Overseas investors form bulk of Charter Hall’s $2.9bn industrial fund

The Sydney-based firm has raised $434m in fresh equity for its open-ended industrial vehicle in Australia that is expected to reach $2.9bn in total net asset value.

Commitments from overseas institutional investors has given Charter Hall, the Sydney-based real estate firm, further firepower in the Australian industrial market.

Last week, the firm announced an oversubscribed equity raise of A$600 million ($434 million; €382 million) for its A$3 billion open-ended Charter Hall Prime Industrial Fund (CPIF). Including this new equity raise, the fund will eventually end up with a net asset value of A$4 billion, including leverage.

According to Richard Stacker, industrial chief executive officer at Charter Hall, 60 percent of CPIF’s investors are now from overseas markets. New commitments are understood to have come from investors from Japan, Singapore, UK, and continental Europe.

“As the raise closed very quickly it did not allow some investors from countries we did not previously have exposure to, to invest,” said Stacker. “These investors still want to invest when the fund reopens, likely in first half of 2019.”

Overall, existing investors have taken up close to half of the fresh equity raise, which took Charter Hall three months to complete, according to Stacker. PERE understands that Korea’s Public Officials Benefit Association is among investors that re-upped capital. The Seoul-based public pension fund, with $3.39 billion invested in real estate according to PERE data, committed to the fund with a larger amount than its original investment.

Stacker said Australian real estate still provides attractive value on a risk-return basis as compared to other global markets. CPIF has averaged a total return of 11.7 percent over the last five years, according to Charter Hall’s results for the financial year 2018.

“If you then add the solid macro environment, transparency and sophistication of the market, as well as the outlook for rental growth, particularly in office and industrial markets, it is not surprising it has attracted global capital,” he said.

According to data from the real estate advisory firm Colliers, average prime yield for industrial real estate in key Australian markets dropped from 8 percent in 2014 to below 7 percent by the third quarter of 2018. At the same time, the average prime internal rate of return (IRR) fell below 8 percent for the first time since 2003.

Stacker said Charter Hall continues to have faith in the performance of the fund, despite increasing concerns of cap rate compression impacting the ability to find the right investment opportunities.

“Although we expect some further tightening of cap rates in the industrial markets, it is now more about the opportunity to grow rents and through the funds development pipeline, provide a yield on cost above buying in the market,” he explained. “Industrial demand has been above long-term averages and at or below long-term averages, so this dynamic should see industrial [sector] and CPIF continue to perform well.”

Stacker described CPIF as a core fund with a strategy of acquiring or creating long-term core industrial assets. Charter Hall uses its own land bank to develop to the fund as well as acquire assets.