Charter hall REIT- pds just out, page-29

Charter Hall's managing director David Harrison has mounted a robust defence of one of the strongest themes for listed property in recent years – the yield story – as he prepares to launch the largest initial raising ever in the sector.
That $1.1 billion float will begin with 66 assets spun out of the unlisted partnerships and funds that Charter Hall controls.
The new trust, set to float on October 19, is called the Charter Hall Long WALE REIT, a reference to its long average lease expiry of 12.5 years.
That is a key strength of the proposed fund, along with an initial dividend yield of 5.3 per cent, relatively high given that it is based on no balance sheet gearing.

The yield theme has sprang back into focus in the past month as jitters in the bond market followed fast on the heels of increased anticipation of a US rate rise this month.

"Anyone who says the bond rally is over is dreaming," Mr Harrison told The Australian Financial Review as the roadshow for the record IPO kicked off in Australia.
The Charter Hall chief pointed to key metrics for the sector: the spread between internal rates of return and bond yields and the spread between cap rates and the cost of debt.
Across Charter Hall's $18 billion managed portfolio the spread to bond yields is 6 per cent, well above the cycle average of 3.5 per cent.
And for the new trust, the spread to the total cost of debt is 2.7 per cent. At the height of the financial crisis, that spread was 0.7 per cent.

"Let's not kid ourselves," Mr Harrison said. "We're still sitting with very big spreads and therefore a reasonable shock absorber, the buffer that exists before asset pricing starts falling because of rising bond yields or interest rates."
The S&P/ASX A-REIT Index has soared by 33 per cent with 11 of the top REITs bettering 40 per cent in the past two years as bond rates fell.
But the listed trusts took a battering this month ahead of a US Federal Reserve decision on US rates, and then up again as the Fed decided to hold firm.
That wobble may already be history for investors, whose appetite for the new Charter Hall trusts is already strong, if early signs are any guide.

An institutional investor lunch at UBS this week swelled to 30 parties, well above the norm for such initial briefings.
"This is our seventh real estate IPO we've done since the GFC. It is by a big margin the highest quality," said UBS' head of real estate in Australia, Tim Church, who is jointly managing the float with JPMorgan.
The new trust's fund manager is Avi Anger, who has led Charter Hall's transactions team, and will aim to maintain the vehicle's WALE well above the industry of 6.1 years.
On listing the trust will have access to $300 million in debt to drive a strong growth strategy through acquisitions and fund-through deals.

"We see that being an important priority to improve the yield and diversity of the portfolio," Mr Anger said. "That's something we'll be very actively targeting."


Read more: http://www.copyright link/real-esta...at-charter-hall-20160927-grpgd8#ixzz4LblXiEmT
Follow us: @FinancialReview on Twitter | financialreview on Facebook