KM Property Launch Community & Social Services Property Fund

The KM Property Group have launched the KM Property Community and Social Services Property Fund, a multi-asset, open-end unlisted property fund that will focus on investing in assets that provide basic goods and services to our community.

The Fund aims to provide investors with regular and stable income with the potential for capital growth through an investment in a diverse portfolio of real estate investments tenanted by operators providing community and social services.

The Fund will invest into an initial portfolio of 4 assets which represent the Fund’s strategy of investing in community-based properties. The four assets are valued at $32.8M and include three childcare centres in VIC, WA and SA as well as one childcare/healthcare property in the ACT. The portfolio is 98.8% occupied with one minor vacancy and has a long WALE of 14.6 years (by income). The four assets include;

• 1-5 Riddell Road, Sunbury VIC – a two level, 122 place childcare centre that was developed by KM Real Estate in 2019 and fully leased to Beginnings Early Learners on a 20 year lease
• 216-228 Cowlishaw Street, Greenway ACT – a leasehold commercial property commonly known as ‘Flax House’ providing for a childcare centre, medical, office and retail tenants.
• 2-8 Botany Drive, Golden Grove SA – a single storey purpose-built 122 place child care centre leased to Nido Early Learning on a 20-year lease
• 56 Carrington Street, Palmyra WA – a newly constructed 92 place childcare centre leased to Nido Early Learning on a 20-year lease.

KM Property intends to acquire additional community and social services property which meet with the Fund objective including across a wide range of property sectors including childcare, health, wellbeing and fitness, and neighbourhood retail, just to name a few. They all, however, have the general characteristic of providing basic goods and services to our community and therefore meet the important needs of our day-to-day life.

Fund Overview

Fund overview 

The Fund’s investment objective is to invest in community and social services property, Australian Real Estate Investment Trusts (A-REITs), listed on the Australian Securities Exchange, cash and cash-like products.

The Fund will invest in the four properties mentioned above that mainly consist of a combination of childcare and general medical tenants. The Fund will target real estate assets underpinned by leases to tenants who focus on providing basic goods and services that, by their very nature, are essential for the community’s day-to-day living.

The Fund’s investment strategy includes property types with tenants providing the following community or social services: 

• Childcare and education. 
• Health, wellbeing and fitness. 
• Specialist welfare, social welfare and affordable and community housing. 
• Community services. 
• Neighbourhood retail. 

The Fund may also acquire greenfield and brownfield development opportunities that have been substantially de-risked, such as when development applications have been approved, agreement for leases are in place, as well as any other development risks which the RE considers necessary. If pursued, it is intended the Fund will limit development exposure to 20% of the portfolio’s gross asset value.

Fund strategy

To complement the property sector benefits, the Fund strategy is to:

• invest in assets with experienced operators; 
• build diversification by location, usage and tenant; 
• acquire property with contracted long-lease tenure to drive regular and reliable income;
• work within the target gearing range of 35% to 49%;
• pursue a balanced acquisition policy with established assets; 
• undertake development opportunities, where appropriate; and
• actively review the Fund portfolio and divest non-core or sub-optimal assets where appropriate.

Fund Fees

KM Property Group are entitled to receive fees in consideration for establishment and management of the Fund including;

• Acquisition Fee up to of 2.00% of the Acquisition Price
• Disposal Fee equal to 1.5% of the sale proceeds (in place of an agents selling fee)
• Management Fees based on 0.75% of the Gross Asset Value (GAV) of the Fund
• Costs and Expenses: 0.35% p.a. of GAV (est)
• Custodian Fee based on the greater of 0.015% p.a. of GAV or $15,000 p.a
• A Performance Fee of 15% of the Fund’s outperformance above the benchmark return of CPI + 5% p.a.

The above fees generally align with market practice.

Limited withdrawal facility

The Fund is open ended and does not have an automatic termination date. The Initial Term of the Fund will run from the date of the PDS (21 February 2022) until the period ending the day before the third anniversary of the date of the PDS (20 February 2025) during which time the RE does not intend to provide any liquidity for investors.

Following the Initial Term, the RE intends to provide liquidity to investors on a half-yearly basis, at 31 March and 30 September each year. Liquidity will be provided via a Limited Withdrawal Facility, with the first expected to be offered at 31 March 2025.

The RE intends to facilitate the Limited Withdrawal Facility through the realisation of A-REIT investments and cash and cash-like investments.

The exit price for investors will be calculated by the Current Unit Value less any applicable sell spread. Withdrawals will be capped at 5% of the Net Asset Value (NAV) when the Fund’s NAV is below $100M, or $5M when the NAV is in excess of $100M.

If withdrawal requests are regularly higher than the withdrawal cap, the RE may also increase the withdrawal cap, however, is not obliged to do so. To fund this additional liquidity, the RE may raise equity, take on additional debt or undertake a combination of these measures to increase available funds. The RE intends to satisfy all withdrawal requests within 60 days of each event, however may take longer to do so. Investors should be aware that the Manager may scale back, delay or suspend the withdrawals from the Fund when there is insufficient liquidity or when the Manager believes it is not in the best interest of all investors..  

Recommendation

We support the investment strategy and recommend the Fund for further consideration by investors seeking an average distribution yield from property underpinned by the daily needs of people in local communities. The prospects of capital growth from further cap rate compression are less certain in the current stage of the cycle.

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.