AMP Capital hit by loss of property fund to Dexus

AMP Capital rocked by the loss of a $5.4bn diversified property fund, in a blow to its real estate platform as it seeks to spin off its private markets arm.

AMP Capital Diversified Property Fund’s independent board committee chairman Ming Long. Picture : Aaron Francis

AMP Capital has been rocked by the loss of a $5.4bn diversified property fund in a blow to its $28bn real estate platform, as the company seeks to spin-off of its private markets division.

The loss of the fund to property company Dexus comes ahead of AMP’s annual general meeting on Friday, where a significant protest vote or a second consecutive strike is expected to be lodged against the company’s pay report.

Some investors are frustrated over the collapse of negotiations with US suitor Ares Management, retention payments to AMP Capital staff and overall governance issues that continue to plague the 172-year old wealth group.

AMP’s board is also expected to field tough questions about hefty payments to departing infrastructure executive Boe Pahari, which are expected to print at tens of millions of dollars. The actual amount depends factors including the divestment timeline and prices attracted for assets in the funds he helped manage.

The turmoil in AMP’s property division threatens to spill over into other funds with the group also facing challenges to its grip on its wholesale office fund, which owns $7bn of the country’s prime office towers.

Dexus on Tuesday succeeded in a push to merge its Dexus Wholesale Property Fund with the AMP Capital Diversified Property Fund, after unitholders of both groups resoundingly voted in favour of the marriage.

Sources said about 93 per cent of the AMP fund’s unitholders voted in favour of the merger, well exceeding a required 75 per cent, and reflecting disquiet about the company’s direction that could spur further fund losses.

The Australian’s DataRoom column foreshadowed the result on Monday.

The AMP diversified fund’s holdings include stakes in the Quay Quarter in Sydney’s central business district, the Gold Coast’s Pacific Fair retail and conference centre and the Macquarie Centre at North Ryde in Sydney.

Both funds held votes on Tuesday after proxy votes were received.

Investors in the Dexus fund, which owns interests in a diversified $10.1bn portfolio, also strongly supported the manager’s move to merge with the AMP vehicle. They backed it with 78 per cent unit holder support, well above a 50 per cent required hurdle.

Tuesday’s vote could play into the future of the larger AMP Capital Wholesale Office Fund, which is assessing its management. That fund has set up an advisory committee and has Jarden running a process.

More than 90 per cent of AMP’s unit holders backed the merger. Picture: Hollie Adams/The Australian

The AMP real estate funds started assessing their future the parent group held protracted negotiations with Ares for a sale of the entire company, and then its private markets unit, which houses its infrastructure and real estate investments.

Those talks were called off last week as AMP’s board decided to instead pursue a spin-off of the private markets business.

Dexus swooped with a bid for the management of the AMP Capital-run fund last September and then won the backing of the independent board committee, led by Ming Long, for its merger proposal in March.

The AMP fund invests in the office, retail and industrial sectors that fit well with the Dexus fund. It also has stakes in the AMP office vehicle and the AMP Capital Shopping Centre Fund.

But it has been hamstrung by about $2bn worth of redemption requests, which Dexus will look to satisfy over the next 18 months.

Dexus will move to sell $2.1bn of assets including interests in shopping centres including Indooroopilly in Brisbane, the Pacific Fair on the Gold Coast, and Sydney’s Macquarie Centre, in a major test for the market.

Dexus chief executive Darren Steinberg said the outcome signalled investor confidence in the group.

“We will continue to execute on the fund’s investment strategy as we integrate the ADPF assets to drive performance and deliver further economies of scale from a management, procurement and leasing perspective,” he said.

Dexus will provide about $400m of upfront liquidity to redeeming AMP fund unit holders by purchasing exiting ADPF assets – with the a stake in the office fund likely to be part of the deal.

The merger will be accretive to Dexus’s Adjusted Funds from Operations and net asset value in fiscal 2022. In addition, the merger will provide the opportunity to generate further upside through the active management, leasing and development of the ex-AMP assets.

The vote signals a rejection of a bold rescue plan that AMP Capital put up that would have seen the sale of $1.8bn in assets including the parent company buying stakes in major shopping centres and pumping $840m of liquidity into the fund.

AMP Capital real estate boss Kylie O’Connor, who had said that a venture with now departed suitor Ares would have been a good outcome, said the incumbent manager had “submitted a compelling alternate proposal with significant capital support”.

“Real estate remains an integral part of AMP Capital’s private markets business.”