CPP invests $350 million in Australian real estate fund

The Canada Pension Plan Investment Board is investing about $350 million in Australian shopping centres — assets that rarely come on the market — in the latest move by a Canadian investor to stake a claim Down Under.

The Canada Pension Plan Investment Board is investing about $350 million in Australian shopping centres — assets that rarely come on the market — in the latest move by a Canadian investor to stake a claim Down Under.

“Australia is somewhat similar to Canada in that it’s relatively small in size and these opportunities don’t come along very often, so we think it’s a very good one for us,” said Graeme Eadie, CPPIB’s senior vice-president of real estate investments.

“Retail properties around the world are very highly valued and don’t trade very often, so any time we get an opportunity, we certainly take a very serious look at it,” he said Wednesday after the CPPIB announced the A$375-million investment.

The Canadian fund manager — which invests money not required to pay current benefits under the Canada Pension Plan — has teamed up with Australia’s Future Fund to contribute A$750 million (C$702 million) in financing to the restructured retail property fund managed by Colonial First State Global Asset Management.

The fund has a $1.1-billion portfolio consisting of nine shopping centres across Australia, a country that has become increasingly popular for Canadian investors seeking growth in commodities and infrastructure.

Last month, the pension fund said it was making a $3.2-billion proposal to acquire Australia’s Intoll Group (ASX:ITO), which owns a number of toll highways, including a 30 per cent stake in Ontario’s Highway 407 toll route north of Toronto.

In May, CPPIB announced it would take an 80 per cent interest in a real estate joint venture called the Goodman Australia Development Fund.

And earlier, the fund and its partners made a C$3.8-billion bid to take over another Australian toll operator, Transurban Group (ASX:TCL), that was later rejected.

Earlier this month, fertilizer and farm input giant Agrium Inc. (TSX:AGU) announced a $1.16-billion bid for Australia’s AWB Ltd., a grain marketer. AWB accepted the unsolicited bid this week.

Agrium won’t be the first Canadian agribusiness in Australia. Last year Canada’s biggest grain handler, Viterra Inc. (TSX:VT), bought ABB Grain for $1.4 billion.

In recent days, Toronto-based Brookfield Infrastructure Partners submitted an offer for the 60 per cent of Sydney-based Prime Infrastructure that it doesn’t already own, a transaction that values the Australian company at US$1.4-billion.

Eadie said CPPIB is interested in Australia because its economy is comparatively strong and its retail sector continues to perform well, backed by a growing economy tied to booming trade with China.

“Australia continues to grow, largely based off their resources which are feeding into Asia,” Eadie said.

“It’s one of the few developed countries that has some pretty strong economic growth which is obviously good for business and will be good for consumers.”

In the Future Fund deal, existing investors will contribute A$150 million to the recapitalization.

“In Australia the funds tend to have a finite life and it had come to the end of that life and some of the existing institutional owners wanted to sell out,” Eadie said.

“These aren’t distressed assets or anything like that. These are very good assets and really the key is because they are so good and so hard to get hold of, people don’t want to sell them.”

The CPPIB and Future Fund were approached as potential investors after the fund reached the end of its life with its existing institutional investors. Their financing will extend the life of the fund for another eight years, Eadie said.

“The fund could have done one of two things,” he explained.

“One was to sell the underlying assets, but these regional centres are very hard to get hold of, so people didn’t want to do that. The other alternative is to bring in new capital to replace the existing capital and that’s what happened here.”

Darren Steinberg, Colonial First’s head of property, said the recapitalization of the retail fund was undertaken to “meet the changing needs of investors” and provided existing unitholders an option to leave or stay with the fund.

“An exit strategy for those wishing to reallocate their capital was achieved by securing equity from new investors,” he said in a statement.

The retail fund, which will be renamed the CFSGAM Property Retail Partnership, will be operated by Colonial, but CPPIB and Future Fund will control any major decisions.