Charter Hall Direct new PFA Fund targets 7.25% per annum income

From

Steven Bennett

One of Australia’s largest unlisted managers of investment-grade office buildings, Charter Hall Direct Property, today announced the launch of a new unlisted office property fund for retail investors, self managed super funds trustees and high net worth investors.

The fund, called the Charter Hall Direct PFA Fund (PFA or fund), features quality office buildings located in emerging or established office markets around Australia and predominantly leased to government tenants.

The current income yield for PFA is 7.25% per annum[1], paid monthly, and is targeting more than a 9% per annum total return. The fund has an initial investment term of five years. PFA has a conservative gearing policy with a target of between 30% to 45%, and its gearing currently is 28%.

Key features of the fund include a high proportion (>70%) of income sourced from government tenants, and an attractive weighted average lease expiry (WALE) of 9.2 years[2].
Initially PFA will own six office buildings, with a newly acquired office development in Adelaide fully leased to the South Australian Government on a 15-year lease term.

The initial portfolio also includes the Foxtel Building in Moonee Ponds, Vic; 9 Wentworth Place, Parramatta, NSW; 303 Sevenoaks Street, Cannington, WA; 134 Macquarie Street, Hobart, Tas; and Anzac Square, Brisbane, Qld.

Including the South Australian property, PFA will have just under 60,000sqm NLA with a total valuation of $268 million, an average capitalisation rate of 7.36%.

Head of Charter Hall Direct, Steven Bennett, said that PFA is yet another example of the Group’s offering of funds that deliver strong returns to investors with a focus on income security.

“The launch of PFA provides an opportunity for investors and SMSF trustees and members to acquire an interest in quality buildings in major markets leased to credit rated tenants on long leases.

“This formula translates into the prospect of an attractive yield of 7.25% per annum, paid monthly, and a projected total return of over 9% per annum. Monthly distributions have proved to be an extremely attractive feature for many retail investors who are looking for a stable earnings stream.

“Further, PFA’s projected yield compares very favourably to current interest rates, where 2-year term deposits are averaging around 2.3% and ASX listed stock yields of an average 4%.

Commenting on the Adelaide property acquisition, Mr Bennett said the property was located in the state government’s urban regeneration precinct of Port Adelaide and is scheduled for completion in April 2018.

“Comprising a total NLA of 6,382 square metres, the property is leased for 15 years to the South Australian Government and features fixed annual rent reviews of 3.0%.

“The long lease, attractive lease terms and high depreciation benefits make this an outstanding acquisition for the fund and its investors,” Mr Bennett said.

Minimum investment in the Charter Hall Direct PFA Fund is $20,000.

The Fund has been assessed by independent research house, Lonsec, and been given a ‘Recommended’ rating[3].

Lonsec acknowledged the “solid portfolio of A&B-grade office properties in mainly suburban emerging locations”, the “excellent tenant profile with 71% to government” and “relatively high FY18 pre-tax distribution yield”.

The quality and experience of the Fund’s management was identified with Lonsec noting the “proven management team that adds value”.

Mr Bennett said “We now have three funds that are open for investment with a recommended or highly recommended rating by Lonsec. We are delighted that Lonsec continues to acknowledge our underlying investment structures and our strong competitive advantage in people and process”.

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[1] Forecast distributions of 7.25% per annum over the forecast period, being 1 July 2017 to 30 June 2018. Forecast distributions are based on the properties in the portfolio and units on issue as at the date of the PDS. Assumes that investors acquire units at the $1.00 per unit initial issue price.
[2] As at 1 July 2017. Portfolio size, occupancy and weighted average lease term calculations do not include the Fund’s asset at 657 Pacific Highway, St Leonards which, as at the date of the PDS, was subject to a binding contract for sale. Additionally, these calculations include the Fund’s asset at Lot 107, Nile Street, Port Adelaide and terms of the 200 Adelaide Street, Brisbane property’s Heads of Agreement as at the date of the PDS. Refer to the PDS, in particular section 3, for further details.
[3] The Lonsec Rating (assigned August 2017) presented in this document is published by Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445. The Rating is limited to “General Advice” (as defined in the Corporations Act 2001 (Cth)) and based solely on consideration of the investment merits of the financial product(s). Past performance information is for illustrative purposes only and is not indicative of future performance. It is not a recommendation to purchase, sell or hold Charter Hall Direct PFA Fund product(s), and you should seek independent financial advice before investing in this product(s). The Rating is subject to change without notice and Lonsec assumes no obligation to update the relevant document(s) following publication. Lonsec receives a fee from the Fund Manager for researching the product(s) using comprehensive and objective criteria.

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