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Property funds face tenant uncertainty

PROPERTY funds invested in industrial and commercial property face a challenging future as a series of factors conspire against the sector.

Several fund managers, including local player Aspen Group, have sold properties and/or sought capital injections after getting caught out with unsustainable gearing levels during the credit crunch.

Researcher Lonsec said the slowing economy had already led to increased vacancy rates throughout Australian property markets, due to uncertainty within the business community coupled with increased unemployment and lower consumer confidence.

"Lonsec considers that the slowing Australian economy has reduced the take-up of industrial space, together with creating pressure on industrial rents and land values," the researcher wrote in a report.

"In summary, a constrained capital environment, increased risk premium and parlous 'real' rental growth will further negatively impact the Australian property markets, in the short to medium-term."

Orchard Funds Management is recapitalising and restructuring its industrial fund by seeking a capital injection from South African property group Growthpoint. The fund holds the distribution centre on the access road to Perth International Airport as part of its $750 million portfolio.

Becton Property Group's industrial fund, which has exposure to several Perth assets including industrial sites in Canning Vale, has sold assets and is seeking capital through an entitlement offer to bolster its balance sheet.

Several property syndicates and property funds ran into trouble during the past 18 months when renegotiating loan contracts, with Centro Property Group the first casualty after failing to refinance its bridging loans in 2007.

Reduced inflows into the sector and softening valuations meant the already high levels of gearing used to exploit returns rose even further.

Aspen Group holds three properties facing tenant uncertainty in its diversified fund's portfolio. The fund is attempting to raise money through an entitlement offer to avoid a forced sale of properties.

Aspen Group managing director Angelo Del Borrello said one of the tenants in question, Holeproof, had indicated it might use the premises located in Nunawading, Victoria as a distribution centre even though the manufacturing centre was closing.

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Aspen Group (APZ)

Share Price

Closing price for the last 90 trading days
Source: Morningstar

Total Shareholder Return as at 31/10/18

1 year TSR5 year TSR
391stAspen Group-7%-4%
744 WA (and selected non WA) listed companies ranked by 1 year TSR relative to other companies with similar revenue
Source: Morningstar

Share Transactions

01/10/15
$46k Issued
30/09/15
$260k Bought
30/09/15
$0 Other
Total value as at the date of the transaction
Source: Morningstar

Revenue

th-Aspen Group$22.1m
77 listed non wa companies ranked by revenue.
Source: Morningstar

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