Metrics suspends three funds after ASIC

Metrics Credit Partners has suspended trading in three ASX-listed real estate funds following the Australian Securities and Investments Commission's heightened regulatory focus on Australia's A$200 billion private credit market. The firm requested a voluntary suspension for the Metrics Real Estate Multi-Strategy Fund, Metrics Master Income Trust, and Metrics Income Opportunities Trust, with trading halted on Monday, 28 September.

Auditor adjustments drive fund markdowns

Auditor KPMG indicated that amounts in the audited annual financial report will differ from the preliminary report. In finalising audited results, greater weight was given to downside scenarios and less favourable potential outcomes than in the preliminary report. The adjustments reflect a more risk-weighted assessment considering prevailing interest-rate and macro-economic conditions and heightened regulatory expectations. KPMG made different decisions regarding inputs and probability weightings from those used in preliminary financial reports. Following these audit findings, Metrics marked down all three funds.

Detailed fund impacts

The suspension and audit adjustments resulted in substantial markdowns and reduced net tangible asset values for each fund. The three funds had reported preliminary full-year earnings on 31 August. Audited financial reports will be lodged on Wednesday.

The net tangible asset backing of the Real Estate Multi-Strategy Fund as of 30 June is expected to be A$2.22 per stapled unit, down 31 Australian cents or 12.16 percent from the preliminary August report. The markdown for this fund was mostly attributable to a reduction in the fair value of unlisted commercial real estate equity investments. Metrics stated the adjustments do not represent realised losses or a conclusion that its strategies, forecast cash flows, or business plans will not be achieved.

ASIC's regulatory stance

ASIC commissioner Simone Constant warned in a 22 September speech that real estate lending is particularly vulnerable and accounts for up to 60 percent of all private credit loans in Australia. She stated that property development and construction lending is vulnerable to a wide range of factors including inflation, cost escalation, project delays, interest rate rises, refinancing conditions, and unrealistic asset valuations. Simone Constant said: "But it’s not property that’s the weakest link, it’s poor practices."

Concern about private credit lending to the property sector intensified after the high-profile collapse of New South Wales property developer Bathla, which entered voluntary administration with about A$3.4 billion in total preliminary liabilities and debt. Constant noted that developers with exposure to private credit are particularly vulnerable when economic conditions become more challenging. Metrics stated it has no exposure to Bathla. Metrics, one of Australia’s largest private credit providers, is working with Sydney-based Billbergia to develop several mixed-use projects in Sydney. The firm declined to provide further comment and referred inquiries to ASX filings. Metrics will lodge audited financial reports on Wednesday following KPMG's review.