Atchison, managing director at Atchison Consultants.
'Like Future Fund, superannuation funds in Australia will start to have cash available in the near future,' he added.
Ian Fryer, head of research for Chant West which covers the pension fund market in Australia, agreed. 'It's fair to say that some have been quite cautious in their investments over the past a little while and have built up more cash than they usually would, and they are waiting for opportunities,' he said.
The timing looks right for picking up real estate assets.
Capital values for UK retail assets fell 27 per cent last year, while those for Australian retail assets dropped 10.6 per cent in the year to June, according to UK research firm IPD.
EL & C Baillieu Stockbroking head analyst Ivor Ries said it was a good time in the economic cycle for the Future Fund to be buying shopping mall assets.
'When you've just been through a period where consumers have been shutting their wallets and savings are high, that's when you should be buying shopping centres.'
He said the Future Fund would get better yields by buying assets directly rather than buying exposure through listed property trusts.
'There's about a 1.5 percentage point gap between the cash yield on the listed vehicle and the actual yield you get from buying them directly,' Mr Ries said.
The Future Fund said it did not comment on specific investments.
The fund had just A$529 million invested directly in property, or one per cent of its total portfolio, as at March 31, the most recent date for which figures are available. That is well short of its long-term plans to invest up to 30 per cent of its funds in assets such as property, infrastructure and utilities. The fund sees itself as a long-term holder of assets. -- Reuters
Source: Business Times, 3 Sep 2009