S&P Three-Star ‘NEW’ Rating for Australian Unity Diversified Property Fund

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Standard & Poor’s Fund Services today assigned its three-star ‘NEW’ rating to the Australian Unity Diversified Property Fund, managed by Australian Unity Property Funds Management Ltd.


In September 2010, Australian Unity Investments (AUI) acquired the previous responsible entity and renamed the fund. Since then, it has clearly articulated its investment strategy and has focused on reducing fund gearing, improving portfolio diversification, reintroducing periodic (albeit limited) liquidity, and undertaking a discounted public offer. In late 2010, AUI provided the first limited liquidity offer to investors in over two years, and will offer additional liquidity in 2011.


“We continue to have a high opinion of AUI’s collective direct property team. For this fund, the property team is led by the experienced Peter Lambden and diversified property portfolio manager Nikki Panagopoulos, who will work closely with trust portfolio manager Vincent Stranges. We see Mr. Lambden and Ms. Panagopoulos and their team as critical to the fund’s future success due to its very active asset management strategy, which aims to reposition the property portfolio mix to address three key risks—tenant, sector, and geographic concentration,” said S&P Fund Services analyst Kelly Napier.


Our positive view of the team is tempered by the portfolio concentration risks, the fee structure, and uncertainty surrounding the fund’s future capital structure. The latter hinges on the success of the present discounted offer and there is also uncertainty surrounding the composition of the fund’s eventual property portfolio after a combination of asset sales and acquisitions.


Ms. Napier added: “On balance, we have conviction in AUI’s quality property management and strategy capability, but note there is strategy execution risk. We also think the fund represents a reasonable risk/return proposition for investors seeking a direct property investment portfolio and capital structure representing a moderate risk profile. Pleasingly, the fund has headroom against debt covenants to provide capital flexibility to execute the strategy to deliver unit-holder value and is not solely reliant on inflows. As a direct property fund, any investment should be approached as a long-term and illiquid one. While the manager intends to offer periodic liquidity, investors should not rely on it.”

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