The proposed $395 million Pacific Retail REIT is gaining momentum as investors look to the higher-yielding real estate investment trust sector in the low interest rate environment.
The float, being advised by Moelis & Co, already has five assets, four in Victoria including the Rosebud Plaza, and the former Seven Hills Centro, in Sydney, being sold by Federation Centres.
The Pacific Retail float is being run parallel to the $300 million-plus Moelis Australia Property Visa Fund. The fund, to be managed by Moelis Australian Asset Management's Andrew Martin, is aimed at overseas investors who qualify for the Significant Investor Visa, which fast-tracks Australian residency for buyers of property worth more than $5 million.
The first deal was for Healesville Walk Shopping Centre, for which Moelis Australia Asset Management paid $21.2 million.
In time the Property Visa Fund could be an investor in the listed Pacific Retail fund.
According to investors, demand for the Pacific Retail float, which lists in September, has exceeded expectations and advisers have travelled to Asia to cater for the anticipated strong overseas demand.
There already is close to $200 million said to be committed to the float, which is offering a forecast yield of 8.5 per cent and forecast distribution of 8.3¢ per security.
Analysts said the IPO would also benefit from the release of the $1.6 billion of cash from the REIT sector as the trusts paid their annual dividends.
Moelis & Co says the investment thesis of the trust is centred on buying the portfolio of assets - four from CFS Retail Fund and Federation Centres - at an attractive passing yield and applying a hands-on asset management approach to extract further value.
Up to 51 per cent of the portfolio's base rent is convenience and food-retail oriented, with the balance coming from discount department stores (11 per cent) and other discretionary retail tenants (38 per cent).
According to the float's advisers, the new fund expects no major development works in the near term, aside from a $10 million refurbishment at Altona.
A further $3 million of capital expenditure has been allowed for minor works on the balance of the portfolio. The gearing will be about 34 per cent, which is near industry average.
The average lease term is 6.2 years, but that could be extended with the lease of supermarkets at some of the centres.
It comes at a time when retail property investment is high despite the weakness in the discretionary retail sector. More than $3 billion of retail assets have changed hands in the past few months, and that figure could rise if any sales ensue from corporate takeover activity.