Centro brings other property funds down Email Print Normal font Large font AdvertisementMiriam Steffens January 2, 2008
RETAIL investors hoping for steady returns from their property funds appear to be in for a nasty surprise in the new year, with some of the biggest funds being directly hit from their investments in Centro Properties Group.
Property security funds managed by UBS, Macquarie Bank and Colonial First State have invested heavily in stocks of the embattled shopping centre owner, which revealed last month it was struggling to refinance $3.9 billion in debt because of the global credit crunch.
With Centro and its offshoot Centro Retail Trust scrapping dividends for the December half, investors could face lower distributions from their funds.
Making matters worse, some of the big property funds, traditionally regarded as havens for the risk-averse, have posted double-digit losses for December.
Centro's shares went into free fall last month on concern it might not be able to solve its debt crisis, making it the worst performer on Australia's ASX 200 in 2007 with a slide of 88.9 per cent.
Doubts about the company's ambitious $10 billion expansion program started to emerge after the collapse of the US market for subprime loans in July.
Macquarie's $440 million Master Property Securities Fund, which had invested a large chunk of its money in Centro, posted low single-digit returns for the September quarter amid "negative sentiment due to concerns about the sustainability of their business model".
Property stocks continued their fall in the following months as investors increasingly sold off trusts that were exposed to offshore markets or had high levels of debt.
But many held on to their bets on Centro, which had outperformed the market in previous years. Just weeks before Centro's share price collapsed, APN Funds Management told clients it "watched in disbelief" how the security, with other trusts, was sold off "on sentiment rather than actual fundamentals".
Similarly, UBS analysts recommended early last month that investors buy Centro shares. By the time Centro stock crashed, the bank's Property Securities Fund had piled almost 14 per cent, or more than $250 million, of the about $1.8 billion it managed into Centro and Centro Retail.
UBS has admitted to underperforming the property benchmark by 371 basis points in the three months to November 30.
That was before the Centro meltdown. According to some analysts, the fund, named Australia's best property fund in 2006, will post a negative return of 15.25 per cent for December.
Colonial First State Property Securities, which as of August had 13.7 per cent of its assets invested in Centro, lost an estimated 14.8 per cent last month. By comparison, funds such as Maxim Property Securities Fund, which sold out of Centro earlier in the year, were able to keep their losses in the single digits.
But UBS still has not given up on Centro. In a letter to investors after the Centro crisis it said market participants were "succumbing to short-term decisions based on the actions of others and uncertainty in other markets".
UBS met Centro's chief executive, Andrew Scott, on December 18 and bought more Centro shares that day, arguing the collapsed share price did not reflect the value of Centro's properties. While the fund's "recent returns have been disappointing, we remain comfortable with our strategy", UBS said. Email Print Normal font Large font When it happens: send photos, videos & tip-offs to 0424 SMS SMH (+61 424 767 764), or email us.
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