The acquisitive Charter Hall Group has forged deeper into the retail property market by setting up a venture to buy a $127 million portfolio from Bunnings.
The group’s new Bunnings Partnership Fund 2 (BPF2) had bought the portfolio of centres on a range of initial yields from 6.95 per cent to 7.5 per cent.
The BPF2 portfolio is mainly made up of stores in the Perth suburb of Armadale and the Gold Coast suburb of Burleigh Heads, with the remaining stores in regional areas, including Bunnings in Gympie and Mackay in Queensland.
The off-market deal lifts Charter Hall’s Bunnings portfolio to $400m and its overall retail assets under management to $3.2 billion.
Earlier this year, Charter Hall quietly raised a new syndicate for wealthy investors that owns four Bunnings centres. The Charter Hall Direct BW Trust was seeded with $76m of Bunnings warehouses from a portfolio picked up by Telstra Super and Charter Hall in 2012 as part of a $207m deal.
Charter Hall has committed $59.2m of equity to its latest venture and the group is in talks with undisclosed co-investors to partner in the portfolio.
Charter Hall joint managing director David Harrison noted the defensive characteristics of the Bunnings business and said the stores should continue to deliver in a tougher environment.
“This sector continues to perform well and we will expand the group’s Bunnings Partnerships as the right opportunities arise,” Mr Harrison said.
The acquisition is expected to be slightly earnings accretive in fiscal 2015 for Charter Hall and analysts tipped it would find investors to back the new venture.
Credit Suisse analyst John Richmond wrote: “We expect high demand given the strong lease covenants, full occupancy, low capex and high fund yield of about 8.5 per cent.”
Charter Hall would be likely to earn about 40 basis points management fees, lifting the economic yield on its co-investment towards 12 per cent.