A $240b infrastructure and property merger gets down to business
Infrastructure heavyweight IFM Investors has finalised its long-awaited tie-up with industry super fund property platform ISPT, creating a $240 billion-plus funds behemoth the pair hope will provide more clout and more choice for their investors, globally and locally.
The two businesses officially merged on Friday through a scheme of arrangement, after approval by ISPT shareholders.
For IFM chair Cath Bowtell, the merger between a global infrastructure house and a local property investor stacks up not just because of overlapping ownership and purpose between the two platforms, but also because of what she describes as an increasing “blurring of the boundaries” between asset classes, including infrastructure and real estate.
“Bringing ISPT, bringing real estate into the IFM platform, we can leverage some of that global footprint, some of that investment that we’ve made in operational resilience and some of that new product capability,” she told AFR Weekend.
“That’s in the interests of the underlying investors because you’re not having to spend the money twice.”
The two platforms have many industry super fund shareholders in common – including AustralianSuper, Cbus, UniSuper, HESTA and Hostplus – and a merger has been mooted several times over the years. Even so, the latest proposal to join forces has taken close to 18 months to come to fruition.
But it comes at a challenging point for ISPT, which has $21 billion of funds under management, and a high-profile portfolio of office towers, malls and warehouses across Australia.
ISPT chalked up heavy losses in its last financial result as it absorbed the impact of a downturn across the commercial property sector. Falling income, rising costs and asset devaluations combined to send its flagship fund $1.5 billion into the red.
Under their deal a peppercorn price will be paid for the ISPT holding entity, bringing it into the IFM platform as a subsidiary.
On the buy side is IFM, which has 717 institutional investors and a $222 billion global portfolio, ranging across infrastructure equity, debt, listed equities and private equity assets. Around half of that is invested in its infrastructure business.
And notwithstanding the “blurred boundaries” in real asset classes, commercial property is proving to be much more vulnerable to the post-pandemic disruption and high interest rates than the returns from infrastructure investment.
ISPT’s core property fund delivered a 10 per cent loss in its total return in the year to September, according to data house MSCI.
By contrast, MSCI’s Australian infrastructure index, which includes IFM investments, shows a 7.3 per cent positive gross total return over the past year. Global listed infrastructure returns were even higher, at 26.8 per cent.
Ms Bowtell said IFM was taking the long view on its new interest in commercial property.
“It has been a difficult time for all commercial property investors over the recent period, and that’s been a combination of market conditions, particularly in office, and also rising interest rates,” she said.
“Some of those things are cyclical and some of those things, potentially, are structural. So as long-term investors, we look through the cyclical things. Our investor base looks through that and makes their decision as to how exposed to the property sector they want to be.”
Being able to present a larger pool of investors with a wider range of investment opportunities was the advantage a bulked up and diversified IFM was seeking. It already had a pipeline of ideas for investments that were “adjacent to infrastructure”, Ms Bowtell said.
“But now that ISPT is in the mix, as we build out our strategy, new ideas will compete for prioritisation.”
She canvassed areas of where infrastructure and property platforms could potentially have overlapping interests, such as in housing or in the industrial land around ports, although she was careful not to pre-empt any decision her fund managers and investment committees might make.
“I’m looking forward to our sales team being able to talk with investors around the globe about the fact that we now have an Australian property platform,” she said. “There are opportunities in the cracks between the asset classes. So bringing real estate into IFM makes a lot of sense to us.”
ISPT’s chief executive Chris Chapple will become IFM’s global head of real estate, although Ms Bowtell was equally careful to douse speculation that his new title prefigured any early move into real estate offshore, where some of the country’s biggest super funds, including AustralianSuper and Aware Super, are already very active.
“Not ‘no’, but not now,” she said.
