Qualitas Real Estate Income Fund secures A$50m warehouse facility

22 December 2022

Qualitas has provided an warehouse facility of A$50m, to its listed Qualitas Real Estate Income Fund to boost returns for investors.

The Qualitas Real Estate Income Fund (“QRI”) seeks to provide monthly income and capital preservation by investing in a portfolio of investments that offers exposure to real estate loans secured by first and second mortgages, predominantly located in Australia. The Fund currently holds 38 real estate loans across a range of credit strategies, predominantly senior debt facilities with an average LVR of 66% and a average maturity term of 1 year. The Fund was listed on the ASX in 2018 and in its latest performance update delivered a monthly distribution of 7.35% on NAV of $1.60, however it has been trading at a discount to NTA of around $1.47.

The new Facility established by QRI will assist to minimise the opportunity cost of the Fund holding excess cash. This cash drag occurs because QRI retains cash on hand in anticipation of transaction settlements. By drawing down the Facility instead of reserving or building up a cash position for transaction settlements, QRI can reduce the cash deposits it holds, maximise invested capital and therefore increase the probability of a greater return for Unitholders. The first drawdown of the Facility is expected to occur on or about the date of this announcement simultaneously with a settlement of a new loan investment by QRI.

Key terms of the Facility:

  • Size: A$50m uncommitted cash advance facility.
  • Maturity date: 9 years and 11 months. QRI has the obligation to repay the Facility to the extent of having surplus investable liquidity from any sources of funding including repayments from existing loans or any future capital raising.
  • Loan arrangement fees: QRI to pay the Lender a warehouse arrangement fee equal to 50% of any pro-rata loan arrangement fees received by QRI from new loans funded by the Facility.
  • Interest: QRI to pay the Lender interest on the drawn balance of the Facility equivalent to the interest rate payable to QRI in respect of the new loans funded by the Facility, less 1.00% p.a.
  • Approval: Each request for a commitment under the Facility in respect of a new loan investment is subject to approval being provided by the Lender.

The Facility is consistent with Qualitas’ recent Initial Public Offering whereby one of the stated objectives of the capital raising was to increase the underwriting of assets available to its managed funds to assist with the growth at the fund level.

Concurrent with the announcement, Ratings Advisor, BondAdviser moved QRI to a ‘Recommended’ position.

BondAdvisor reported “QRI’s portfolio risk management has been enhanced by: more frequent loan reviews following the onset of COVID-19 in 2020; the move to weekly NAV reporting from June 2020; and the implementation of an in-house developed internal risk grading model / methodology in June 2021. The Qualitas Risk Grading Model has now been applied to all portfolio investments.

We have reviewed this model [Risk Grading Model] and internal credit papers and view them to be in-excess of market standard in terms of depth of diligence.”

“The Australian CRE debt market is a growing space with attractive opportunities, as banks have progressively retreated from this segment as a result of greater regulatory capital requirements.  Investing in such a highly specialised area of the private debt market also brings unique risks, so specialist expertise is required to operate successfully in this market. Consequently, manager selection is an important consideration for investors.”