The Australian Property Fund (APF) is a diversified fund with core strategic exposure to both unlisted direct property and A-REITs. APF gains its exposures via the AMP Capital Wholesale Australian Property Fund (WAPF) and will also hold A-REITs and cash in its own right.
APF was launched in 2001 and has recently been re-opened to new investors following a period of impeded liquidity. APF have undergone some adjustments to its asset allocation mandate and fee structure to allow greater flexibility and increased exposure to A-REITs.
The Investment Manager for WAPF is AMP Capital (AMP). AMP has significant expertise and resources in investment management more broadly and real estate specifically, with in excess of $142bn in firm wide FUM and $17bn in real estate as at 31 March 2014.
APF is one of the very few open-ended unlisted property funds to be declared compliant under the Australian government’s Significant Investor Visa guidelines (SIV).
Zenith’s View
APF currently has the majority of its exposure via WAPF, however over time it is expected that APF’s asset allocation will rebalance into higher levels of liquid securities in accordance with its strategy. WAPF has a long history having been established in 1985 and has broad sectoral and geographic diversification. Like APF, WAPF may also make a strategic allocation to Australian Real Estate Investment Trusts (A-REITs) and cash in order to manage liquidity and gain greater flexibility around the returns profile.
WAPF’s direct property portfolio has a high occupancy level of 98% and the direct portfolio assets are reasonably solid with contracted rents underpinning earnings in the short term. The key issue for the portfolio is the relatively short term lease expiry profile of 3.5 years combined with widespread softness in leasing markets which poses some risks going forward.
The WAPF carries a low level of leverage compared to peers with gearing at 6% at 30 June 2014. Gearing is limited to 25% of WAPFs gross assets at the time of drawdown. While this level of gearing is very conservative, it is also prudent given the potential for exposure to more volatile liquid real estate securities. After a long period of nil A-REIT exposure, WAPF and APF are currently set to embark on re-entering this space to bring the Fund back toward its long term asset allocation.
AMP took over the asset management of WAPF and APF in June 2012 from AXA Australia following the merger of the parent entities. Zenith views AMP favourably as the manager given their extensive experience and skill set in real estate management. Although WAPF has suffered a turbulent period between 2008-2012 (common to most peers with material A-REITs allocations), Zenith sees it as well placed to generate solid returns commensurate with its risk profile going forward. Zenith rates the Australian Property Fund RECOMMENDED.