Charter Hall displays confidence in food logistics sector with SPC purchase

Charter Hall has acquired SPC’s flagship property in Victoria for $66 million in an off-market sale and leaseback arrangement, as the pandemic continues to fuel demand for local food production.

The purchase comes with a rare 30-year triple-net lease, with rent at the fruit processing production and distribution facility to commence at $4 million with annual reviews and up to eight 10-year extensions.

Located two hours north of Melbourne, the Shepparton site area measures 235,000sqm with a total gross lettable area of more than 126,000sqm. It’s located near the train station and serviced by strong road links to surrounding areas, the rest of Victoria and NSW.

The SPC site operates as a fruit processing and production facility that includes warehousing and cool storage. Picture: SPC

The SPC property first went into production in 1918 and now accommodates up to 800 employees during fruit processing season.

Charter Hall chief investment officer Sean McMahon said he was proud to be associated with one of Australia’s most trusted and iconic brands in the food manufacturing and consumables sector, a space where the company is actively pursuing investments.

“The recent SPC acquisition is another prime example of our deep market penetration in the food logistics sector,” Mr McMahon said.

COVID has boosted Australian food production

Australia’s food production and distribution sector is experiencing renewed investment after years of challenging conditions.

These were caused by high costs and a highly concentrated retail marketplace that have hampered profitability, investment and innovation and accelerated offshoring, according to a report released in 2021 by the Australian Food and Grocery Council with EQ Economics.

But according to the report, Sustaining Australia: Food and Grocery Manufacturing 2030, the sector also possesses huge growth opportunities. With a strategic focus and the right policies and incentives, the report estimates the sector can double in size to $250 billion by 2030 and boost employment by 54% to 427,000 people.

The pandemic has given the industry a tidy boost. It’s tested food security and supply chain resilience and fuelled demand for locally produced food.

Economist Warren Hogan, managing director of EQ Economics who informed the report, said many global players have increased their manufacturing capability in Australia since the start of the pandemic.

Mr Hogan said it remains unclear whether the offshoring trend will regain pace once the crisis point in the pandemic has passed, but he said there has been “a fundamental shift in how we see global supply chains and our reliance on them”.

As a result, he said investing in food production, processing and distributing facilities in the industrial real estate space is a solid option.

“We’re already seeing huge returns in industrial property, and food and grocery is one of the five key industries. I think there is a good reason for investors to start thinking about this being a long-term turning point and therefore these are good investments because Australia has a growing population.

“We’re going to need that capability and those properties and that physical capacity on the ground.”

The SPC property was established in 1917 and first went into production in 1918. Picture: SPC

Food and grocery is Australia’s largest manufacturing sector, employing 276,000 people with 40% in rural and regional areas, according to the AFGC report.

Charter Hall purchase a ‘vote of confidence’

Chief executive officer of SPC Robert Giles said Charter Hall’s purchase is not only a vote of confidence in SPC but also in the Australian manufacturing industry.

He said some of SPC’s food categories such as canned goods have experienced growth of 20% to 50% during the Omicon wave thanks to increased demand from Australian retailers.

“I think COVID highlighted that we need a safe food system in Australia,” he said.

SPC will use the capital released through the purchase to reinvest in the site, launch new products in existing and new categories, and acquire more food companies, both in Australia and overseas.

Mr Giles said investing in food production real estate is “a safe bet because we have a really good underlying foundation of business”.

“Australians are looking for Australian food, they’re looking to buy local and I think that’s only been accentuated in COVID. Therefore the funds are seeing a really safe and long-term bet to invest into the sector knowing that the companies will be secure in paying their lease obligations.”

SPC is a new tenant customer for Charter Hall’s Direct Industrial Fund No.4 portfolio, which over the previous six months to December 31 has deployed over $375 million in acquisitions of industrial and logistics properties.