The article originally appeared in Australian Financial Review.
Move over logistics, there’s a new hot young thing in listed property.
Essential services – real estate leased to all those things that have stayed open in the past 18 months or so – is now up in lights, and real estate managers and brokers are making hay while it’s fresh in investors’ minds.
First out the door was David Di Pilla’s HomeCo with its HomeCo Daily Needs REIT late last year, quickly followed by its HealthCo, which listed this month. Daily Needs owns properties leased to grocery stores, chemists and the like, while HealthCo has a healthcare bent.
The latest contender mixed the two together. Melbourne property manager Real Asset Management has started taking bids for its RAM Essential Services Property Fund, which is a $500 million-odd vehicle slated to list in October.
RAM Essential Services will own 33 properties worth $706.3 million, according to the pitch to potential investors, at a 5.85 per cent weighted average capitalisation rate and 7.1-year weighted average lease expiry.
Investors were looking at a 5.7 per cent distribution yield, according to the pitch and based on FY22 forecasts, at the $1 a security offer price. Net tangible asset backing was 94¢ a unit.
RAM Essential Services Property Fund’s initial portfolio would be split roughly 50/50 between essential retail and healthcare properties. Its biggest tenants included private hospitals group Healthecare and supermarkets companies Woolworths and Coles.
To underline the point about its recent resilience during the COVID-19 pandemic, the company told potential cornerstone investors that its rent collection was 92 per cent during the depths of the lockdown last year, and was a 98 per cent in the first quarter of 2021. Its medical properties were running at 100 per cent this year, while its retail sites were collection 98 per cent of rent due.
The pitch said 47 per cent of the portfolio’s value, based on valuations as at August 31, were in Queensland, while 37 per cent was in NSW and the rest split across Australia.
Its most valuable properties included Coomera Square (Queensland, $76.8 million), which counts Woolworths as a key tenant, and Ballina Central in northern NSW, which is backed by Coles.
Investment banks UBS and Credit Suisse are running the cornerstone process, and were expected to underwrite the float at the end of this month. Ord Minnett and E&P Corporate Advisory are also joint lead managers.
If successful, the company would list with a $521.1 million in October.