MPG Funds Management has re-opened its Regional Cities Property Trust to raise $15m for its latest acquisition.
Established in 2002, MPG is a specialist property funds manager with a 19-year track record and currently has more than $850M of property assets under management, across 14 property trusts in six states of Australia. MPG originally evolved from the McMullin Group to leverage off their development expertise and pipeline of properties and now sources these opportunities
independently.
The Trust was originally established in 2018 with a seven-year term, ending in July 2025. The Trust will continue to look to acquire properties anchored by government and social infrastructure tenants through until 2022. Investors will be provided an opportunity to exit the Trust or extend for a further 7-year term in 2025.
The Trust currently holds 14 properties valued at $113.6M, plus a further $0.7M of units in a related fund, the MPG Retail Brands Property Trust (“RBPT”) and $12.3M in cash.
MPG are seeking to raise an additional $15.0M to be used in conjunction with debt and existing cash, to acquire 101 Sturt Street, Townsville QLD for $26.0M.
The Townsville property will become the largest asset within the portfolio by value (18%). Following expected settlement in September 2021, the direct property portfolio will expand to $139.6M in size, with 100% occupancy and a WALE of 4.2 years (by income). Rental income is largely secured by government tenants, which comprise 91.2% of income across the portfolio.
The forecast distribution for the Fund is 7.05% per annum (annualised) for the financial year ended 30 June 2022, increasing to 7.15% in FY23.
Fund Details
| Responsible Entity | MPG Funds Management Ltd |
| Fund Manager | MPG Funds Management Ltd |
| Current Fund Size | $126.6M |
| Fund Raising Target | $15M |
| Fund Open | 1st June 2021 |
| Fund Raising Close | 30th September 2021 |
| Fund Term | 4 years remain to July 2025 |
| Target Return | 7.6% – 10.4% p.a IRR |
| Liquidity | Illiquid |
| Investor Type | Retail |
| Existing Assets | City Point Building, 101 Sturt Street, Townsville QLD APVMA Building, 102 Taylor St and 91 Beardy St Armidale, NSW Centrelink & QLD Youth Justice Bldg, 21 Station St, Woodridge, Logan City, QLD EPA Building, 8-12 Seymour Street, Traralgon, VIC Child Safety Service Building, 18-24 Brisbane Street, Ipswich, QLD NDIS & Dept. of Environment & Science, 146 Herries St, Toowoomba QLD Centre for Non-Violence Building, 96-98 Pall Mall, Bendigo, VIC Debt Corrective Services, Beenleigh QLD Centrelink Building, 6-12 Chapel Street, Morwell, VIC Think Childcare Building, 136-142 Bailey Stt Grovedale, Geelong, VIC Centrelink Building, 70 Robert Street Wallsend, Newcastle, NSW Centrelink, Medicare, NDIS & Family Services, 9-12 Auburn St, Moree NSW Centrelink Building, 6-10 Hunter Street Pialba, Hervey Bay, QLD Centrelink Building, 69 Heygarth Street, Echuca, VIC Centrelink Building, 207-215 Lennox Street, Maryborough, QLD |
| Target Assets | 101 Sturt Street, Townsville QLD |
Investment Strategy
The strategy of the Trust is to generate regular tax-advantaged income returns from a diversified portfolio of properties leased to essential government services and social infrastructure tenants. Social infrastructure properties are those that accommodate a social service which includes the sectors of Health, Education, Housing, Civic and Utilities, Public Transport and Corrections and Justice.
Properties will be located on the eastern seaboard of Australia in regional cities with a population in excess of 25,000 people and growing at greater than 1% p.a. The targeted regional cities will ideally have demonstrated government infrastructure spend, higher education facilities, transport and a growing local economy.
Key Features
The Fund is an existing Fund with 14 assets valued at $342.25m. The portfolio’s properties are diversified across the eastern seaboard, with a heavy weighting to QLD (51%), followed by VIC (30%) and NSW (19%). The majority of tenants are government or government-funded agencies, accounting for 91.2% of the Trust’s income. The Trust maintains a policy to undertake an independent valuation of its properties at least once every three years.
The Trust currently has 78.9M units on issue, all issued at $1.00 per unit. Whilst the Fund’s existing assets have grown in value, the acquisitions costs and fund fees have a dilutionary impacts with units currently valued at $0.94 per unit.
New units in the Trust will be issued at $1.00 per unit which provides all investors with an equal entry price, however, the RE estimates the Net Tangible Assets to be maintained at $0.94 per unit following the expected acquisition.
The Fund is due to terminate in July 2025 at which time investors will be offered an opportunity to redeem their units or extend the Term of the Trust. If 100% of investors wish to exit the Trust, the Trust will be wound up, its assets realised, and the net proceeds will be distributed to Unitholders. If not all investors wish to extend the Trust, then an offer will be made on behalf of exiting investors equal to the NTA (less costs) of the units will to investors who may wish to remain acquire the interests of the exiting investors. The RE may then invite other investors to take up the offer over a subsequent 12 month period. If insufficient capital is raised to pay out exiting investors, the RE may then resolve to wind up the Trust over a further 2 year period.
Fund Fees
The Responsible Entity is entitled to the following fees from the Trust:
- a Contribution Fee: 2.00% of the contributed amount
- a Funds Management Fee: 0.75% per annum of the gross asset value of the Trust
- a Performance fee: Equal to 15% of the amount by which the internal rate of return (IRR) of the Trust exceeds 10% p.a.
- a Disposal fee: 2% of the net sale proceed from the sale of the assets, payable if the sale price exceeds the purchase price of the individual asset.
- a Replacement Fee equal to 2% of the gross asset value of the Trust if the RE is replaced
In addition, the Responsible Entity is entitled to pay or recover from the Trust administration costs properly incurred in the operation of the Trust.
The upfront fees on the higher side of similar offers, however the performance fee take is lower than comparative funds.
Recommendation
The Fund is recommended for further consideration by investors seeking an average distribution yield from long term Government back tenants. Capital growth from the assets in the fund are expected to be under pinned by increase rents which are secured under lease arrangements. An increase in interest rates could impact the net income from the assets and the potential valuation capitalisation rate at the time of sale and as such there is some risk to capital growth. As has already been experienced by existing investor, acquisition costs and fund fees dilute performance. Potential investors are advised to review the key risks in the product documentation and undertake a detailed assessment of the portfolio and investment cash flows.
Disclaimer: The information contained on this web site is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.
Related Articles
