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Charter Hall Direct, part of Charter Hall Group (ASX:CHC), one of Australia’s leading property investment and funds management groups with $23.2 billion under management, has announced three significant property acquisitions in Sydney and Queensland for its funds totaling $126 million.
A 10-storey freehold building at 40 Tank Street in Brisbane CBD has been acquired for $93 million, with the ownership to be shared 50% by the unlisted Charter Hall Direct PFA Fund (PFA) and 50% by the ASX-listed Charter Hall Long Wale REIT (ASX:CLW).
The property comprises 6,218 sqm of NLA over five floors, 327 car spaces and ground floor retail. The commercial space is 100% occupied by the Queensland State Government with a 6.3 year WALE (weighted average lease expiry) which includes carpark lease over 300 bays to a separate tenant.
The transaction equates to an initial yield of 5.84% p.a. and a rate of $7,525/sqm of lettable area (excluding car bays). Following the acquisition, PFA and CLW will continue to provide any outstanding tenant incentives in accordance with the leases.
Steven Bennett, Head of Direct at Charter Hall said:
“The Tank Street acquisition meets the key requirements of Charter Hall Direct PFA Fund which is focused on acquiring and managing properties leased by government and high quality corporate covenants: it’s located in a major CBD and the major tenant is the QLD State Government on a long lease".
Charter Hall Direct PFA Fund has a current income yield of 6.9%1 p.a1
“This purchase will increase the diversification of the PFA property portfolio which will now exceed $400 million and will maintain the fund’s current leasing profile of 100% occupancy and a portfolio weighted average lease term of 8.1 years".
The second property acquired is the $71.6 million purchase of a brand-new freestanding cross dock warehouse facility on a 6.8ha site in the prime south western Sydney industrial suburb of Prestons.
The industrial facility is located 45 kilometres west of Sydney in the heart of the rapidly expanding industrial and logistics zone in the vicinity of the M5 and M7 motorways, Westconnex, the Moorebank intermodal, the Badgerys Creek Aerotropolis and the proposed M9 and M12 motorways.
This property, located at 55 Yarrunga Street, Prestons, will be leased to Mainfreight Distribution and will be owned and managed 100% by the Charter Hall Direct Industrial Fund No.4, known as DIF4.
The property’s GLA when complete is forecast to be 30,796sqm, which includes 975sqm of office space. Construction on the Prestons site is due for completion in the last quarter of 2018 with the property 100% leased with a 10.5-year WALE, with annual CPI rent reviews.
Charter Hall Direct Industrial Fund No.4 has a current income yield of 6.2%2 p.a2
The third property acquired is the $7.9 million purchase of a food retail complex in Burleigh Waters, 80 kilometres south east of the Brisbane CBD. The property comprises two free standing buildings, including a Red Rooster drive through restaurant and a separate complex of five food restaurants, with an average lease term of 6.5 years. The space also provides car parking for 45 vehicles.
Demand for food retail is correlated to population growth and the purchase meets the Charter Hall Direct Consumer Staples Fund (DCSF) mandate to target consumer staples tenants that have resilience through investment cycles.
DCSF also recently announced that it acquired the retail component of Festival Towers, 108 Albert Street, Brisbane, QLD (Festival Towers) for $32 million, which reflects a core cap rate of 5.50%.
Festival Towers comprises the ground floor retail complex within the 39-storey mixed use tower, directly adjoining the proposed new Albert Street Cross River Rail Station. The street level retail provides a total lettable area of 1,033 sqm and is 100% leased to six international and national retailers with an existing WALE of approximately 4.5 years by income. The tenants suit the Fund’s “Consumer Staples” strategy and include Starbucks, Priceline Pharmacy, Grill’d, Nando’s Chicken and San Churro Chocolates.
Charter Hall Direct Diversified Consumer Staples Fund has a current income yield of 6.7%3 p.a3
The three transactions take Charter Hall Direct’s suite of funds to more than $3.3 billion.
Mr Bennett said high quality direct property funds were increasingly attractive to SMSF investors given that many banks have announced restrictions on lending within self-managed super funds:
“Charter Hall Direct funds offer the prospect of total returns of around 9% p.a. with monthly or quarterly income distributions depending on the fund. The combination of attractive returns backed by quality tenants on long leases is, we find, resonating with SMSF investors in particular,” Mr Bennett said.
1 PFA’s yield based on actual distribution of 7.25 cents per unit (annualised) for the June 2018 quarter and $1.05 unit price at 1 July 2018.
2 DIF4’s yield based on actual distribution of 6.50 cents per unit (annualised) for the June 2018 quarter and $1.05 unit price at 1 July 2018.
3 DCSF’s yield based on actual distribution of 6.75 cents per unit (annualised) for the June 2018 quarter and $1.01 unit price at 1 July 2018.