Property fund manager Charter Hall has launched a new unlisted fund with an initial income distribution of 6.89 per cent. The fund will invest in a diversified portfolio of office, retail and industrial properties – all with tenants operating in the consumer staples market.
The new fund, the Charter Hall Direct Diversified Consumer Staples Fund, has been seeded with six properties, which have a total value of $62 million and an average lease term of 9.2 years. The buildings include a smallgoods processing plant outside Brisbane, a distribution facility north of Gosford, a Bunnings store in Tasmania and a Coles Shell service station in Ipswich.
Charter Hall group executive, global investor relations, Richard Stacker, says: “Our focus is on a defensive, stable and growing income stream.”
Citi Research’s lead consumer sector analyst, Craig Woolford, says the consumer staples sector is a resilient market. “If you look at total consumer expenditure, it has been stable for over five years, growing at an average of 4.5 per cent a year, or three per cent a year on a per capita basis,” he says.
“There is a view that the consumer has been hiding in recent years but there has been growth. What we have seen is changing spending patterns. For every company that reports that sales are down, there is one that reports that sales are up.”
The minimum investment in the fund is $20,000. It is being launched with a limited offer: investors who take up the first $50 million of units will receive bonus units. For participants in the bonus offer the forecast initial yield will be 6.89 per cent. For investors not participating in the limited offer the forecast initial yield is 6.75 per cent.
The target gearing range is between 30 per cent and 45 per cent. “We are not using low rates to drive returns,” Stacker says.
The fund is unlisted. Stacker says investor appetite is for investments that are not correlated to equities. “People want a proxy for the performance of the direct property holding,” he says.
He says Charter Hall will look to grow the portfolio through acquisitions of office buildings, distribution centres and manufacturing sites, retail stores, fresh and fast food stores and petrol stations. The fund will be diversified across retail, office and industrial asset sectors.
The initial portfolio has a skew towards the smallgoods market, with four of the six properties involved in the processing or distribution of smallgoods. Charter Hall bought the properties from the international food group JBS, which had acquired the local small goods manufacturer Primo.
Stacker says that when funds are put together they often have a skew towards a particular sector. “We expect to grow the fund and looking longer term it will be diversified,” he says.
And he says the growth in online retail is not a risk for the fund. “The tenants we are going to have in this fund are going to be supplying product, whether it is online or in store. It does not matter where the goods get sold.
“One thing that has not changed with changing spending patterns is the level of consumption.”