ISPT earmarks asset sales as it revamps $18b fund
Industry super fund investor ISPT is stepping up moves to bolster its loss-making flagship fund, earmarking for sale a retail property in the heart of Melbourne which has lost around 25 per cent of its value.
That effort was already under way when the $21 billion ISPT finalised its much anticipated merger with the much bigger IFM Investors, to create a $240 billion infrastructure and property giant at the end of last year.
But ISPT also brought with it heavy losses across its funds in its latest financial accounts, as it absorbed the impact of a downturn across the commercial property sector. Hardest hit was its $18 billion core fund, where falling income, rising costs and asset devaluations combined to deliver a $1.5 billion loss.
In response, the platform is moving quickly to rejig its flagship portfolio, with a clear lean toward industrial and logistics investments as well as into the alternate sector as it reduces its exposure to the beaten-down office sector.
Last year, it offloaded around $800 million worth of assets from the flagship fund, while undertaking $700 million of industrial development. It settled another $900 million of acquisitions designed to increase its weighting toward the industrial sector.
The latest asset marked for divestment from the core fund highlights the challenge for ISPT. The fund manager has appointed JLL and Cushman & Wakefield to broker the six-level retail complex property at 206 Bourke Street, just a block past the Bourke Street mall. Formerly the Village cinema centre, the property now counts Michelin-starred Tim Ho Wan eatery, JB Hi-Fi, Holmesglen Institute and Victoria Police among its key tenants.
Fully let, the property generates an income of around $6 million. Assuming a conservative yield of around 6.5 per cent, the property could be worth about $90 million. A value around that mark would represent a near 25 per cent fall on the $118 million that ISPT paid when it bought the property in late 2015.
But it also means there could be a broader pool of opportunistic buyers.
“The property provides a massive and highly strategic 3,157 sq m landholding, benefiting from enormous frontage to Bourke Street, one of Australia’s premier retail precincts at the front, and one of the largest frontages to Melbourne’s bustling Chinatown at the rear – an incredible dynamic for a retail offering,” JLL’s Stuart Taylor said.
A number of landmark retail assets in central Melbourne have changed hands at bargain basement prices in recent years.
In a stark example of that trend, just last week The Australian Financial Review revealed investors are being offered a 9 per cent distribution yield from a new property fund set up by fund manager IP Generation to hold the historic home of the David Jones department store a block away in Bourke Street mall. The David Jones property was bought for $223.5 million, a near 19 per cent discount to its June book value.
There is also plenty of development upside potentially at 206 Bourke Street, according to Cushman & Wakefield’s Oliver Hay. The property previously had permit approved for the development of a rooftop bar and entertainment facility. It had separately won approval for a nine-level development incorporating a hotel above the existing retail centre.
