More than $2 billion worth of interest from institutional and retail investors has been expressed so far for the biggest float ever in the property sector, the Charter Hall Long WALE REIT.
Behind the acronyms – WALE refers to weighted average lease expiry and REIT indicates real estate investment trust – lies a refuge, its managers believe, for investment in a low-rate market.
The raising for the new trust, spun out of Charter Hall's managed portfolio, will hit $1.15 billion. The new trust will comprise a $1.253 billion portfolio of 66 properties, hitting the board in mid-October.
Appetite for the stock is already such it is expected to be offered at the lower end of the expected yield, of about 5.3 per cent.
Both its new manager, Charter Hall transactions manager Avi Anger and Charter Hall managing director David Harrison, are confident, despite property trusts taking a hit with ructions in the bond market in the past week.
"We don't think the demand for bond-like investments is going to change," Mr Harrison told AFR Weekend.
"You still only get 1.5 per cent on your in the bank for cash. You only get 2.4 per cent for a 12-month term deposit.
"We're not oblivious to what is happening in the market but we're also not relying 100 per cent on institutional money, which is typically more flighty than retail money."
'Volatility is back'
The whale-sized float has been two years in the making, and follows a run of IPOs in the sector this half, including the runaway success of the $1.5 billion Viva Energy REIT, which also comprises a long-lease portfolio.
"The chase for yield is not over because a few Federal Reserve members make a few contradictory comments, so volatility is back," Mr Harrison said.
"The bottom line is in my 30 years I've never seen the ability to buy long-lease assets at 3 per cent spreads over cost of debt. It's as simple as that."
Those long leases are the strength of the new trust's portfolio. Expiry averages 12.5 years, among the longest in the sector. The leases are spread across office, industrial and retail properties in six states.
And, as Mr Anger is quick to point out, almost 80 per cent of the income comes from four solid tenants: Wesfarmers, Westpac, Woolworths and the federal government.
The trust will list with negligible balance sheet debt and look-through gearing of below 20 per cent. That means as the new trust taps debt to fund acquisitions yields should rise.
High-quality offering
With plenty of experience heading Charter Hall's transactions team, Mr Anger is aiming to match that growth rate of funds under management in the new vehicle he will run.
Last year Charter Hall increased its FUM by 29 per cent, or $3.9 billion, most of it coming from acquisitions. Growth in FUM has averaged about 15 per cent in the past six years.
"There'll be a strong focus on sale and leasebacks because that's where a lot of product has come from," Mr Anger said.
Behind Mr Anger stands a high-calibre board, chaired by Peeyush Gupta, who is also on the National Australia Bank board among others.
UBS and JPMorgan are joint lead managers with King and Wood Mallesons as legal advisor.
UBS's Australian head of property, Tim Church, a veteran of more than 20 property floats, does not hesitate to nominate the monster float as "the highest-quality IPO to hit the boards in close to 20 years".
"We have been inundated with enquiry from both institutional and retail investors, high net worths, to cornerstone the deal over the last three months because of the quality of the offering."
