Weekly Update 26/4/2021

26 April 2021

Welcome to this week’s Property News.

First up, I wish to express my thanks to the service men and women who have fought for and defended Australia’s freedoms alongside other nations of the world. Freedom is one of our most valued assets. Few people would give up their lives for property, possessions or even other people, but for freedom, countless men and women have and will die for the cause. We choose to remember their sacrifices. Lest we forget.

In property, this week was all about strengthening Funds Management platforms including;

  • The $15bn Centuria and Primewest proposed merger
  • Dexus’ rejig of their $16.5bn stapled trust structure, and
  • AMP’s decision to dump Ares, defend its tole with ADPF and move to a separate listing of its $50 billion of infrastructure equity, debt and real estate business in AMP Capital.

Centuria and Primewest are high-quality, complementary funds management platforms that share similar investment philosophies and strong track records. We believe the merger would be good for Centuria investors and without a competing offer, will also be good for Primewest investors.

The Offer price of $1.51 per Primewest Security is +3% premium to the opening value on the 19th April. Bid premiums vary widely and typical factor in unrecognised value in the target company. ESR paid a 14% premium for Propertylink however this included direct holdings assets which were potentially under valued. Likewise Oxford’s bid for IOF reflected a +24% premium, but once again, the REIT held undervalued assets. Primewest’s business is purely one of Funds Management with virtually no direct holdings in real estate. The business earnt $23.8m in EBITDA and has an average growth in FUM of 19%. Centuria will pay $1.51 per share ($598m), an amount equal to 25x current 2020 earnings, effectively providing a 4% yield on the investment. If earnings grew at 19% pa (in line with recent FUM growth) over a 5 year forecast period, the forecast earnings across the 5 years is likely to be reflect a 7% average yield.

I doubt whether there is another market participant with similar aspirations to Centuria who would provide better pricing. With the Primewest Board holding 53% of the securities and voting in favour of the deal, I expect this deal to proceed.

This week, Dexus found unit holder support to reconfigure their stapled trust structure by place a new trust above the existing trust and de-stapling the sub trusts. Dexus promoted the benefits of the restructure as a means to enabling the group to offer potential third party capital partners with direct interest in the sub trusts without the stapling arrangements, providing Dexus with greater flexibility in meeting investment demand from investors for real estate assets. The move comes at a cost which we feel which could really only be supported if there are opportunities for M&A which Dexus have in mind. Dexus are already pursuing the merger proposal of its diversified wholesale fund with AMP Capital’s ADPF and no doubt have other targets in mind.

And, like a marriage of two partners each with their own sordid affairs, AMP will now hope that a separation of their wealth management business and their private markets business, will be better off after a divorce. The wealth management division has suffered from the loss of revenues, planners and FUM following revelations at the Royal Commission, and AMP Capital has suffered from the further outflow of funds following the disgraceful behaviour of the Board who promoted Boe Pahari, after they had settled a sexual harassment claim against him. With all of this in the background, AMP were also facing humiliation from the public courting by the US Group Ares, who ultimately was really just in love with the private markets business. Typically few divorces succeed without collateral damage, so there is much more to come as people and assets get shifted around over the months ahead. The whole sager sounds more like a classic melodrama than a first class wealth management business. My thoughts are with the children who work their butts off for the family.