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OFFSHORE private-equity groups and large local players have held talks with Westpac Banking Corporation to buy its $3 billion property funds-management business.

Industry sources said the bank had questioned its long-term commitment to property-funds management, and had been winding up its smaller, unlisted property trusts.

Head of mergers and acquisitions for Westpac, Harvey Carter, said the bank did not comment on speculation.

"From time to time groups put in offers," Mr Carter said yesterday.

He said there had been no strategic review of the property funds-management business.

Mr Carter said Westpac’s branding was very important, with the bank having been in property funds management for a long time.

Westpac also owns Hastings Funds Management, which has $5bn of funds under management, most of which is infrastructure including stakes in Melbourne and Sydney airports. It is understood there have also been approaches for parts of this business.

Earlier this month Hastings’s listed Australian Infrastructure Fund pulled its 10 per cent stake in Melbourne and Launceston airports, worth around $300 million, off the market, while a proposed management buyout of its private-equity business did not go ahead.

Westpac bought Hastings Funds Management from founder Mike Fitzpatrick in two tranches, with the final 51 per cent acquired in 2005 for a reported $75m.

A director of both Hastings Fund Management and Westpac Funds Management, Steve Boulton, said there had been approaches from private equity and sovereign wealth funds for individual assets in the funds.

"There is always an ongoing review and that could include acquisitions, divestments or mergers," he said. 

However, there was no activity at present.

Westpac Funds Management had $3.1bn of assets under management at June 2008 — the latest figure on its website.

The bank runs the listed Westpac Office Trust, which has $1.2bn of assets, the unlisted Westpac Diversified Property Fund ($398m), and two restaurant trusts in which assets are being sold as part of a wind-up.

In July, the bank abandoned its ambition to create Australia’s first residential property trust and began selling its $240m portfolio of defence housing properties. Last month the listed WOT won approval from unitholders to ditch its partly paid structure — one that had been similar to the disastrous BrisConnections and Multiplex Prime Property Fund.

WOT wrote down its property portfolio by $108.6m in June, taking it to a $159.9m loss for the year.

Among the trust’s assets is Westpac Place at 275 Kent Street, Sydney, which is on the books at a value of $730m.

Sources said WOT, with gearing of 61.5 per cent, needed recapitalisation of about $250m.

It was also likely that any move on WOT would be friendly as the bank owned 13.6 per cent of the trust, which would prevent a compulsory acquisition if a takeover were launched.

OFFSHORE holdings in Australia’s top 10 listed property trusts, which have a combined market value of $47 billion, have risen to almost $21bn — their highest level in the sector’s history.

With the domestic economy outshining other developed markets, investors have increasingly turned to Australia.

The Australia property sector is hot because it is seen as proxy for Australia’s economic growth.

ING Office Trust assistant fund manager Ben Brayshaw said foreign ownership had doubled in recent months.

"These investors came in on our capital raising. Foreign investors now hold 20 per cent of our securities," he said.

Offshore holdings in Goodman have risen from 10 to 20 per cent, largely due to the entry of China Investment Corporation, which has invested $500 million in the industrial property landlord.

Global specialist funds of North America and Asian investors considered Australian real estate investment trusts undervalued, according to industry analysts.

Mick O’Brien, Australian chief executive of US-based Invesco, said the Asia-Pacific region made up 34 per cent of the FTSE Global Property Index, ahead of the US at 33 per cent.

Before the financial crisis, the US represented about half of the index, while Asia and Europe accounted for about 25 per cent each.

LaSalle Management client services regional director David Quirk said inflows into global REIT funds were higher this year than last.

"Our funds in REITs totalled $US6.6bn ($7.2bn) at August 31, with $US5.2bn invested in global mandates," Mr Quirk said, adding that Australia represented about 15 per cent of global weightings.

Foreign investors played an active role as the sector recapitalised over the past 12 months, stepping in at a time when some Australian institutional investors were overweight in property.

Two organisations — Singapore’s Government Investment Corporation and CIC — were among the highest profile investors. They had committed at least $1bn between them in the past year in two trusts.

GIC now holds 13 per cent of GPT Group and 5 per cent of Mirvac, while CIC has committed $500m to Goodman Group.

CIC, which has $US200bn to invest globally, will build to an 18.2 per cent stake in Goodman, one of the world’s largest developers and owners of industrial real estate, if it exercises its options and converts preference securities into equity.

The companies’ sheer buying power overshadows the myriad global fund managers, such as Cohen & Steers, Och-Ziff, Barclays Global Investors, and institutions such as the Canadian Pension Plan Investment Board. These influential investors have steadily increased their presence in A-REITs.

The New York-based Cohen & Steers alone holds more than $1bn in A-REIT securities.

The Dubai-based Nakheel Group is the conspicuous foreign investor to buck the trend. Nakheel, which owned 14 per cent of Mirvac’s securities, has sold the remaining 6 per cent for $206m.

A Mirvac spokeswoman said Nakheel’s stake was taken up by several foreign groups, including The Hague-based ING group.

Most A-REITs, however, told The Australian foreign ownership had been creeping up on their register but there had not been a dramatic spike.

Colonial First State Asset Management listed property funds head Darren Steinberg said offshore interest in A-REITs had increased over the past five to 10 years.

Australia had stood out in the global financial crisis, he said. Its economy had been shown to be more resilient, and therefore more attractive, than others.

Offshore investors represent about 30 per cent of the share register of the CFS-managed Commonwealth Property Office Fund — up from the historic level of 15-20 per cent.

Michael Gorman, fund manager of Colonial First State Retail Trust, said offshore holdings had risen from 21 per cent two years ago to 26 per cent.

The Gandel Group and Commonwealth Bank entities own 33per cent of the trust.

The two CFS managed trusts invest in prime assets located in Australia. Unlike other large listed trusts, they do not have offshore exposure.

"We appeal to offshore investors because our trusts own only Australian assets," Mr Gorman said.

Macquarie Office Trust chief executive Adrian Taylorsaid offshore holdings had crept up 3-4per cent in recent months, but overall they remained stable at about 20 per cent.

"Our balance sheet has stabilised, and we get a tick for this. Our assets are of high quality and this also appeals to investors."

Mr Taylor said investors were aware that the cycle of asset devaluation was nearing the end.

"We are trading at a 36 per cent discount to net tangible assets and there is a growing acceptance among investors this is the floor rather than the ceiling," he said.

Many institutional investors were sitting on a higher proportion of cash than mandated by their investors, he said. Some of these managers would need to lift their weighting in property.

The concentration of foreign investment is in the largest and most liquid trusts on the S&P/ASX 200 A-REITs index.

Some investors, however, have started to look at small to medium trusts, which offer more "affordable" entry into Australia.

Smaller trusts such as Becton Property Group had attracted the Omani Investment Fund, which owns a 9.9 per cent stake.

ABOUT five years ago I embarked upon a small personal project that quickly got out of hand.

I decided to scan all photos I could find of my parents and grandparents. I started with about 20, mostly relating to the period prior to 1950.

I copied the lot and asked my parents (now in their 80s) and surviving uncles, aunts and even the odd cousin, to contribute what they knew of the people and the circumstances surrounding each picture.

What emerged was a level of detail that had remained unearthed within the memories of each family member. I began annotating the pictures and asking around for more.

The collection now stands at almost 600 different pictures spanning four generations and about 150 years. The earliest is a copy of a daguerreotype of a 30-year-old Scottish woman (my great-great-grandmother) taken, I think, in 1864.

Despite five years of effort in seeking out and reassembling whatever survives of my family’s photographic record, the fact remains that only 10 pictures date from the 19th century.

I suspect this would be true for most ordinary Australian families. But it does raise an interesting question: Do you think that photographs taken of you, let alone evidence of your social/familial/work contribution, will survive into the 22nd century?

Personal stories of pain and anguish unfold with each of the pictures. There’s the photo and story of the great-aunt who lost her fiance to the Great War and who subsequently never married.

There’s another story of a cousin who went missing in action in Rabaul in 1941. And yet another story of a cousin who died in a plane crash while fighting with the RAF in 1942. Apparently the news of his death arrived at the family home in country Victoria just before Christmas.

That this single snippet of pain’s detail should survive as oral history almost 70 years after the crash is testimony to the impact this event must have had on the family at the time. It is clear that real emotional pain can reverberate within a family for decades.

The harshness of the lives of women in the 19th and 20th centuries is difficult to comprehend: families of nine and 12 were not uncommon. Nor was it uncommon to simply lose children, especially during the Spanish Flu epidemic of 1918.

But the other thing that is fascinating about this exercise is the teasing glimpses the album provides of the ageing process. It must have been the custom in the late 19th and early 20th centuries to have studio photographs taken to capture a subject’s youth and beauty. These photographic studies transcend time easily. It’s remarkable how many survive in one family in little more than a shoebox.

But then the subject will disappear from the photographic record for 25 years and resurface in middle age as an entirely different person, shaped by years of childbirth and an unrelenting diet of roly-poly jam pudding. There is something of an overview effect in looking at a picture of a vibrant young couple from, say, the 1920s and knowing how life unfolds for them.

The conclusion I have come to from this exercise is that until very recently the idea of youth and beauty was fleeting; it existed in women and men for less than 10 years from, say, 17. Thereafter the grind of children and of a working-class life rapidly carried bodies into middle age. By 30, women’s waists had disappeared; by 35, balding men cheerily added a decade to their appearance by adopting the comb-over.

The other thing I have noted from this exercise is that the family record has the greatest chance of surviving the years when women hold it (because they are the storytellers) and when families stay put. Families who move from district to district, let alone interstate, are less likely to lug around old photos. 

I became so engaged by this process that I extended the time-frame to the second half of the 20th century.

Colour photography arrived at Christmas 1969. And the advent of even modest prosperity brought with it a shift in the subject of the pictures. There are photographs of holidays in the family caravan rather than pictures of picnics taken in botanical gardens.

Interestingly, the family photographic record comes to an abrupt halt in 2003. It’s almost as if the photographic world was hit by a meteorite. Digital photography arrived and the number of pictures taken exploded. But unlike the studio shots of young debutantes taken in 1918, photographs of modern debutantes are captured and stored on the hard drive of a home (or work) computer.

And here’s the irony: I suspect that the photo that has the greatest chance of surviving within a family to the 22nd century is not one of the thousands stored on a PC’s hard drive; it is the old studio shot printed on card and stored in a shoebox. I think that on this measure an old shoebox will serve as a better family time capsule than a PC that will be tossed out at some stage in the middle of the next decade.

Digitise your family record, make copies and disseminate them, and as a consequence you will have a far better chance of reaching the 22nd century in photographic form.

Bernard Salt is a KPMG Partner; bsalt@kpmg.com.au; twitter.com/bernardsalt

Country Life's International Property Edition is on sale today, and to coincide with this Arabella Youens, Country Life's property editor, will be live on the site from midday to answer any questions you have about international property. Come and join us by clicking the links below. You will be able to post live questions to Arabella on the day, or you can e-mail questions before the event to Tara_Parsons@ipcmedia.com.

Over the past ten years, this charming chateau in Gers (Gascony) has undergone considerable renovation under the stewardship of its British owners. The project has involved a comprehensive redesign and landscaping of the grounds.

The house has is currently let for exclusive holidays; guests are charged $14,000 for a week's stay with a chef on hand to do all the cooking.

Ideal for budding chefs, kitchen is of an extremely high quality, including a large open cooking fire, twin oves, all the latest gadgets including an espresso machine. Just outside the kitchen door is a magnificent herb garden.

During the summer months, the sun doesn't set until 10.30 enabling owners to make the most of the tennis court. And, while the French are not known for their interest in golf, the South West, with its historic English association, caught the golf bug many years ago and the local course is a twenty minute drive at Mont de Marsan. The Pau Golf Club, which claims to be the oldest in Europe ouside of the UK and Ireland is a 45-minute drive.

WITH a rolled-gold client list of high-profile names in real estate, Napier & Blakeley isn’t in the business of picking fights with listed property trusts.

Its clients include AMP, Dexus, ING, GPT, Gandel, Lend Lease, Westfield, Morgan Stanley, La Salle Investment Management and GIC. But when it comes to property depreciation — a topic the firm knows a lot about — Napier & Blakeley consultants believe LPTs are among parts of the market that still don’t fully understand, or appreciate, the benefits of depreciation.

"The LPTs are guilty of not claiming deductions, as they don’t benefit directly from them," Napier & Blakeley managing director Alastair Walker says. "They see them as a compliance issue and an unnecessary cost, so unitholders in the trusts miss out on tax deductions available to them."

Property tax and depreciation were the mainstays for Napier & Blakeley when the group, which came out of Britain, set up shop in Melbourne a quarter of a century ago to service mostly private investors, among them the Gandel and Besen families.

Today, Napier & Blakeley, quantity surveyors, is one of Australia’s largest independent property development and infrastructure advisory groups.

But even though Napier & Blakeley is involved in billions of dollars of transactions each year for LPTs, the tax side of property continues to account for about a third of its business. In fact, of about 5000 new accounts so far this year, the vast majority have involved tax considerations which, according to Walker, continue to drive the private buyer market.

So what are some of the tax considerations that private purchasers commonly overlook? Top of the list is the old chestnut that ageing property doesn’t have any appreciation value.

"You often hear agents say it’s old, so there’s no more appreciation, when in fact a purchaser can assign a portion of the purchase price and revalue the depreciable elements within the building in relation to what they’ve paid," Walker says.

"An example I often use is a hot water unit in a house might cost $1500 to install, and if a house costs $100,000 to build but someone pays $200,000 for it, putting land aside, they’ve paid $3000 for the hot water unit."

The other side of Napier & Blakeley’s business is due diligence, which has also been embraced by private investors wary of falling into property traps. Walker says almost every commercial building sold for more than $5million is now subject to due diligence — a process of investigating or auditing a potential purchase. "Canny investors want to know what they are buying, so due diligence is much more common among private buyers."

Napier & Blakeley snared an estimated 60-70 per cent of the due diligence market during the 2007 boom when it was involved in about $15billion of property transactions, the bulk of which were for the big institutions. The transactions included the group’s largest single due diligence assignment, Morgan Stanley’s $US3.9bn (about $4.1bn) takeover of the Investa Property Group.

With stunning views across the London skyline, the seventh, eighth and ninth floors of Frobisher Crescent, the former home of the City University Business School, have been converted into 69 studio, one, two and three bedroom apartments.

The former office space has been redesigned by TP Bennett Architects, with a contemporary twist to the award-winning 1960s architecture of the Grade II listed building. Frobisher Crescent forms part of the Barbican Arts and Conference Centre, which lies at the heart of the Barbican estate.

The launch of Frobisher Crescent will be the first major opportunity to buy at the Barbican since 1982, when the City of London offered homes for sale.

CENTRO Properties Group’s chairman is refusing to step down, despite being named as one of eight former and current directors and executives being sued by the Australian Securities and Investments Commission over claims they mislead shareholders by incorrectly classifying more than $2bn worth of debt.

Rejects claims: Centro Properties Group chairman Paul Cooper. Picture: Michael Potter

AUSTRALIA’S securities regulator today launched a Federal Court action against current and former directors and executives of property trusts Centro Properties Group and Centro Retail Group.

Central to the action of the Australian Securities and Investment Commission is the responsibility of directors and executives to ensure that financial reports and market disclosures are accurate and comply with accounting standards, ASIC said in a statement.

To read John Durie’s opinion column on the issue, click on ASIC swoops on Centro

ASIC asserts that Melbourne-based Centro’s directors and former executives breached their duties, it said.

Directors and executives named in its proceedings include former chairman Brian Healey, former chief executive Andrew Scott and former chief financial officer Romano Nenna.

The regulator is seeking orders to disqualify the directors and executives from managing companies and will ask for pecuniary penalties.

IT is believed that the directors of Brookfield Multiplex Capital Management (BMCM) refused to allow the Grocon-Oaktree (GO) consortium to undertake due diligence on Multiplex Prime Property Fund (MPP) in order to develop its proposed recapitalisation of the fund unless the fund signed a confidentiality agreement under which it was not allowed to discuss its proposal with any third parties without the prior consent of BMCM.

Moreover, GO would have been prevented from providing any due diligence information to potential debt providers or equity participants without the consent of BMCM.

GO would also have been required to enter into a standstill agreement under which it would be unable, without BMCM’s consent, to acquire any units in MPP for 24 months — an unusually long period which could heighten the impression that, rather than serving the interests of MPP unitholders, it would be a poison pill designed to entrench the tenure of BMCM as the RE (responsible entity) of the fund.

The sweeping confidentiality restrictions to be imposed on GO would have prevented the consortium from being able to progress its proposal with prospective debt providers and equity participants, or governmental authorities and regulators, including ASIC and the Takeovers Panel, unless the RE gave its approval.

Not surprisingly GO refused to sign such a draconian agreement and has therefore been unable to conduct due diligence.

But the demand by the RE for such restrictions on GO casts as self-serving claims by the RE that the consortium had been unable to obtain funding and its proposal was therefore incapable of being implemented.

The restrictions demanded by BMCM would enable the RE to prevent GO from being able to obtain the funding. It’s difficult to see how that could possibly be in the interests of the unitholders of MPP.

They appear to be all the more questionable given that BMCM is promoting a $53 million entitlement offer of 178-for-1 at an issue price of 0.1c a unit, which unitholders are almost certain to shun in order to avoid liability for payment of the final call on the partly paid units, and therefore will almost certainly result in the Brookfield Multiplex group — of which BMCM is a part — end up with control, if not full ownership.

That’s because a Brookfield Multiplex entity has underwritten the entitlement issue and has also provided a cash-out facility of 0.1c a unit for those unitholders who wish to exit their investment.

This commentator has previously noted that both the underwriting and the cash-out facility are takeovers by stealth and rely on exemptions to the general requirement to make a takeover bid before acquiring more than 20 per cent of a company’s capital.

Both the GO consortium and corporate gadfly Nick Bolton, whose Australian Style Investments owns 19.9 per cent of MPP, have gone to the Takeovers Panel attacking the entitlement issue and cash-out facility. ASI claims that the structure of the offer would have "an unacceptable control effect on MPP" while GO argues that it amounts to an unacceptable "back door" takeover of the fund and denies unitholders a reasonable and equal opportunity to participate in the benefits accruing under the entitlement offer.

In other words GO considers it is an artifice designed to transfer control and enable Brookfield Multiplex, rather than the existing unitholders, to obtain the benefits of any subsequent improvement in the value of the fund.

Arguably, had GO signed the confidentiality agreement BMCM would have been able to prevent the consortium from going to the panel.

GO’s alternative proposal involves a $50 million convertible note issue, underwritten by Grocon and Oaktree, halving the remaining liability on the partly paid units and funding the other half, and any shortfall on the call, with another convertible note issue underwritten by the consortium partners. GO would also pay Brookfield Multiplex $5.6m for BMCM to step aside as the RE, and another Brookfield entity as the fund manager(under a 10-year contract).

Unitholders would also be offered the ability to cash out, probably via a formal takeover offer, at 2c a unit — 20 times the cash-out offer by Brookfield Multiplex.

Bolton’s ASI is seeking panel orders that Brookfield Multiplex (which directly and indirectly owns 31.5 per cent of MPP) be restrained from acquiring any further units other than in compliance with the Corporations Act (but prevented from using the existing exemptions on which it is relying. In practice, that would probably limit it to a formal takeover bid.

GO is seeking more sweeping orders. It wanted the panel to either prevent the opening of the entitlement offer and cash-out facility or allow them to continue on the basis they can later be unwound; require BMCM to allow due diligence and "financier forbearance" to facilitate an alternative proposal from the GO consortium and require the RE to obtain a fair and reasonable independent expert’s report which would compare the entitlement offer and any alternative recapitalisation proposal.

However, the offer opened on Monday and the panel yesterday accepted an undertaking from Brookfield Multiplex not process any applications under the entitlement offer and cash-out facility unless the panel proceedings are terminated or the panel is given two business days’ notice if the undertaking is to be withdrawn.

BMCM claims the capital raising is necessary to cure reaches of the fund’s debt covenants. The loans are not in default but the LVR (loan valuation ratio) was breached as at June 30 by downward revaluations of the fund’s properties. The banks had given an extension to November 16 to cure the breach.

However, Bolton has claimed that BMCM had an alternative option of paying a penalty interest rate, a burden which would have been shared by all unitholders. Instead it has chosen the entitlement offer, which forces unitholders to pay an additional 17.8c a share and still face either a further liability equivalent to 40c a unit on their existing holdings, or not participate and face savage dilution.

The entitlement offer transfers the burden of the penalty on to those unitholders who are probably least able to afford it and arguably the party most likely to benefit is Brookfield Multiplex.

It’s also worth noting that while BMCM has repeatedly pointed to the need to cure the debt covenant breaches by November 16, it was until October 13 — a week ago — that it said the banks had stated they were not prepared to further extend the waiver period.

Presumably the banks had not made that statement earlier, or BMCM would have reported it, and indeed would probably have been required to immediately so under its continuous disclosure requirements.

So what was the catalyst that caused the banks to suddenly decide on no further extension?

bfrith@acenet.com.au