Charter Hall Direct Property has re-launched an unlisted office property fund, pitched at retail investors and SMSF trustees looking for income.
The Charter Hall Direct PFA Fund has forecast distribution yield of 7.25 per cent a year, paid monthly, for the 2017/18 financial year.
The fund is currently geared at 28 per cent and has a gearing target of 30 per cent to 45 per cent.
Currently, the fund hold six properties, including the Foxtel Building in Moonee Ponds, Victoria and office buildings in Parramatta, Hobart, Brisbane, Adelaide and Cannington in Western Australia. The weighted average lease expiry is 9.2 years.
The properties are valued at $268 million, with an average capitalisation rate of 7.36 per cent.
Steven Bennett, the head of Charter Hall Direct, says the fund’s investment focus is income security. Projected total return is 9 per cent a year.
Charter Hall took over as responsible entity of the PFA fund from Australian Property Growth Ltd in 2012 and has sold a number of non-core properties to reposition the fund as a pure office fund.
Lonsec has assigned a ‘recommended’ rating to the fund, based on the “solid performance” of office properties in the locations where the fund has holdings. The tenancy profile is “excellent” with 71 per cent government tenants.
It says the yield is at the high end of the range for unlisted property funds.
Lonsec says liquidity mechanisms for the closed-end fund are “reasonable”. However, it also says: “Due to the fund’s significant exposure to illiquid assets and that redemption opportunities during each five-year term are at the discretion of the responsible entity, in relation to other asset classes, liquidity risk in the fund is deemed to be high.”
The fund will have a “defined liquidity event” after five years and at five-year intervals after that. At each event the manager will endeavor to offer all investors the opportunity to redeem their entire unitholding.
From June 2019 there will be half-yearly limited redemption offers.
Lonsec says: “While this is superior to most closed-end funds, there are some open-end funds that currently offer monthly liquidity with higher caps.”
The management expense ratio is 78 basis points. The manager is entitled to a 15 per cent share of the excess total return above 9 per cent a year.
