Heitman mandate adds to EII Capital woes

Property fund house Heitman’s recent mandate win from Advance Asset Management came after Advance terminated EII Capital’s contract, exacerbating EII’s troubles.
Heitman mandate adds to EII Capital woes

Property investment firm Heitman’s recent A$360 million ($312 million) mandate from Australia’s Advance Asset Management came at the expense of New York-based EII Capital Management, which has been struggling of late after several staff departures and terminated mandates.

Advance, part of Sydney-based BT Financial Group, appointed Heitman in late August to manage a global listed real estate securities portfolio equating to 20% of the A$1.67 billion Advance Property Securities Multi-Blend Fund. AMP Capital, Phoenix Portfolios and Principal Global Investors continue to manage 25%, 25% and 30% portions, respectively, of the portfolio.

Advance cited key staff departures from EII Capital as a reason to remove the manager. EII’s co-global portfolio manager, Jim Rehlaender, was named chief executive of a newly formed real estate securities investment manager, Northwood Securities, on July 23.

EII’s former co-portfolio managers for Asia and Europe – Tsan Suang Eng and Peter Nieuwland – have since decamped to Northwood to head its Singapore and Amsterdam offices, respectively. Tsan departed in August and Nieuwland in September.

Nieuwland has been replaced by London-based Andrew Cox who joined from Singapore’s GIC Real Estate in September. Michael Wong, Singapore-based co-portfolio manager for Asian property, remains in place.

Certain other asset managers and owners have also stopped using EII. UK fund house Schroders’ said in July it would take in-house the management of £1.2 billion ($1.9 billion) of property securities funds that had been managed by EII. And in August, Los Angeles County Employees Retirement Association reportedly terminated EII’s role in running a $163 million separate account.

Advance cited Heitman’s consistent performance and robust investment process as reasons to select the $32.6 billion manager, as well as Heitman having a more focused investment portfolio than EII.

The long-only mandate is limited to owning a maximum of a quarter of the 310 of securities in the FTSE Epra/Nareit developed index, with a view to keeping its bets relatively concentrated.

Asia Pacific accounts for the largest component in the index after North America. The 36 Japan-listed securities included account for 12.56% of the index’s market capitalisation followed by Hong Kong (13 securities with a 7.55% index weighting), Australia (13 securities, 6.33%) and Singapore (15 securities, 3.36%).

John White, Heitman’s head of Asia-Pacific public real estate securities, said the Advance mandate was larger than the firm usually received.

Meanwhile, weakening domestic economic conditions in Australia make relatively high-yielding, defensive assets more appealing, he noted. Glenn Stevens, the governor of Australia’s central bank, said on November 4 that he expected GDP growth to be a little below trend for the next several quarters.

Nevertheless, Australia’s property market remains well supported. Commercial property in Asia-Pacific recorded the highest quarterly volume of transactions in the third quarter of 2014 since 2005 – led by activity in Australia, Japan and Korea, according to real estate services firm CBRE.

The property picture is also positive for the wider region. CBRE’s Asia-Pacific retail rental index increased 2% quarter-on-quarter in the third quarter of 2014 – the fastest growth in six years – driven by strong activity in Tokyo, Melbourne and Sydney.

White pointed to an increased push for real estate to be securitised – especially in Europe, but also in Asia – amid bank deleveraging. In China, for example, he said there was a lot of activity and willingness to securitise, though the country was still developing a regime for real estate investment trusts (Reits).

In April, Citic Securities won approval for what was billed as China’s first Reit. At the time, ratings agency Fitch said the structure was more like an asset-backed security than a Reit.

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