Charter Hall Group (ASX: CHC) fell over 12.45% in the last three months (as at October 25, 2016) following its peers, as real estate stocks have been facing pressure. This is associated with the failure of the group’s Long WALE REIT. The group announced their Long WALE REIT when the real estate stocks have generally been on a bullish trend. The initial float proposal was of the order of $1.1 billion. This float was associated with initial yield of 5.3% while there was no balance sheet debt and minimal look-through gearing.
Lack of support on initial offer: Charter Hall generates earnings from the group's capital partners in property funds, and partnerships as well as from Property Funds Management. So, Long WALE REIT creation has been thought to expand these businesses, as the group earlier estimated to attract a huge co-investment in Long WALE REIT and manage it like Charter Hall Retail REIT. On the other hand, Long WALE REIT failed to get support from institutional investors, even at $4 a share to raise $350 million, despite getting decent response from retail investors. This was in contrast with the management’s expectation who believed that the quality property market would get attention from those investors who want to secure cash flows.
Concerns over the positioning of the assets: The group reported that their Long WALE REIT consists of a geographically diversified portfolio of industrial, office and hospitality assets with a total value of more than $1 billion and a weighted average lease expiry (WALE) in excess of 12 years. On the other hand, critics of the deal cited that most of this portfolio was in challenging locations as well as believed that the group would not have any operational control. Moreover, since the group’s proposal of Long WALE REIT IPO, the sentiment on the Australia’s property market has been weakening. Accordingly, the S&P/ASX 200 A-REIT (INDEXASX: XPJ) saw a slip in the last three months post being bullish at the start of the year.
Revised Strategy: The group has now worked out a revised $826.7 million float (via issue of 206.7 million securities) for November 08, 2016. A Supplementary Product Disclosure Statement for the REIT is expected to be lodged with the ASX by October 28, 2016. This came at the back of the underwriting a reduced capital raising by its joint lead managers UBS and JPMorgan. Further, a bookbuild for the $516 million raising (excluding Charter Hall's investment) has been said to be put together. With this offer, the group intends to have the $4 offer price at a 4.1% premium to net tangible assets. Further, Long WALE REIT will have a forecast operating earnings yield of 6.3% annualised from the period from allotment to 30 June 2017 and 6.4% annualised for 1H FY18. Balance sheet gearing has been said to be 22.9% and look-through gearing is 35%. The investment amount has also been reduced from $250 million to $210 million.
Disclaimer
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376).The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd currently hold positions in: BHP, BKY, KCN, PDN, and RIO. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.