Pacific Retail IPO in demand
The float, advised by Moelis & Company, already has five assets, four in Victoria including the Rosebud Plaza, and the former Seven Hills Centro, being sold by Federation Centres.
The Pacific Retail float is being run in parallel with the $300 million-plus Moelis Australia Property Visa.
The fund, to be managed by the Moelis Asset Management group's Andrew Martin, is targeting overseas investors who qualify for the Significant Investor Visa, which speeds up Australian residency for buyers of property worth more than $5 million.
The first deal was for the Healesville Walk Shopping Centre, for which Moelis Australia Asset Management paid $21.2 million to buy from joint owners, Australand and Bank of Scotland.
In time, the Property Visa Fund could be an investor in the listed Pacific Retail fund.
Demand for the Pacific Retail float, which lists in September, has exceeded expectations and the advisers are now on a trip to Asia to cater for the anticipated strong overseas demand.
There is already 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 $1.6 billion in cash from the REIT sector as trusts pay their annual dividends.
Moelis & Co said the investment thesis of the trust was centred on acquiring 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).
The float's advisers said the new fund has no significant development works expected in the near term, apart from a $10 million refurbishment at Altona, Victoria.
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 in retail assets have changed hands in recent months and could increase if any sales ensue from corporate takeover activity.
Analysts said the announcement by the Commonwealth Bank to internalise the management of CFS Retail Fund could trigger a takeover.
The fund's biggest shareholder is property billionaire John Gandel, who is also a co-owner (with CFS) of the Chadstone Shopping Centre. Mr Gandel is also a large investor in the Charter Hall Group.
It has been speculated Mr Gandel may be involved in taking out the rest of CFS Retail with Charter Hall, which could lead to the divestment of a range of retail assets not deemed suitable for any new trust.
In the next six weeks, department stores and tenants, as well as retail landlords, will report their earnings to June 30. Analysts have forecast tough times ahead for the tenants.
Westfield, the world's biggest retail landlord by value, warned in February that rents for new leases in some specialty areas would be signed at about 5 per cent lower in the next phase of negotiations.
Frequently Asked Questions about this Article…
The proposed Pacific Retail REIT IPO is a $395 million initial public offering of a new retail property trust. According to the article, the float is scheduled to list in September and has already attracted strong investor interest.
The float is being advised by Moelis & Company and the fund will be managed by Moelis Asset Management under Andrew Martin. The IPO is being run in parallel with the Moelis Australia Property Visa vehicle.
The portfolio initially includes five assets, four of which are in Victoria. Notable properties mentioned are Rosebud Plaza and the former Seven Hills Centro being sold by Federation Centres. The article also notes Moelis’s prior purchase of the Healesville Walk Shopping Centre for $21.2 million.
The float is offering a forecast yield of 8.5% and a forecast distribution of 8.3 cents per security. The article says close to $200 million is already said to be committed to the IPO.
Moelis is targeting overseas investors who qualify for the Significant Investor Visa (SIV). The Property Visa fund, aimed at SIV-eligible buyers who invest more than $5 million in property, could also become an investor in the listed Pacific Retail trust.
Up to 51% of the portfolio's base rent is from convenience and food-retail tenants, with 11% from discount department stores and 38% from other discretionary retailers. The average lease term is 6.2 years (which could be extended with supermarket leases). Near-term development is limited aside from a $10 million refurbishment at Altona and $3 million allowed for minor works across the rest of the portfolio. Gearing is expected to be about 34%, near the industry average.
The article cites a low interest-rate environment that is prompting investors to seek higher-yielding REITs. Analysts also expect a release of about $1.6 billion in cash from the REIT sector as trusts pay annual dividends, and recent active trading of retail assets (more than $3 billion changing hands) is supporting transaction momentum.
The article notes a weaker discretionary retail sector and analysts forecasting tough times ahead for department stores and tenants reporting to June 30. Westfield warned rents for new leases in some specialty areas could be about 5% lower, and there is speculation around corporate moves—such as Commonwealth Bank internalising CFS Retail Fund management and possible takeover interest from major investors like John Gandel and Charter Hall—that could lead to asset divestments.
Call 1300 880 160
Start a chat
Schedule a call
