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360 Capital Office Fund (TOF)
is a publicly listed company on the Australian Securities Exchange (ASX).


{{businessSummary}}

General Overview

About 360 Capital

360 Capital Group Limited (360 Capital) is a real estate investment and funds management group that concentrates on the strategic investment and active investment management of real estate and real estate-related assets.

The company actively invests in direct property assets, property securities and various corporate real estate acquisitions within Australian real estate markets on a private equity basis. 360 Capital Group’s 18 full time staff have significant property, funds and investment management experience. 360 Capital Group manages nine investment vehicles holding assets valued at over $1.5 billion on behalf of over 12,000 investors and has over $200 million worth of co-investments across the 360 Capital Group.

360 Capital comprises a listed public company (360 Capital Group Limited ACN 113 569 136) stapled to a managed investment trust (360 Capital Trust ARSN 104 552 598).

360 Capital has two Australian Financial Services Licences issued by the Australian Securities and Investments Commission and is fully licensed to manage property managed investment schemes.

The company was formed in 2006 by Tony Pitt to actively invest in direct property assets, property securities and various corporate real estate acquisitions within Australian real estate markets on a private equity basis.

On 16 December 2010, 360 Capital Property Group Limited settled the acquisition of Becton Investment Management Limited.

On 8 October 2013, 360 Capital listed on the ASX under the code "TGP" following approval of the acquisition of 360 Capital by securityholders in the ASX-listed Trafalgar Corporate Group on 24 September 2013.

Investment Philosophy

360 Capital Group's investment philosophy is based around a simple business plan focused on three areas of property in Australia, namely:

  • Property Investment
  • Property Funds Management
  • Special situations and opportunistic investment activities
  • 360 Capital Group does NOT undertake property development activities, invest in overseas markets, nor in residential investment and development activities.

360 Capital Group is focused solely on actively managing Australian based real estate portfolios across the commercial, retail and industrial sectors.

360 Capital Group also has an investment philosophy of co-investing with their clients, aligning their interests and sharing the benefits that property investment provides with their clients.


Strategy

The Fund's objective is to provide consistent and growing income returns and capital growth from a diverse portfolio of office assets owned within a simple capital structure.

To meet the objective and deliver the forecast FY16 distribution of 17.00cpu, the following strategies are currently being implemented:

  1. Defined investment and divestment strategy – The Fund is focused on acquiring assets in a disciplined manner in suburban A and CBD B grade rent collecting properties in Australia in the $30m-$100m asset value range. These target markets are less cyclical, have acquisition prices that reflect sustainable rents, are seen as “non-core” by many larger funds thereby creating buying opportunities, have modern/refurbished assets requiring low capex and have strong tenant quality with a focus on government tenants to provide secure income. The Fund will not invest offshore and the Fund will not be exposed to development risk. The Fund has reinvested the proceeds from the Burwood asset disposal in a high quality office property at 576 Swan St Melbourne which settled in February 2015 and settled the disposal of its 33 Allara St Canberra property in October 2016 which removed the major capex and leasing exposure of the Fund, reduced gearing to 18.3% and increased WALE to 5.1 years as at 31 December 2015. The Fund continues to focus on growing the Fund, diversifying the asset base and driving earnings and distributions
  2. Active investment management - The Fund has a strong focus on security of income, as seen by the fact that circa 73% of leases have contracted rental increases (fixed and /or CPI) embedded in the lease agreements with an average fixed review of circa 3.7% p.a. Notwithstanding, 360 Capital is focused on leveraging its re-leasing experience to maintain the Fund's high occupancy of 98.7% and weighted average lease expiry of 5.1 years in order to protect income and asset values, especially by maximising relationships with existing tenants. The Fund has was particularly focused on executing its leasing strategy at 33 Allara Street, Canberra which removed the Fund’s FY16 expiry. The Fund was then able to dispose of the property.
  3. Efficient capital management - Reflecting the Fund's EPU and DPU growth focus, it maintains an appropriate LVR in relation to the nature of its assets and market conditions. Following the settlement of the disposal of 33 Allara St, the Fund's HY16 LVR of 18.3% sat well below the Funds target LVR range of 30.0% to 45.0% and against the 50.0% LVR covenant. The Fund's ICR at 31 December 2015 of 6.4 times is also comfortably above the ICR covenant minimum of 2.0 times. Of the Fund's $80.0 million multi bank debt facility, $70.0 million is hedged at a weighted average hedge cost of 2.64% for a duration of 4.1 years. The Fund will maintain discipline and efficiency in raising equity through underwritten DRPs, placements, etc.  The Fund is focused on continuing to market the Fund to close the trading price discount to NTA per Unit and achieving S&P/ASX300 Index inclusion.
  4. Alignment of interests & proven management experience - the 360 Capital senior management team average almost 23 years' experience across the Australian real estate and funds management sectors. Through its co-investment in 28.8% of the Fund, 360 Capital has a significant alignment of interests with other Unitholders, thereby underscoring its focus on income security and potential capital growth.

Fund Background

The Fund was established in November 2003 to acquire and hold a portfolio of office buildings.

On 28 February 2014, Unitholders approved a proposal to extend the Fund's term for one year to April 2015.

On 24 March 2014 the Fund issued a PDS in relation to the proposed ASX-listing of the Fund.

Trading of units in the Office Fund on the ASX commenced on 24 April 2014.

Fund Performance

The key financial highlights for the six months ended 31 December 2015 include:

Financial Management
  • Operating earnings per Unit (EPU) of 9.9 cents, up 13.8%
  • Distributions per Unit (DPU) of 8.5 cents in line with guidance
  • Net Tangible Assets (NTA) of $2.11 per Unit down from $2.14 as at 30 June 2015 due to the loss on sale of 33 Allara St, transaction costs related to the sale and movement in derivatives.
  • Total Unitholder return of 22.2% since listing
Portfolio Management, Acquisitions / Disposals
  • 9,500 sqm of the portfolio leased or extended
  • Increased WALE from 4.6 to 5.1 years
  • Maintained strong occupancy of 98.7%
  • WACR firmed 40bp to 7.4% as a result of Allara St disposal
  • Focus on leasing remaining vacancy and forward leasing FY17 expiry
Capital Management
  • Conservative balance sheet with significant headroom in banking covenants
  • Weighted average hedge term 4.1 years with a weighted average hedge cost of 2.64%
  • Reduced gearing to 18.3%; $40.3 million of available debt capacity
  • Focus on closing the gap between trading price and NTA
Asset Recycling
  • Disposal of Allara St for $29.0 million removed major capex and leasing exposure of the Fund
Pricing Metrics
  • ASX closing price of $2.00 per Unit as at 17 February 2016 represents:
  • A slight 1.4% discount to NTA per Unit of $2.11
  • Forecast FY16 annualised distribution yield of 9.0%
  • Forecast FY16 annualised earnings yield of 8.5%
Key Focuses
  • Leasing current retail vacancy and FY17 expiry
  • Reinvest Allara St proceeds
  • Investigate alternate debt funding structures with longer tenure
  • Closing the price gap to NTA per Unit
  • Achieve greater relevance via S&P/ASX 300 AREIT Index inclusion

Capital Management

Reflecting the Fund's EPU and DPU growth focus, it maintains an appropriate LVR in relation to the nature of its assets and market conditions.

Following the settlement of the disposal of 33 Allara St, the Fund's HY16 LVR of 18.3% sat well below the Funds target LVR range of 30.0% to 45.0% and against the 50.0% LVR covenant.

The Fund's ICR at 31 December 2015 of 6.4 times is also comfortably above the ICR covenant minimum of 2.0 times.

Of the Fund's $80.0 million multi bank debt facility, $70.0 million is hedged at a weighted average hedge cost of 2.64% for a duration of 4.1 years.

The Fund will maintain discipline and efficiency in raising equity through underwritten DRPs, placements, etc.

The Fund is focused on continuing to market the Fund to close the trading price discount to NTA per Unit and achieving S&P/ASX300 Index inclusion.


Property Market Review

The continued low interest rate environment has seen a for investment grade CBD office assets. This demand has now spilled over into suburban office markets as CBD stock becomes increasingly hard to come by tightening the spread between CBD and suburban yields.

Stock withdrawals across the country continue to benefit effective rental growth within suburban office markets as Australia’s insatiable appetite for residential property make new office supply unlikely in the medium term.

Office transactions within the Melbourne suburban market are on track to reach similar record levels as 2014. A total of $883 million of transactions have occurred during the calendar year to September 2015 and although the market has witnessed such large transaction volumes the sheer number of potential purchasers greatly outweighs the stock available for sale. Prime yields now range between 6.75% and 7.25%, close to 100bp compression over the 12 months to September 2015. A-grade vacancy in the East Melbourne market was 1.1% down 150 basis points from July 2014.

Supply in the Melbourne suburban office market is expected to remain below average in the short to medium term.

The Canberra office market is strongly influenced by government policy given its reliance on the public sector for employment. Federal government policy and direction continues to plague the market, with government agencies required to be more focused on cost effectiveness and work place efficiency. Total; market vacancy saw a 170bp increase over the 12 months to July 2014 to 15.3%. This was largely due to the addition of 58,000 sqm of new supply.

The leasing market is expected to remain soft for the immediate outlook. A grade stock will see minimal face rental growth and flat incentive levels, whilst secondary assets have already experienced significant falls in face rents and incentives have climbed to record highs.

The Perth CBD market continues to be impacted by the reduction in the price of commodities and the tapering of the decade long resources investment boom. Continued contraction in spending, now below the previous ten year average, has caused a significant reduction in resource related labour demand and cooled population growth. This has translated to negative net absorption of -50,457 sqm, significantly increasing vacancy within the Perth CBD which is now 16.6% in July 2015, up 4.8% over 12 months to June 2014.

The short term outlook for the Perth leasing market remains challenging as the increased sublease space continues to place pressure on market rentals and incentive levels.

In the second half of 2013, A grade vacancy in the Brisbane Fringe was 12.6% up 260 bps from July 2014. The vacancy rate edged upwards as a result of the addition of approximately 48,000 sqm of supply. Positive net absorption of 10,000 sqm was for the Brisbane Fringe total market for the 12 months to Jul-15, with A grade market absorption totalling 27,200 sqm for the same period. The recent change of government in Queensland has created a level of uncertainty as businesses place investment decisions on-hold until clear understanding of the newly formed government’s policies and infrastructure spending is known.



Contact Info

360 Capital Office Fund

Level 8
56 Pitt Street
Sydney, NSW
AU Australia, 2000

Phone: +61 2 8405 8866
Email: investor.relations@360capital.com.au
Website: http://www.360capital.com.au

Click here to view the interactive map
360 Capital Office Fund Google Map
360 Capital Office Fund Google Map

Share Registry

Boardroom Pty Limited - Click here to view share registry profile

Phone: +61 2 9290 9600
Fax: +61 2 9279 0664
Email: enquiries@boardroomlimited.com.au
Website: http://www.boardroomlimited.com.au/

Level 12
225 George Street
Sydney, NSW
AU Australia, 2000


Important Information

The General Overview, Services, Products and Projects information for this profile was last edited on 30 Jun 2016.

All Financial Data is provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Share Prices nor any independent data provider is liable for any informational errors, omissions or other defects, incompleteness, or delays, or for any actions taken in reliance on Financial Data.

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