Lend Leases' APPF Retail Fund allows investors to withdraw (redeem) all or part of their investment during a short period, once every seven years from 2011. Lend Lease have been preparing for the likelihood of a exodus this year as investors seek to re-weight their portfolios and or reduce their exposure to the retail sector.
According to the Australian, the fund, which has close to 60 investors, mainly received requests to reduce holdings rather than outright exits. Industry sources yesterday indicated that about half of the investors by size would cut their exposure but Lendlease declined to comment on the level or size of requests, with those close to the situation instead terming the requests as “reasonable”.
Lend Lease has 2 years to meet the redemption requests and will therefore seek to raise new equity, sell stakes in key assets or consider reviewing the fund’s development pipeline and its timing.
The trust had $535m in loan facilities with banks and a $390m medium-term note program. But it had only drawn down debt of about $533.8m at the end of June. Whilst in the short term, Lend Lease could tap these funds to assist, increasing debt to fund redemptions only increases the risk to the remaining investors and is not the long term solution .
Raising capital or selling retail assets in the current market is also difficult for the retail sector, however the assets in Lend Leases' portfolio are of sufficient scale to generate some interest. The question will be at what price and to what impact to the remaining investors.
Redemption policies are often difficult to establish for wholesale funds where units are unable to be easily traded. The challenge in a down turn is that the funding of redemptions can often come at the expense of the remaining investors, in itself causing more investors to ask for a redemption. In some cases redemption are requested but then cancelled. As a result it is imperative that investment managers maintain a very close dialogue with investor about their plans to meet redemption requests. Some investors look to a secondary board to off load investments, however these are often picked up at discounts to NTA.