AMP shopping fund shapes up to deal with $600m outflows

Shoppers may be back in malls, but big investors are pulling away from all best but the best.

Once of the fund’s main assets is a stake in the Macquarie Centre

Financial services giant AMP has been hit by redemptions in its flagship $3.5bn shopping centre fund at a time when wholesale property vehicles remain under pressure.

Credit agency S&P Global Ratings cut its outlook on the fund to negative as the AMP vehicle deals with superannuation funds seeking to exit amid falling values in the mall sector.

But Dexus, which is taking over AMP’s local property fund unit, now under the Collimate Capital banner, says the vehicle can handle the redemptions and it is putting a fresh strategy in place.

The broader AMP platform has faced investor unhappiness for some years but they are now keen for the sale to Dexus to be finalised and are understood to be backing its approach.

Some funds have been lost by AMP already, with Mirvac picking up the management of an $8bn office fund and GPT winning retail property mandates from the AMP operation. This has cut to the price that Dexus is paying for the platform.

GPT made a bid to merge its own shopping centre fund with the AMP vehicle last year, but this was abandoned, partly as even more investors in that fund want out.

The rise in redemptions is being seen across the unlisted commercial property as investors chase liquidity in the midst of market volatility. But the AMP vehicle was mandated to open on a five year window and they are the first redemptions since 2003.

The AMP Capital Shopping Centre Fund received unit holder redemptions of about $612m and must fulfil these over the next two years.

Industry players said that redemptions had come in significantly lower than expected and that an asset sale program was well under way.

The fund is likely to retain premium assets and offload smaller centres which are still being chased by private players and syndicators. While the plan is still taking shape behind the scenes, investors are believed to be backing the strategy that will see a high quality vehicle emerge once redemptions are met.

“Dexus executives have been working with the AMP Capital team on a revised strategy for the fund. This strategy has been well received by investors and will move forward once redemptions have been satisfied,” Dexus CEO Darren Steinberg said.

S&P cut the fund’s rating outlook from stable to negative, while also affirming it’s A issuer rating – still ahead of many rivals – with the outlook likely to be restored once the redemptions are dealt with.

Big assets in the AMP fund include half interests in Westfield Southland in Melbourne, Westfield Tea Tree Plaza in Adelaide and Westfield Liverpool in Sydney’s western suburbs.

“The negative outlook reflects our view that unitholder redemptions will constrain the rating on ASCF over the next 24 months. In particular, the fund will likely undertake material asset divestments to fulfil these redemptions. We expect the fund’s scale of operations and portfolio diversity to diminish as asset sales materialise,” S&P said.

The redemptions amount to about 22 per cent of the fund’s net assets. AMP has already sold Rockingham Shopping Centre for $170m, which showed an 11 per cent discount to the book value of $192m.

“As the fund progresses with sales of non-core assets to balance redemption payments and reduce debt, a diminishing asset portfolio will likely result in the cumulative loss of rental income and portfolio earnings,” S&P said.

The agency expects the portfolio will fall by about one quarter to $2.7bn after assets are sold. The fund’s assets include stakes in Brisbane’s Indooroopilly Shopping Centre and Sydney’s Macquarie Centre.

S&P Global downgraded an unlisted Lendlease fund over concerns that sagging consumer confidence, as a result of belt tightening by consumers, would weigh this year.