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, 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.