Pressure on Elanor as Challenger shops its $3.5b real estate mandate

The request-for-proposal process is to manage a real estate mandate that accounts for more than half of Elanor’s listed funds under management and which it won only 18 months ago.

Sources within Challenger, who spoke on the condition of anonymity to speak freely, said the wealth giant was becoming increasingly frustrated by the fund manager’s extended suspension from the ASX and the slow progress it is making in selling down assets and a capital management review.

That lack of progress has added to the financial uncertainty around Elanor, which is yet to provide its financial accounts to the ASX.

A Challenger spokeswoman said the wealth giant regularly assessed risks across its investment portfolio.

“We continue to evaluate the market for alternative managers as part of our standard contingency planning,” the spokeswoman said.

Slow progress

Last September, Elanor said it would pursue a range of options to stabilise its financial position, including a potential sale of the business, and it appointed Citi as a financial adviser for that.

“Elanor will actively consider approaches made by third parties and engage further with interested parties on proposals which maximise security holder value. There is no certainty that the review process will result in a transaction,” the company said in its September update.

But Citi has not started any formal process on behalf of Elanor to consider sale options despite being appointed six months ago, according to sources familiar with process.

In the interim, Elanor said it has commenced “active engagement” with interested parties, and Citi was assessing a number of approaches made by third parties. Elanor declined to comment when asked if that work was part of a formal sale process that would be required for any sale to go ahead.

At the same time, the listed fund manager is trying to sell hotels within an unlisted wholesale fund called Elanor Hotel Accommodation Fund, where it is itself an investor.

Elanor had hoped to sell the entire portfolio in one line to one major party. But talks with US groups including investment firms KSL, KKR and Blackstone did not result in a deal, sources said.

Some of the fund’s best assets remain on the market, including the popular Mayfair Hotel Adelaide, Peppers Cradle Mountain Lodge in Tasmania, Parklands Resort Mudgee in NSW’s central west, Panorama Retreat and Resort in Kalorama, Victoria, and Byron Bay Hotel and Apartments in northern NSW, with a combined value of more than $230 million.

The company said it had sold $53.5 million of fund assets. These consist of smaller regional Elanor hotel assets handled by HTL’s Andrew Jolliffe.

As well as making slow progress on its capital management review and divestment program, Elanor is yet to provide its annual report and full-year accounts to the ASX. That is partly due to breaching a debt covenant for the group’s $40 million of unsecured corporate notes.

Elanor secured an $85 million refinancing deal with credit fund Keyview Financial Group last year, but that did not include the unsecured corporate notes.

The unsecured holders of those notes, arranged by FIIG, had agreed to a 90-day standstill which expired last week. Elanor said it was close to finalising a proposal to restructure the notes. The proposal is likely to be put to noteholders as early as Tuesday.