The Charter Hall Direct Diversified Consumer Staples Fund (DCSF) forming part of the $2.9 billion Charter Hall Direct Property division, Australia’s leading manager of unlisted property funds for retail investors including high net worth, self-managed super fund (SMSF) trustees and self-directed or advised investors.

DCSF, which is the first consumer staples themed property fund in the Australian unlisted property fund market, has a headline forecast income yield of 6.89% pa* plus the prospect of capital growth, with distributions paid monthly. Further, with the initial portfolio having 2.7% pa average rental increases, DCSF offers investors potential growth in income distribution and asset value.

DCSF’s diversified portfolio of predominantly Australian properties leased to companies that derive their revenue from the production or distribution of consumer staples provides investors with exposure to property assets leased by major Australian and international brands with resilient income streams.

Group Executive – Global Investor Relations at Charter Hall, Richard Stacker said: “Charter Hall Direct Property has a strong track record of creating institutional grade property investment opportunities available to high net worth, SMSF members and trustees and individual investors.”

“We believe the combination of solid yield, a monthly income distribution policy, the resilience of consumer staples entities as tenants, long leases and annual rental uplifts, make the Diversified Consumer Staples Fund an attractive investment option for investors.”

The fund’s initial portfolio comprises retail and industrial properties leased to leading Australian companies including Viva Energy, Bunnings and producers and distributors of smallgoods including Hans and Primo.

“Leading consumer staples companies have operated for decades through many economic cycles.  They tend to dominate the industry they operate in with high barriers of entry to new competitors. These features create a resilience to their earnings, providing an excellent tenant for landlords looking for security of cashflows from the underlying properties”.
All six properties in the fund are 100% leased and the 9.2 year weighted average lease expiry is in line with the Charter Hall investment philosophy of providing investors with exposure to quality assets, leased to high quality covenants on long leases. The geographically diversified properties are located in Queensland, New South Wales, New Zealand, Tasmania and Victoria.

Consumer staples products, such as food, petrol and everyday household items, have a low elasticity of demand.

“Consumers are generally unwilling to cut these types of non-discretionary items from their household budgets and consequently demand for them generally grows in line with population. They are not subject to the volatility of demand associated with more discretionary items and they are very often dominant brands with high levels of consumer loyalty,” Mr Stacker added.

As a direct (unlisted) property fund, DCSF is likely to have a low correlation to equities. The fund’s unit price is published daily on the fund’s web site.

The fund will have an initial investment period until its first liquidity window of five and a half years and we anticipate that monthly distribution payments will contain some tax deferred amounts.

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DOF, which is an Australian direct commercial property fund (also known as an unlisted property fund) recently passed the $200 million equity inflow mark and has a current target raising of $220 million.

Zenith’s citation noted: “Zenith has a solid level of conviction in the abilities of Charter Hall, which underpins our faith in the ongoing strategy execution… Of particular note is the willingness of the Fund to co-invest in assets with institutional investors through managements’ institutional pooled funds. This has given DOF access to several high quality real estate opportunities which have typically remained out of reach for most retail investor funds.”

Head of Charter Hall Direct Richard Stacker said: “It is pleasing that the quality of both our strategy and execution is recognised by this leading research house.

“Investor interest in DOF has been strong and we expect to close the equity raising early in 2016. We continue to experience increased interest from self managed super fund (SMSF) trustees in this low yield environment. DOF offers returns of 7.5cpu p.a, with a projected total return, including capital appreciation, of around 10% pa – these are very attractive numbers when 3-year Term Deposits are around 2.65% and the ASX-200 declining during 2015. ”

DOF Fund Manager, Steven Bennett commented: “A realisation amongst investors which we are witnessing is that the trade-off between return and liquidity in an unlisted property fund is better understood – and one that’s clearly worth making.”

Zenith said: “It has a solid conviction in the Fund over the proposed term as a generator of reasonably low volatility income returns with modest capital appreciation.

“As a sector specific office fund, DOF’s portfolio is well diversified by number of tenants (64). The long lease expiry across the portfolio is of particular note, as it is relatively rare to be able to access a portfolio of office assets with such a long WALE.”

DOF’s current property portfolio value as at January 1, 2016 is over $720 million with a long lease profile (Weighted Average Lease Expiry of 9.4 years by income). DOF has solid rental uplifts over the medium-term, which should ensure effective rental growth remains robust across the bulk of the portfolio where tenant incentives are high across most markets.

Charter Hall’s Direct property business was recently awarded the Best Commercial Property Fund Manager by SMSF members at the prestigious CoreData Self-Managed Super Fund (SMSF) Service Provider Awards. The Direct Property business has delivered attractive returns for investors and has been very active over the past five years. The IPD benchmark results showed Charter Hall’s unlisted retail funds and syndicates held five out of the top 10 positions for performance in the 12 months to 30 September 2015.

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Richard Stacker

Charter Hall Group (ASX:CHC) has announced that its Direct Office Fund (DOF) has now raised circa $175 million since its launch, as a broad range of investors see a compelling opportunity to invest in a high quality long WALE (weighted average lease expiry) office portfolio.

Head of Charter Hall Direct, Richard Stacker said: “Interest in DOF has been strong and we expect to close early in 2016. There has been a noticeable increase in interest from self managed super fund (SMSF) trustees in this low term deposit environment.”

“With the expectation that the Australian economy is likely to be in a low interest rate environment for some time, three year term deposits at 3% and the ASX 200 Dividend Yield at 4.5%, interest in direct property, which is providing year one income yields of 7.0% or more generated from conservatively geared, strong tenant covenant investments, are attracting strong flows,” Mr Stacker said.

“The great advantage is the investor enjoys quarterly income more than double term deposit rates and does not have to worry about where to reinvest for five years. It’s a story we are hearing directly from investors and financial advisers alike,” Mr Stacker added.

DOF recently secured another major asset in Brisbane in a 50/50 partnership with the Charter Hall Core Plus Office Fund (CPOF), following on from a successful joint venture in Parramatta leased for 15 years to Western Sydney University. The fund has purchased the site at 900 Ann Street, Fortitude Valley on Brisbane’s fringe for a new 19,000sm office tower which is pre-leased to the ASX-listed Aurizon on an initial 12-year lease.

Aurizon, formerly Queensland Rail, selected the Fortitude Valley site following an extensive market search for new office accommodation, partnering with Brisbane based Consolidated Properties Group (CPG) as its development partner. CPG has partnered with CPOF and DOF for the development management and funding of the property, and Hutchinson has been appointed as the builder under a Design and Construct contract.

Steven Bennett, DOF’s Fund Manager, said the transaction will have the effect of extending the already industry leading WALE of DOF to 9.4 years and will have a positive impact on DOF’s key portfolio metrics, including weighted average building age and weighted average capitalisation rate.

“DOF remains strategically weighted to the Sydney and Melbourne office markets which have the best medium term outlook and employment growth of all Australian states. The addition of 900 Ann Street provides geographic diversification secured by a quality tenant on a long term lease, also positioning the fund to deliver strong returns for investors.”

DOF’s property portfolio is now valued at $675 million, of the targeted $800 million.

Earlier this month DOF was awarded the 2015 Wealth and Finance Fund Awards for Best Unlisted Property Fund. These awards recognise innovative work taking place across the worldwide fund industry by managers who implement exceptional strategies and gain spectacular results for their clients.

This follows the recent recognition of Charter Hall’s Direct Property business as the Best Commercial Property Fund Manager by SMSF members at the prestigious CoreData Self-Managed Super Fund (SMSF) Service Provider Awards.

The Direct Property business has delivered attractive returns for investors and has been very active over the past five years with a 15.5% annual total return (ordinary units) to investors. The latest IPD benchmark results showed Charter Hall’s unlisted retail funds and syndicates held five out of the top 10 positions for performance in the 12 months to 30 September 2015.

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WA providing the strongest returns for direct property.

Charter Hall says recent results from Investment Property Databank (IPD) – showing that Western Australia continued to provide the strongest returns for direct property over the year to September 2013 – reinforces the appeal of its latest property syndicate, WorkZone in Perth CBD.

Head of Charter Hall’s direct property division, Richard Stacker, said that while WA’s economy has moderated, as the mining industry begins to transition from construction to output phases, a number of factors that contributed to Perth being Australia’s strongest performing office market over the past decade still remain.

“Population growth in WA was double the national average over the past year and the current unemployment rate of 4.3% is by far the lowest of all states. It is true that WA’s employment growth has slowed since 2012 as the mining investment boom crests, however at 1.4% for the year to October 2013 it remains well above the 0.8% recorded by Australia as a whole,” Mr Stacker said.

Total returns over the year to September showed Perth’s office (11.6%) and retail (10.7%) again performed above the national benchmark for broader property of 9.0% and while September figures for Perth industrial are yet to be finalised, growth over the year to June 2013 was an exceptional 15.4%.

Tapping into the growing demand for investment opportunities in Perth CBD, Charter Hall will shortly launch a new high quality single syndicate for high net worth investors and self managed super funds (SMSFs) seeking exposure to the consistently outperforming resources state and its strong employment growth outlook.

Charter Hall’s ‘WorkZone’, which will open to investors on 1 December, aims to provide investors with sustainable and stable, tax-advantaged income and the potential for capital growth through investment in 202 Pier Street, Perth – a brand new $124.5 million A-grade office building located in close proximity to the Perth CBD. Fully leased with 100% occupancy, the property syndicate aims to deliver investors an average two year income yield of 9.11%[1].

Charter Hall, which is the number one in the unlisted retail sector with a market share of 14%[2], expects there to be continuing demand from SMSFs for investment in direct property in 2014 with SMSFs already making up 60% of their investor base.

“The SMSF sector is the fastest growing area of the Australian superannuation industry. SMSF investors have an appetite for direct investment and a desire for control and transparency. Direct property provides self-directed investors with quality assets with lower gearing, conservative payout ratios and increased transparency.

“According to Property Investment Research (PIR) over the previous three years equity raising from property syndications have grown by 100% each year, from $40 million in 2010, to a forecast $510 million in 2013.

“Over the past three and a half years, Charter Hall Direct has seen new equity flows in the unlisted retail funds it manages averaging $156 million per annum. This significant increase is further evidence that Australian direct property has become a popular home for retail investors looking for alternative investments that have a return profile which is less correlated to equity markets and other asset classes that can be vulnerable to swings in returns,” Mr Stacker said.

A checklist for investing in direct property

Mr Stacker said that those planning to invest in direct property need to be selective on the markets and property sectors they invest in.

“Investors looking to invest money into direct property need to be aware that not all direct property investments are the same. It is important to look for high quality investments with a sustainable yield that will diversify portfolios in a secure framework, rather than being lured into riskier second grade investments that may offer higher yields,” Mr Stacker said.

“There are a number of quality opportunities for investment in this space and investors are voting with their feet when it comes to allocation of funds. By understanding the factors that influence quality, investors can make the most of this attractive and growing market,” Mr Stacker concluded.

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[1] Target average income distribution for the two years to 31 March 2016, assumes participation in the limited offer.

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The property will be developed by the Gibb Group, who will construct a generic 6,994 square metre logistics facility within the Gracemere Industry Park that will incorporate administration offices and a high clearance warehouse, together with extensive concrete paved driveways and truck manoeuvring/marshalling areas. The facility will be purpose-built for leading road transport provider Toll NQX, part of the listed Toll Holdings (Toll Group), which has committed to a 12 year lease with two, five year options and fixed rental increases of 3.75% per annum. Construction is commencing in November 2013 with completion scheduled for April 2014.

Charter Hall’s Head of Direct Property, Richard Stacker, said the acquisition marks the fifth asset to be added to DIF2’s industrial portfolio with a sixth asset acquisition close to being agreed.

“We have received strong investor interest in DIF2, with the fund recently closing oversubscribed a year ahead of its target closing date, and have the capacity grow this portfolio to approximately $200 million.

“The acquisition of the Toll NQX facility is a great fit for DIF2 given the new 12 year lease to Toll and the property’s strategic location being 15 kilometres south west from the Rockhampton CBD with direct access to the new $50 million Gracemere Capricorn Highway overpass bridge. This allows the facility to service Queensland’s growing mining operations, with the Bowen, Surat and Galilee Basins all within a 400 kilometre radius, whilst Gladstone Port is only 110 kilometres away,” Mr Stacker added.

The acquisition increases DIF2’s current portfolio, settled and under due diligence, to $135 million and its weighted average lease term to 12 years. Other key tenants across the portfolio include Australia Post, Coles and OneSteel.

Charter Hall and its managed funds have made a number of investments in the Rockhampton region including Core Logistic Partnership’s recently acquired three hectare industrial site at Mackay which will house a new 13,763 square metre logistics facility pre-released to Blackwoods. Charter Hall Retail REIT also recently completed a $16 million refurbishment of its Allenstown Square shopping centre in Rockhampton.

“The Queensland market, and in particular the Rockhampton region, is an attractive area for Charter Hall and our managed funds, given the region’s link to the mining and agricultural industries and we are very pleased to be adding another quality property to the Group’s property portfolio,” Mr Stacker added.

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Charter Hall’s DIF2 oversubscribed.

More than a year ahead of schedule Charter Hall Direct Property today announced that its Direct Industrial Fund No.2 (DIF2) has successfully closed oversubscribed raising $135 million within ten months of launch.

DIF2 was launched in December 2012 in direct response to demand from investors, self managed super funds (SMSFs) and financial advisers for a second vehicle providing exposure to prime industrial property, after the success of Charter Hall Direct Investment Fund (DIF1) which closed for investment in 2012. DIF2 was not expected to close until 31 December 2014.

Head of Charter Hall’s direct property division, Richard Stacker, said: “This demonstrates the continued appetite for DIF2’s mandate of a quality industrial property portfolio. DIF2 benefits from an asset base diversified across locations, income secured by long leases, quality tenant covenants and modern industrial facilities with low capital requirements.

The current portfolio of five assets has a total end value of $135million, weighted average lease term of 12.8 years and tenants that include Australia Post, Coles and Toll.

Mr Stacker said further assets that meet DIF2’s investment criteria are currently under consideration with the final portfolio expected to total approximately $220 million and have a targeted gearing level of 45%.

“Institutional investors, SMSFs and high-net worth individuals are becoming increasingly aware of the benefits of moving their investments from cash and term deposits to direct commercial property.

Literally, less than three years ago term deposits were earning over double what they are now. Investors are on the search for yield and direct commercial property is a clear alternative,” he added.

Head of Retail Distribution for Charter Hall, Ross Victor, said that DIF2 was well supported across private banks, wealth divisions, licensees, and major platforms, including BT Wrap, Asgard, North,

AMP Personalised Portfolio Service, Macquarie Wrap and Netwealth. “It was exciting to see the inclusion of DIF2 as a ‘direct property’ option across investment and super/pension menus as a result of the fund’s innovative structure and the strong demand from advisers and SMSFs.

“This inclusion aligns investors seeking high quality direct property offerings, regardless of whether they own an SMSF or access retail super options on platforms,” Mr Victor said.

Despite the perception that SMSFs are primarily focusing on residential property investments, Mr Victor said that a significant portion of these investors are looking to commercial property given the higher yields available.

“At the end of the day, property is an asset class which people understand and commercial property provides a sense of security and stability that SMSF investors are seeking from an investment. Over 70% of fund flow into DIF2 is attributed to SMSF and high-net worth investors.

“Our SMSF investors found the ease of access to high quality commercial property, compliance with administration requirements for SMSF reporting, not having to manage tenants or property, conservative gearing in DIF2 and the higher yields were clear distinctions from residential investment,” Mr Victor added.

Mr Stacker added: “With direct property providing yields of over double that of cash and term deposits, there is a growing demand for alternatives which not only diversify an investment portfolio but provides solid total returns over the funds life.

“There is an increasing appetite from investors for prime industrial property which provides investors with an attractive yield and defensive investment characteristics such as long term leases, strong tenant covenants and fixed rental increases annually,” concluded Mr Stacker.

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