Automotive Holdings Group (AHG), the largest owner of car sale franchises in Australasia, plans to expand its Auckland footprint following the launch last week of a retail property trust, through Charter Hall Direct Property Management, which will acquire three of its biggest Australian properties.
Bronte Howson, executive director of AHG, said at the Sydney launch of the unlisted trust, which is seeking to raise A$55 million (NZ$59.9 million), that his company was negotiating the purchase of four franchises in West Auckland to complement its six already in the city area. This will bring the total number of franchises across the two countries to 186, involving 101 dealerships. The dealerships can have more than one franchise, which are controlled by AHG. In New Zealand, AHG is confined to Auckland at the moment.
Howson said that the car sales market was very fragmented in both countries. “We’re by far the largest, but we still only have 6.7 per cent of the market,” he said.
The unusual property trust offers an attractive target initial yield of 7.5 per cent a year for the first two years and is underpinned by very long leases for the car yards. The median lease, with fixed annual increases, is 13 years to expiry. Between 70-80 per cent of the total return is from income. The trust has a six-year investment term, providing a six-year average distribution yield of 8.0 per cent a year.
Called the Charter Hall Direct Automotive Trust (DAT), trust has underlying assets encompassing three properties – in Castle Hill and Sutherland in Sydney and Brown Plans in Queensland – involving five dealerships. Their total estimated valuation is A$102.3 million (NZ$111.5 million).
Richard Stacker, head of Charter Hall Direct Property, said the business continued to grow in popularity with investors, particularly SMSFs.
“Our capabilities to access, deploy, manage and invest capital means that we are able to create industry leading property investment funds that provide our investors with stable income streams,” he said. “The Direct business has a strong track record of identifying new high quality investment products that offer investors access to quality long leased assets with strong tenant covenants in growing markets. DAT is another example of our ability to create new funds that have the potential to deliver strong returns to investors.”
AHG’s Howson said: “The transaction is part of our normal capital management strategy to maintain capacity in our balance sheet to fund growth opportunities. It creates a partnership between AHG and Charter Hall, an institutional property manager who provides the scale and access to equity, which allows us to look at future opportunities across our automotive dealership and logistics businesses.”
Charter Hall has about A$12.7 billion (NZ$13.8 billion) under management across the office, retail and industrial property sectors. The latest IPD benchmark results show Charter Hall’s unlisted retail funds and syndicates held five out of the top 10 positions for performance in the 12 months to June 30, 2015.
* Greg Bright is publisher of Investor Strategy News (Australia)