S&P lukewarm on direct property fund

Just weeks after an actuarial analysis suggested that the performance of some industry superannuation funds was being masked by their exposure to direct property, ratings agency Standard & Poor’s has assigned a two-star rating to the Opus Capital Growth Fund No.1 utilising its direct property rating methodology.

The ratings house described the fund as being a fixed-term, close-ended, illiquid unlisted property fund that invested in direct property assets on the Australian eastern seaboard and said it held what S&P considered to be three ‘A-grade’ quality commercial office properties, each at a different stage of development.

According to S&P fund analyst Nathan Bode, the fund has a number of features that reduce the rating house’s conviction in relation to its performance and its attractiveness as an investment offering.

“Some of these detracting features include potentially high gearing, high fees, elevated leasing risk, fixed unit pricing and subsidised forecast returns that have been based on what we consider to be aggressive fund-model assumptions,” he said.

Bode said that S&P was particularly concerned about the fund’s potential level of gearing against speculative rental income and that ensuring the fund maintained gearing at manageable levels was dependent on the manager’s capacity to raise sufficient equity and property valuations not decreasing.

“In the context of the current real estate market, which is expected to be more volatile at least in the short term, neither is considered certain,” he said.