360 Capital Office Fund

About the author:

Author name:

By Fiona Buchanan

Job title:

Co-Head of Research, Senior Analyst

Date posted:

23 May 2014, 9:22 AM

Sectors Covered:

Property, AREITS

360 Capital Office Fund (TOF), managed by 360 Capital Group, is an ASX listed REIT focused on Australian A grade suburban and B grade CBD office properties.

TOF offers investors a simple business model and is one of the few pure play office REITs in the market. The attractive 8.5% distribution yield (paid quarterly) is above the sector average (around 6%) with investors collecting the first distribution (4.25c) in late July.

We initiate coverage with an Add recommendation.

360 Capital Office Fund overview

TOF raised A$155m at A$2.00 and listed on 24 April 2014. Funds were used to acquire two properties and restructure the debt on the balance of two properties.

TOF is externally managed by 360 Capital RE Ltd (a member of listed group 360 Capital Group) and is strongly aligned to unitholders via its 25% stake. Gearing is around 35% and NTA is currently A$1.91. All properties are 100% owned. The group does not take on development activities and is focussed purely on property ownership. 

Portfolio overview

The portfolio comprises four assets valued at A$235m (including the asset at Burwood in NSW which has been flagged for sale). The assets are based in QLD (2), NSW (1) and the ACT (1). Occupancy is 99.6%, WALE 4.6 years and WACR of 8.7%.

Key risks

Rental income risk - Distributions made by the Fund are largely dependent on rental income which may be affected by a number of factors including economic conditions, the competitive landscape, tenant concentration and the financial condition of tenants.

Re-leasing and vacancy risk - A major tenant at the Canberra asset is the Department of the Environment, which constitutes 93.6% of the property and 19.6% of the Fund's portfolio (by passing income). The Dept of Environment lease is due to expire in December 2015.

Refinancing risk and LVR - The Fund's ability to raise funds, including both debt and equity, on favourable terms for future refinancing, capital expenditure, or acquisitions.

What we think

We note the strong track record management has in the listed space with its other vehicles (TIX and TGP). We initiate coverage of TOF with an Add recommendation and a share price target of A$2.13. This target is in line with our DCR valuation and represents a TSR of around 15%.

Morgans clients can access our detailed research report on 360 Capital Office Fund (TOF). If you are interested in finding out more, please contact your nearest Morgans office.

Disclaimer(s): Morgans was Joint Lead Manager to the IPO and earned fees in this regard.

The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.