Caltex plans to float share in property assets
Caltex Australia plans to spin off a big stake in a portfolio of 250 petrol stations.
Caltex plans to embark on a $1bn property float made up of a half-stake in 250 of its retail sites as it seeks to tap investors chasing yield against the backdrop of low global interest rates.
Under the initial public offering expected in the first half of next year, Caltex would enter into long-term lease agreements for each site with cash from the deal earmarked for capital management options next year.
Caltex expects the property trust to receive rental payments of $80m to $100m in the first year with a further 240 sites within its network still to be assessed as part of a strategic review.
With a thirst for yield in the market, the deal would probably attract retail investors and institutional investors seeking safe haven-style investments.
“There is an almost insatiable hunt for yield out in the market and when that’s backed by the Caltex reputation and the very high-quality nature of these sites, we see it being a pretty attractive vehicle,” Caltex chief financial officer Matt Halliday told The Australian.
IPO volatility in recent months, with several big-name floats including Latitude Financial being pulled, was unlikely to extend to a stable property deal, Mr Halliday said.
“Where there have been struggles has been around financial sponsors, and I think that is quite a different situation to the one you’re looking at here,” he said.
The company has assessed the option of a real estate portfolio sale and it may still receive unsolicited approaches as it undertakes its float process. Caltex has yet to test the appetite of institutional investors to its float plans.
With long leases in place, the assets could appeal to the likes of Charter Hall, superannuation funds or offshore pension groups.
RBC said the market would welcome the company’s decision.
“We think the Caltex REIT proposal will be well received as it unlocks value from the freehold sites via a strong REIT market,” RBC analyst Ben Wilson said.
“We think a significant portion of the IPO proceeds could be returned via an off-market buyback in (the second half of 2020).”
The real estate investment trust would have about $900m worth of assets, with the overall value of the portfolio standing at about $1.8bn.
With gearing for such vehicles running at about 30 per cent, it would need to raise between $600m and $650m.
The Caltex petrol stations also have a strong retail element through the joint venture with Woolworths, with this element of convenience retailing still sought after by investors even as larger department store-anchored centres are suffering.
A vehicle structured in this way would probably leave investors receiving a yield of more than 6 per cent and the prospect of capital gains once rerating was completed so it traded in line with peer Viva Energy REIT.
While there is a longer term thematic threat from electric vehicles, many will still require service stations and their locations make them suitable for alternative uses.
Caltex also issued an update on its convenience retail business, with annual earnings before interest and tax expected in a range of $190m to $210m, up from $85m for the first half of this year, reflecting improving fuel margins.
“Despite the softer conditions from ongoing Australian economic weakness, Caltex has continued to outperform our competitors in the retail fuel market by leveraging our fuel supply chain expertise and our high-quality retail network,” chief executive Julian Segal said.
Caltex — whose shares jumped 7 per cent on Monday to $29.79 — has hired UBS and Grant Samuel as financial advisers and Herbert Smith Freehills as legal adviser to advise on the proposed sharemarket float.