QUANTA TENNYSON STREET OFFICE TRUST Information Memorandum
5 Year Average Forecast Distribution (8.25% net p.a. Year 1) Paid Monthly 8.65 %
7-Year Closed-Ended Trust Investment horizon of 5-6 years
Secure Investment Fully leased with 93% of the income underpinned by Government and Fortune 500 tenants with a WALE of 4.70 years.
Significant Tenant Investment The Queensland Government has significantly invested into its tenancy. Future upside through potential expansion of Government Tenant. $
Strong Investment Fundamentals 5-star NABERS energy rating, purchase price 30% below replacement cost & up to 34% under rented.
SEPTEMBER 2024
OPPORTUNITY AWAITS.
CONTENTS
QUANTA TENNYSON STREET OFFICE TRUST | Information Memorandum
2
SECTION 1 Executive Summary
INFORMATION MEMORANDUM
3
EXECUTIVE SUMMARY The Quanta Tennyson Street Office Trust will be a closed- ended Trust comprising a fully leased office building with a Queensland Government anchor tenant, and 4.70 year WALE. The Trust will have a term of 7 years and an anticipated investment horizon of 5-6 years.
$
8.65% Forecast 5-Year Average Distribution Net p.a.
(8.25% net p.a. Year 1)
$6.625M Purchase Price $
$
The Manager will raise $4,450,000 of equity to acquire 9 Tennyson Street, Mackay at a Purchase Price of $6,625,000, with an anticipated date for Financial Close of 25 October 2024.
7-Year Trust Term
$1.00 Current Unit Price (NAV)
Acquisition Snapshot Quanta has agreed terms to purchase a 1,778 sqm, two level office building with level 1 fully occupied by the State Government and the ground floor occupied by Pentacon and New York Stock Exchange (NYSE) listed Caterpillar Inc. Transaction highlights include: • Fully leased with 93% of the income underpinned by Government and Fortune 500 tenants. • Under rented with Pentacon’s passing rent being 34% below the market rent assessed by an independent third-party bank valuer. • The building has recently undergone a $2 million upgrade to provide a high standard of office accommodation for the State Government, which is specialised to suit their long- term operational requirements. • Purchase price is 30% below replacement cost. • Modern Improvements with limited capital expenditure requirements within the investment horizon. • Highly attractive 5-Star NABERS energy rating, being one of only three buildings in the Mackay CBD uniquely positioned in the market to be suitable for new government leases.
%
Loan to Value Ratio (LVR) 55% %
100% Occupancy Rate
WALE by Income (Years) 4.70
30% Below Replacement Cost
Secure Income 93% leased to Government and listed tenants
5 Star NABERS Energy Rating
$
The Asset strategy is to grow the net income by increasing rents to market as tenancies expire and expanding the State Government occupancy resulting in increased asset value and higher, more robust cashflows. The asset will be sold upon resetting the State Government lease.
Income Tax Deferred Estimated 50% of Income Tax deferred (Year 1)
QUANTA TENNYSON STREET OFFICE TRUST | Information Memorandum
4
EXECUTIVE SUMMARY
Trust Strategy The Trust strategy is to acquire a high quality and securely leased office investment with future upside at a Purchase Price well below replacement cost. The investment is strategically located in a tightly held market and is to be acquired at a price that provides a compelling return in a counter cyclical point in the cycle. The income is 93% secured by Government and Fortune 500 tenants. The Manager will work to renew the tenants with expiries in the short term and seek to expand the Queensland Government's footprint in the building in the medium term. The asset will be sold upon resetting the State Government Lease.
TRUST TERM The Trust will have a term of 7 years with an anticipated investment horizon of 5-6 years. The Trust term can be extended subject to majority Unit holder approval.
EQUITY RAISING The Manager is seeking to raise $4.45 million (4,450,000 Units) for the Trust at an Issue Price of $1.00 per Unit.
DATES
Monday, 23 September 2024
Information Memorandum distributed
Tuesday, 24 September 2024
Applications Open
Application Forms to be submitted with a deposit amount equating to 10% of the subscription amount
Friday, 04 October 2024
Wednesday, 16 October 2024
Balance of cleared Investor Funds required
Friday, 25 October 2024
Completion of Property Acquisition and Financial Close
Note: Investors should note that Applications will be accepted on a ‘first in first served’ basis. Confirmation of 10% deposit paid into the Trust’s lawyer’s trust account must also be submitted with your Application. Due to the level of Investor interest, the Trust may become fully subscribed earlier than Friday, 04 October 2024. *Financial Close is anticipated to be 7 days from exercise of the option document. For more information refer to Lease and Contract Summary .
QUANTA TENNYSON STREET OFFICE TRUST | Information Memorandum
5
WHY IS IT A GOOD DEAL?
Defensive Cashflow The income is 93% underwritten by the Queensland Government and the NYSE listed/Fortune 500 company Caterpillar Inc ($164 billion USD Market Capitalisation), with a WALE of 4.70 years providing security of income. Under Rented Short term rental income growth opportunity through the re-lease of the Pentacon tenancy which is currently leased at $287/sqm gross, 34% below the assessed market rent of $385/sqm. This reflects a rental shortfall of $15,850 per annum which is anticipated to improve the Property's net income position in Year 2. Unique in its market The modern office building, boasting a 5-star NABERS energy rating is currently one of the few premises in the Mackay CBD that meets government requirments. The building was constructed in 2008 and has recently undergone a $2 million upgrade. This refurbishment provided a high standard of office accommodation which is specialised to meet the long-term operational needs of the State Government. Tax Effective Cashflow Anticipated tax deferred component of income estimated at more than 50% (Year 1). Value Uplift Several opportunities exist to create value, most notably the Manager's proposal to expand the State Government occupancy and increase rents to market on renewal.
Counter cyclical We forecast 2024 to reflect the cyclical low in real estate investment as we reach peak cost of debt. Although other factors are at play, certainty in debt and equity markets will be a key catalyst to moving to a forecast expansionary phase in the cycle in FY25. The national office market experienced a positive shift in Q2 2024, with notable improvements in demand and rental growth across major cities. Investment activity has surged with $2.87 billion in office assets sold, the highest quarterly result in 18 months. (CBRE Australian Office Figures Q2 2024) Below Replacement Cost The Purchase Price reflects a 30% discount to replacement cost. In Mackay, the high cost of construction, low capital values, and the high cost of commercial fitouts, are currently limiting the construction and supply of new competing commercial property and/or the refurbishment of existing buildings to a comparable standard of accommodation and NABERS rating. To construct the same premises today, an economic rent exceeding $550/sqm gross would need to be achieved. This discount to replacement cost continues to drive market rents upwards for high quality offices with large floor plates in Mackay and also underscores the cost-efficiency of acquiring an existing property versus the construction of a new building.
Summary
Address
9 Tennyson Street, Mackay, QLD 4740
• Department of Children,
Youth Justice and Multicultural Affairs (Queensland Government) • Caterpillar Inc. (Fortune 500 / NYSE Listed $164 Billion USD Market Capitalisation) • Pentacon (Civil Engineering company with projects throughout Queensland)
T enant
Lettable Area
1,778 sqm
Site Area
2,008 sqm
Net Passing Income
$548,959 p.a.
Purchase Price
$6,625,000
WALE (by income)
4.70 years
Forecast Distribution (Year 1) Forecast Distribution (5 Year Average)
8.25% net p.a. (paid monthly)
8.65% net p.a. (paid monthly)
QUANTA TENNYSON STREET OFFICE TRUST | Information Memorandum
6
INVESTMENT SUMMARY
FORECAST INCOME AND DISTRIBUTION STATEMENT
Year 1
Year 2
Year 3
Year 4
Year 5
Revenue
Gross Rent
$683,731
$707,928
$726,772
$746,847
$767,490
Outgoings
($119,923)
($123,131)
($126,427)
($129,812)
($133,288)
Net Property Income
$563,808
$584,797
$600,345
$617,035
$634,202
Expenses
Interest Costs^
$182,527
$173,679
$165,557
$155,576
$156,948
Trust Management Fee*
-
$37,000
$38,500
$41,500
$38,500
Trust Expenses (Cost Recovery)*
-
$15,000
$15,000
$15,000
$15,000
Total Expenses
$182,527
$225,679
$219,057
$212,076
$210,448
Distributable Funds
Net Operating Income
$381,281
$359,118
$381,288
$404,960
$423,754
Investor Equity
$4,450,000
$4,450,000
$4,450,000
$4,450,000
$4,450,000
Return on Net Operating Income
8.57%
8.07%
8.57%
9.10%
9.52%
Retention & Contingency
$14,156
($8,007)
$3,038
$4,460
$12,129
Forecast Distribution
$367,125
$367,125
$378,250
$400,500
$411,625
Forecast Return on Equity
8.25%
8.25%
8.50%
9.00%
9.25%
The above forecast income and distribution statement is to be read conjunction with Section 3: Financial Information and Section 7: Key Risks . ^The interest cost is based on a forecast drawn LVR between 50%-55% during the 5-year investment horizon. Refer to assumption 1 in the Forecast Income and Distribution Statement on Page 23. *Refer to assumption 5 in the Forecast Income and Distribution Statement within Section 3: Financial Information .
QUANTA TENNYSON STREET OFFICE TRUST | Information Memorandum
7
SECTION 2 Property Acquisition
INFORMATION MEMORANDUM
8
PROPERTY ACQUISITION
Property Description Located within the Mackay CBD and fronting Tennyson Street, the Property is a modern office building constructed in 2008 providing 1,778 sqm of office accommodation, configured into three tenancies across two levels, and includes 36 parking bays (1:50sqm). The building has recently undergone a $2 million upgrade to provide a high standard of office accommodation for the Mackay Child Safety Service Centre, which is specialised to suit their long-term operational requirements.
These include: • Dedicated secure secondary access at the rear of the tenancy; • Dedicated secure Car Park; • Amenities reconfigured to accommodate the high female staff ratio of the department; • Secure dual access meeting/interview rooms for child & staff safety; and • Other specialised security requirements including CCTV installations.
KEY METRICS Net Passing Income (Financial Close)
9 TENNYSON STREET, MACKAY Real Property Description
Lot 4 on Survey Plan 204888
Base Rent
$639,100
Property Type
Commercial Office
Outgoing Recovery
$28,775
Lettable Area
1,778 sqm
Total Gross Income
$667,875
Site Area
2,008 sqm
Less Outgoings
($118,916)
Car Parking
36 bays
Net Passing Income
$548,959
Low Impact Industry, Mackay Regional Planning Scheme 2017
Zoning
Occupancy
100%
NABERS Energy Rating
5 Stars (Excellent)
WALE (by income)
4.70 years
Purchase Price
$6,625,000 (GST free – going concern)
Passing Yield
8.29%
Forecast Distribution (Year 1)
8.25% net p.a. (paid monthly)
Forecast Distribution (5 Year Average)
8.65% net p.a. (paid monthly)
QUANTA TENNYSON STREET OFFICE TRUST | Information Memorandum
9
NABERS RATING One of only 3 buildings in the Mackay CBD which meets the minimum State and Commonwealth Government leasing requirement.
in a non-metro city for four or more years in an office space of over 1,000 square metres NLA, that building must achieve a NABERS rating of 4.5 stars or higher. Currently, 9 Tennyson Street is one of the few office buildings in the Mackay CBD which meets this government requirement. The competing buildings are 145 Sydney Street, a large format retail building previously housing a furniture retailer, and 44 Nelson Street, a fully leased office building to State Government. Based on our analysis of the market, there is no building or office vacancy within Mackay suitable for the relocation of the Mackay Child Safety Centre. The 5-star rating not only ensures compliance but also enhances the appeal of the building to high-calibre tenants who prioritise environmental responsibility and operational efficiency. (Source: https://www.finance.gov.au/government/climate- action-government-operations/aps-net-zero-emissions-2030)
NABERS (National Australian Built Environment Rating System) is a performance-based rating system from 1 to 6 stars that measures the environmental performance of building and tenancies in Australia. It provides a simple, reliable, and comparable sustainability measurement across building sectors which assesses energy efficiency, water usage, waste management and indoor environment quality. 9 Tennyson Street, with a 5-star NABERS energy rating stands as a premier building which is highly attractive to government and corporate tenants. This distinction makes it one of the few properties within the central business district to achieve such a high level of efficiency and environmental performance. In 2023, Australia launched the “APS Net Zero in Government Operations Strategy” which aims to achieve net zero in government operations by 2030. Under this policy, from 1 July 2025, where a lease is entered into
1 Star Making a start
2 Stars Below average
3 Stars Average
4 Stars Good
5 Stars Excellent
6 Stars Market leading
Current Office NABERS ratings in Mackay CBD Address/Building
Current to
NABERS Energy Rating
9 Tennyson Street, Mackay, QLD, 4740 06/12/2024
5.0
145 Sydney Street, Mackay, QLD, 4740
28/09/2024
6.0
44 Nelson Street, Mackay, QLD, 4740
28/09/2024
5.5
22 Wood Street, Mackay, QLD,4740
12/06/2025
3.0
110 Wood Street, Mackay, QLD, 4740
28/09/2024
3.0
QUANTA TENNYSON STREET OFFICE TRUST | Information Memorandum
10
CONTRACT AND TENANTS SUMMARY
Tenancy Schedule
Contract Summary
PURCHASE PRICE $6,625,000 (exclusive of GST) The property is being sold as a ‘going concern’ for GST purposes.
DEPOSIT $200,000 upon signing of unconditional contract.
% OF TOTAL NLA
LEASE COMMENCEMENT
OUTGOINGS RECOVERY
GROSS INCOME
TENANCY TENANT NAME AREA (m 2 )
LEASE EXPIRY BASE RENT
G1
Caterpillar
399
22% 01/03/2021 28/02/2027 $118,102
$28,775
$146,877
G2
Pentacon
161
9%
05/12/2022 04/12/2025 $46,587
$0
$46,587
Date for Completion 7 days from the exercise of the Option Document. Anticipated to be 25 October 2024.
Department of Child Safety (QLD State Government)
1,218
69% 01/04/2022
31/10/2030 $474,411
$0
$474,411
L1
Total
1,778m 2
$639,100 $28,775 $667,875
QUANTA TENNYSON STREET OFFICE TRUST | Information Memorandum
11
TENANT OVERVIEW
Department of Child Safety, Seniors and Disability Disability Services
A Child Safety Service Centre is a local office managed by the Department of Children, Youth Justice, and Multicultural Affairs. These centers are integral to the state's child protection services, focusing on ensuring the safety and well-being of children who might be at risk of harm or neglect. The primary functions of these centers include: 1 Investigating reports of abuse or neglect: When concerns about a child's safety are reported, the center's staff investigate to assess the risk and determine the appropriate action. 2 Providing support to families: They offer support services to families, helping them address issues that may be putting their children at risk. 3 Taking legal action if needed: In cases where children are in significant danger, the center can take legal action to protect them, which might include placing them in foster care. 4 Collaborating with other agencies: These centers work with other government and non-government organizations, such as health services and educational institutions, to ensure a comprehensive approach to child protection. 5 Developing care plans: For children who cannot safely remain in their homes, the centers create care plans that may involve foster care, kinship care, or other out-of-home care options.
Department of Child Safety, Seniors and Disability Services The Mackay Child Safety Service Centre forms part of the Queensland Government department which provides essential services to families in crisis throughout Queensland. Their mission is to maintain family unity wherever possible by offering counselling and support services that empower families to resolve their own challenges. They help place children in safe environments, both temporarily and permanently, working closely with the community to find alternative living arrangements, and prioritise placing them with extended family members. The closest Child Safety service centre is located in Bowen (~190kms away) highlighting the importance of this to the Mackay Region.
MACKAY EMPLOYMENT INSIGHTS 8,324 JOBS Health Care & Social Assistance is Mackay's largest employment sector
54,582 PEOPLE The Mackay Region employs Healthcare and Social assistance comprising 15 .25% of the total workforce with
QUANTA TENNYSON STREET OFFICE TRUST | Information Memorandum
12
TENANT OVERVIEW
Department of Child Safety, Seniors and Disability Disability Services
These centres serve as the primary contact points for existing clients, members of the public with concerns about a child's safety, and carers involved with children under the centre's supervision (Department of Child Safety, Seniors and Disability Services). Within the 2024/2025 Queensland Budget, the following additional funds were allocated to the Department of Child Safety, Seniors and Disability Services. • $190.8 million over 4 years and $52.5 million per annum ongoing to ensure that care allowance payments reflect eligibility based on the Child Strengths and Needs Assessment; • $31.8 million over 5 years and $7.9 million per annum ongoing for Extended Post Care Support services to support children exiting care between the ages of 18 and 21 and indexation of the Living Independently Allowance; • $57.4 million over 4 years and $14.4 million per annum for the continuation of the Supporting Families, Changing Futures ICT Digital Applications and for the Unify Program Continuous Improvement Pipeline; • $5.8 million over 2 years to strengthen community cohesion in Queensland by expanding support under the Asylum Seeker and Refugee Assistance Program; • $5.7 million over 2 years to design, implement and procure a family reunification pilot service targeted at children aged 12-15 years; and • $160+ million provisioned for disability reforms to be enacted from the Royal Commission.
Townsville Investigation and Assessment Child Safety Service Centre
385km
Bowen Child Safety Service Centre
192km
Mount Isa-Gulf Child Safety Service Centre 1,196km
MACKAY CHILD SAFETY SERVICE CENTRE
(Department of Child Safety, Seniors and Disability Services 2024-25 Service Delivery Statement).
QUANTA TENNYSON STREET OFFICE TRUST | Information Memorandum
13
TENANT OVERVIEW
Department of Child Safety, Seniors and Disability Disability Services
State of the art security requirements including CCTV installations
5 secure dual access meeting rooms for child & staff safety
Amenities were reconfigured to accommodate the 80% female workforce of the department
New male Bathroom installed as part of amenities reconfiguration
Dedicated secure secondary access at the rear of the tenancy for child and staff safety.
Dedicated secure car park
QUANTA TENNYSON STREET OFFICE TRUST | Information Memorandum
14
TENANT OVERVIEW
Caterpillar Inc. Caterpillar Inc. (Cat) is the worlds largest manufacturer of construction equipment and is a leading American manufacturer of mining equipment, diesel engines, and industrial turbines. They are listed on the New York Stock Exchange with a market capitalisation of approximately $164 billion USD ($248 billion AUD) and is included on the Fortune 500 list. Cat operates across several key markets including Construction, Resource Industries, and Energy & Transportation and runs a distribution model where independent dealers provide sales and post sales support to end customers. Within Mackay, Caterpillar dealerships provide sales, service, and support for heavy mining equipment and hosts workforce training programs providing education to the local workforce in equipment maintenance and operation. There are two certified Caterpillar Service Centres in Mackay: • Hastings Deering at 40-42 Caterpillar Drive – Caterpillar dealer and Caterpillar Rental Store. • Brown & Hurley 2 Central Park Drive, Paget – Caterpillar authorised Parts and Service Centre.
Mackay is a key location for Cat as it is the central hub which hosts much of the engineering, manufacturing and mining services industries supporting the extensive mining operations in
the Bowen and Galilee Basins. Outside of Mackay, the closest Caterpillar dealership or Service Centre is Townsville being located approximately 400 kilometres to the north-west.
CATERPILLAR AUSTRALIA OVERVIEW (DECEMBER 23)
$ 1.2B Revenue:
$
13.3 % increase in earnings
Y-o-Y (EBITDA)
QUANTA TENNYSON STREET OFFICE TRUST | Information Memorandum
15
TENANT OVERVIEW
Pentacon Pentacon (Pty Ltd) is a privately owned civil engineering firm established in 2012 and focusing on Civil Construction, Mining, Infrastructure, Defense Infrastructure, Urban Development and Bridge Construction. They have projects throughout Queensland with head offices in Brisbane and Mackay. Pentacon provides construction services to public and private organisations for all infrastructure, industrial, commercial and residential projects, including: • Open drains, stormwater pipes and structures • Portable water networks • Gravity and pressured sewer systems • Electrical and communication networks • Waste transfer facilities • Road and bridge infrastructure upgrades and new construction • Waste facilities upgrades and new construction • Bulk earthworks • Drainage works, including new works, upgrades, and rehabilitation • Subdivisions, including residential, commercial and industrial • Service reticulation, including under boring works • Plant hire, wet and dry • Topsoil and overburden stripping • Dam construction (sediment, tailings, mine pit water, raw water) • Creek diversions • Levees • Haul Roads (light and heavy vehicle)
2012 QUEENSLAND CIVIL ENGINEERING SNAPSHOT One of Australia's leading Civil Contractors Est.
QUANTA TENNYSON STREET OFFICE TRUST | Information Memorandum
16
TENANT OVERVIEW
LEASE 1
LEASE 2
Secure rear tenancy access for Mackay Child Safety Service Centre
Dedicated secure carpark for Mackay Child Safety Service Centre
QUANTA TENNYSON STREET OFFICE TRUST | Information Memorandum
17
LOCATION
Highlights STRONG ECONOMY
Summary Mackay is located approximately
BOOMING RESOURCE SECTOR A primary export from the Mackay Region is coking coal where the spot price is currently sitting well above historic prices, the spot price as at Q2 2024 was $244 USD/tonne which is approximately 2.5x the price in Q1 2020 ($110 USD/tonne). Coking coal is a critical component in steel production, and Australia is renowned for having some of the highest quality coking coal in the world. Our coal is valued for its high energy content, low impurities, and efficiency as a coking agent in steel manufacturing. Global demand for steel is projected to increase by over a third through to 2050 (International Energy Agency). In 2023, 80.8% of the coal exports from Mackay and the Bowen Basin, shipped through the Dalrymple Bay and Hay Point terminals, were coking coal, while the remaining 19.2% consisted of thermal coal (North Queensland Bulk Ports Corporation).
SIGNIFICANT INVESTMENT There are $45 billion of projects either proposed or underway within the Greater Whitsundays Region (Mackay, Isaac and Whitsundays). Within Mackay, over $4.6 billion of projects are underway and proposed including $1.8 billion in construction projects, $1.5 billion in infrastructure projects and $1.3 billion in utility projects(GW3 Regional Projects Development Register). In addition to significant investment in the region, the Mackay State Development Area (SDA) was declared in 2024 and proposes to rezone 907 hectares of land to establish new industrial estates in Racecourse and Rosella. The purpose of the SDA is to promote diversification of industries with a focus on renewable energy and bio-futures industries, The Racecourse SDA is to promote bio-futures (Queensland State Development and Infrastructure) through partnership with the Racecourse Sugar Mill. Rosella SDA is isolated from residential, community areas and aims to promote higher impact industry businesses, (Queensland State Development and Infrastructure).
960 kilometres north of Brisbane and is Queensland’s fourth largest regional city with a population of 127,000 people. The region benefits from a diverse range of economic drivers including agriculture, mining and resources, health, construction, bio-futures, and tourism. The primary economic driver for the region is mining and resources as Mackay acts as a central hub and gateway to the rich coal deposits in the Bowen and Galilee Basins and hosts much of the engineering, manufacturing and mining services industries supporting the resources sector.
With a Gross Regional Product (GRP) of $13.9 billion in 2023 (30% increase over 2022), the region contributes more GRP per capita to the Queensland Government than any other region in the state. Mackay also has one of the lowest residential vacancy rates in Queensland of 0.6% as at Q2 2024 and an unemployment rate of 4.2% in June 2024. The largest employment sector in Mackay is Healthcare and Social Assistance which employs 8,324 people out of the 54,582-person strong workforce (see below chart). With Mackay's growing population and the increasing demand for healthcare services, this sector has seen consistent growth with the sector playing a crucial role in supporting the the regions health and wellbeing.
INDUSTRY SECTOR JOBS
Health Care & Social Assistance Retail Trade Construction Education & Training Manufacturing Transport, Postal & Warehousing Accommodation & Food Services Mining Other Services Professional, Scientific & Technical Services Public Administration & Safety Wholesale Trade Administrative & Support Services Agriculture, Forestry & Fishing Rental, Hiring & Real Estate Services Financial & Insurance Services Electricity, Gas, Water & Waste Services Arts & Recreation Services Information Media & Telecommunications
8,324 5,662 5,006 4,471 3,737 3,635 3,565 3,404 3,160 2,545 2,440 2,383 1,809 1,659
844 654 627 477 180
ABS 2021 Census Place of Work Employment (Scaled), ABS 2021 / 2022 National Input Output Tables, and ABS June 2023 Gross State Product.
QUANTA TENNYSON STREET OFFICE TRUST | Information Memorandum
18
LOCATION
Quanta Tennyson Street Office Trust 9 Tennyson Street, Mackay, Queensland
QUANTA TENNYSON STREET OFFICE TRUST | Information Memorandum
19
OFFICE MARKET OVERVIEW
National Office Market The national office market experienced a positive shift in Q2 2024, with notable improvements in demand and rental growth across major cities. Total net absorption reached 51,900 sqm in the first half of the year, marking the best performance since H1 2022. National office vacancy rates decreased to 14.60% and rents have continued to grow with all CBD markets recording positive prime net effective rental increases. Investment activity has surged with $2.87 billion in office assets sold, the highest quarterly result in 18 months. Prime yields softened slightly, reflecting the stable interest rate environment and improved buyer sentiment. Major transactions in Sydney and Brisbane have highlighted ongoing interest from both international and domestic investors. Overall, the Australian office market is showing signs of recovery from a cyclical low, with stabilising vacancy rates, growing rental demand, and increased investment activity. (CBRE Australian Office Figures Q2 2024)
Mackay Leasing Market Mackay has a two-tiered office market:
The Mackay Child Safety Service Centre occupied the Property in 2022 after undertaking a $2 million upgrade to provide a high standard of office accommodation specialised to suit their long-term operational requirements. These include: • Dedicated secure secondary access at the rear of the tenancy; • Dedicated secure Car Park; • Amenities reconfigured to accommodate the high female staff ratio of the department; • Secure dual access meeting/interview rooms for child & staff safety; and • Other specialised security requirements including CCTV installations. Given the minimum NABERS Energy requirement of State and Commonwealth Government tenants and the specialised operational requirements of the Mackay Child Safety Service Centre, there are no suitable relocation options in the Mackay region. Further, 9 Tennyson Street has the capacity to provide expansion/overflow accommodation when the existing ground floor leases approach expiry.
• Small Tenancy (<500sqm) requirements driven by smaller organisations and larger resource groups with local office requirements; and • Large Tenancy (>1000sqm) requirements for high quality office accommodation suitable for government agencies and not-for- profit organisations. The small tenancy market has a moderate level of existing available stock, however many of these options have a dated fit -out or require significant capital works to upgrade the tenancies to a suitable standard. The large tenancy market has very limited existing supply of high-quality office accommodation which are suitable for government agencies. 9 Tennyson Street provides one of best tenancies in this market, with a 5 Star NABERS energy rating, large floor plate, modern/contemporary fitout, disabled access and an abundance of natural light.
QUANTA TENNYSON STREET OFFICE TRUST | Information Memorandum
20
PROPERTY ACQUISITION
Gallery | OFFICES
QUANTA TENNYSON STREET OFFICE TRUST | Information Memorandum
21
SECTION 3 Financial Information
INFORMATION MEMORANDUM
22
FINANCIAL INFORMATION
The Manager forecasts a Year 1 distribution of 8.25 cents per unit and 5 Year average distribution of 8.65 cents per unit paid monthly which at the current unit price of $1.00 equates to 8.65% net p.a. In evaluating the ability of the Trust to deliver the target distribution, the Manager prepares forecasts and projections that are based on a combination of best estimates, hypothetical and known assumptions. Accordingly, any adverse events or unforeseen additional expenses will impact the Trust’s ability to deliver the targeted
FORECAST INCOME AND DISTRIBUTION STATEMENT
Year 1
Year 2
Year 3
Year 4
Year 5
Revenue
Gross Rent
$683,731
$707,928
$726,772
$746,847
$767,490
Outgoings
($119,923)
($123,131)
($126,427)
($129,812)
($133,288)
Net Property Income
$563,808
$584,797
$600,345
$617,035
$634,202
Expenses
Interest Costs^
$182,527
$173,679
$165,557
$155,576
$156,948
Trust Management Fee*
-
$37,000
$38,500
$41,500
$38,500
Trust Expenses (Cost Recovery)*
-
$15,000
$15,000
$15,000
$15,000
Total Expenses
$182,527
$225,679
$219,057
$212,076
$210,448
Distributable Funds
distributions to Investors. The Forecast Income and
Net Operating Income
$381,281
$359,118
$381,288
$404,960
$423,754
Investor Equity
$4,450,000
$4,450,000
$4,450,000
$4,450,000
$4,450,000
Distribution Statement is based on a combination of property information, including but not limited to leases, operating expenditure data, capital expenditure forecasts, best estimates and known assumptions as at the date of this document and should be read in conjunction with the risks set out in Section 7 .
Return on Net Operating Income
8.57%
8.07%
8.57%
9.10%
9.52%
Retention & Contingency
$14,156
($8,007)
$3,038
$4,460
$12,129
Forecast Distribution
$367,125
$367,125
$378,250
$400,500
$411,625
Forecast Return on Equity
8.25%
8.25%
8.50%
9.00%
9.25%
The above forecast income and distribution statement is to be read conjunction with Section 3: Financial Information and Section 7: Key Risks . ^The interest cost is based on a forecast drawn LVR between 50%-55% during the 5-year investment horizon. Refer to assumption 1 in the Forecast Income and Distribution Statement (assumptions overleaf). *Refer to assumption 5 in the Forecast Income and Distribution Statement within Section 3: Financial Information .
QUANTA TENNYSON STREET OFFICE TRUST | Information Memorandum
23
FINANCIAL INFORMATION
Assumptions In undertaking a forecast of the Trust’s ability to deliver the forecast distribution, a number of assumptions (both known and best estimate/guess assumptions) have been adopted, including: 1. The forecast Debt Facility is anticipated to represent an interest rate of 5.95% per annum for Year 1. The interest costs included in the Forecast Income and Distribution Statement accounts for an interest rate saving which relates to the anticipated short drawn amounts in the relevant periods. 2. The Trust Debt Facilities generally have terms between two and three years and therefore returns and distributions from Year 3 or 4 will be subject to successfully refinancing the Debt Facilties at the conclusion of the Debt Facility's term or before and the cost of that refinance. The Manager's interest rate assumptions and rationale are further detailed overleaf. 3. The Trust does not raise any additional equity during the investment horizon. 4. Two leases expire within the 5-year Forecast Income and Distribution Statement period. The forecast assumes that the existing tenant(s) renews their lease, or that a new tenant will occupy the tenancy upon the expiry of the lease(s). 5. The Forecast Income and Distribution Statement reflects the Trust Management Fee and Trust Expenses for Year 1 being paid from Working Capital. This allocation is reflected in the Application of Funds in Section 4 . 6. Other assumptions (among other things) in relation to leasing activity and rental income. Failure to realise forecast rental income could result in a reduction to the distributions available to Investors. The Manager does not give any assurance or guarantee that the Trust will achieve its target return on equity or distributions. For further information on the risks which may impact on the ability for the Trust to deliver the target distributions and the performance of an investment in the Trust generally, please see Section 7 .
QUANTA TENNYSON STREET OFFICE TRUST | Information Memorandum
24
FINANCIAL INFORMATION
Interest Cover Ratio (ICR) Interest Coverage Ratio (ICR) is the ability of the Trust to meet interest payments from earnings and is a key metric used by financiers. It is calculated by dividing the Net Operating Income before interest, by interest cost, and is a measure of the buffer against either interest expense increasing and/or income decreasing. The below interest rate table sensitises the base case interest rate by +/- 0.50%.
Interest Cost Quanta has credit endorsed terms with the current indicative pricing for the Debt Facility being a margin of 1.61% over the 90-day bank bill rate, which is approximately 4.46%. This currently reflects an all-up interest rate of 6.07%. Prior to the release of the June 2024 inflation figures, there was some uncertainty in the market as to whether the RBA would increase the cash rate in the August meeting. With the trimmed mean inflation being reported below the RBA’s expectations, and in line with market expectations, the RBA held the target cash rate at 4.35%. Economists and markets are predicting the next movement of cash rate to be a reduction, sometime between November 2024 and June 2025. Our adopted Year 1 interest rate of 5.95% takes into consideration the forecasted reduction in interest/cash rate within the 12 month period. Looking forward, our adopted interest rate forecast has considered latest projections of CBA, ANZ, NAB and Westpac. The Big 4 banks forecast a cash rate between 3.35% and 3.60% by December 2025. For the same period, our adopted cash rate forecast of 3.70% reflects a spread of 0.10% - 0.35% above these projections. It is anticipated that a decline in the cash rate quicker than our conservative forecasts will be accretive to investor returns.
INTEREST RATE SENSITIVITY (YEAR 1)
Interest Rate (-50 Basis Points)
5.45%
Interest Coverage Ratio (ICR)
3.43x
Interest Rate (-25 Basis Points)
5.70%
Interest Coverage Ratio (ICR)
3.25x
Interest Rate (Trust’s current debt facilities variable interest rate)
5.95%
Interest Coverage Ratio (ICR)
3.09x
QUANTA INTEREST RATE FORECAST VS RBA CASH RATE FORECASTS
Interest Rate (+25 Basis Points)
6.20%
4.60%
Interest Coverage Ratio (ICR)
2.94x
4.40%
4.20%
Interest Rate (+50 Basis Points)
6.45%
4.00%
Interest Coverage Ratio (ICR)
2.81x
3.80%
3.60%
3.40%
3.20%
3.00%
Quanta
NAB
Westpac
CBA
ANZ
QUANTA TENNYSON STREET OFFICE TRUST | Information Memorandum
25
SECTION 4 Debt and Equity Raising Overview
INFORMATION MEMORANDUM
26
DEBT AND EQUITY RAISING OVERVIEW
Equity The Manager is seeking to raise $4,450,000 for the Trust at an Issue Price of $1.00 per Unit with an anticipated date for Financial Close of Friday, 25 October 2024. The minimum number of Units an Investor can subscribe for is 50,000 making the minimum subscription amount $50,000. The Trustee will have the right to accept amounts that are different to the minimum investment/increments at its discretion. The equity raised as a result of the issue of the Interests under this Information Memorandum will be used to acquire the Property. The Trustee will have the right to, in its sole discretion, elect to accept subscriptions above or below the intended $4,450,000 provided the risk
Borrowings The Trust will have the power to borrow, and the Trustee will do so on behalf of the Investors in the name of the Trust. The Trustee will grant security over the Trust’s assets under normal commercial banking terms and conditions for loans of this type. Investors will not have any personal liability to the Debt Lender to repay any debts as the debt providers will only have recourse to Trust assets.
Trust debt structure The funding structure for the Trust on Financial Close will be based on a Debt Facility with an anticipated initial Loan to Value Ratio (LVR) of 55%. The anticipated LVR based on drawn debt post Financial Close is forecast to be approximately 50%. The Manager anticipates that the facility for the Trust will incorporate the following principal terms:
profile of the Trust and the forecast distribution to Investors will not be materially adversely affected. Where the Trustee accepts oversubscriptions, these funds will be deployed within the Trust in a manner determined by the Trustee. Transaction timing may be varied under certain circumstances, which could result in the date of Financial Close being extended for a period of time. Investors should be aware that Units in the Trust are issued prior to the unconditional Contracts being entered into and interest is not payable on Investor funds from the date of application to the date of Financial Close (or the return of funds to Investors if the transaction does not proceed to Financial Close).
Debt Lender
Anticipated to be a major financial institution regulated by the Australian Prudential Regulation Authority (APRA).
Debt Facility
$3,643,750
Term
3 years
Interest Rate
The anticipated pricing from the Debt Lender for the Properties is a margin of 1.61% over the 90 day bank bill rate. In total, as at the date of this Information Memorandum, the interest rate would equate to approximately 6.07% per annum. Our current adopted interest cost for the Property is set at 5.95% per annum (Year 1). The Manager is reasonably satisfied that the cash contingency of the Trust will be sufficient to cover potential interest rate rises over the short to medium term without materially adversely affecting forecast distributions to Investors. The following Securities will be provided by the Trust to the Debt Lender: First ranking mortgage over the Property; and A Personal Property Securities Register (PPSR) charge over the Assets of the Trust. The Debt Facility will be limited recourse, with the Debt Lender having recourse only to the Assets of the Trust.
KEY DATES FOR INVESTMENT
Monday, 23 September 2024
Information Memorandum distributed
Tuesday, 24 September 2024
Applications Open
Security
Application Forms to be submitted with a deposit amount equating to 10% of the subscription amount
Friday, 04 October 2024
Wednesday, 16 October 2024
Balance of cleared Investor Funds required
Friday, 25 October 2024
Completion of Property Acquisition and Financial Close
• Valuation; • Contract of Sale;
Conditions Precedent
Note: Investors should note that Applications will be accepted on a ‘first in first served’ basis. Confirmation of 10% deposit paid into the Trust’s lawyer’s trust account must also be submitted with your Application. Due to the level of Investor interest, the Trust may become fully subscribed earlier than Friday, 04 October 2024. *Financial Close is anticipated to be 7 days from exercise of the option document. For more information refer to Lease and Contract Summary .
• Satisfactory review of the Leases; and • Satisfactory review of the Trust Deed.
• Maintain an Interest Cover Ratio of not less than 1.5 times coverage; and • Loan to Value Ratio for the Debt Facility for the Trust will be no greater than 55% of the Forecast Trust Value.
Material Conditions
QUANTA TENNYSON STREET OFFICE TRUST | Information Memorandum
27
DEBT AND EQUITY RAISING OVERVIEW
Application of Funds An application of funds summary is set out below. It is important that potential investors carefully consider these costs before making an investment decision.
EQUITY/DEBT STRUCTURE FOR THE ACQUISITION The estimated funds required for the acquisition of the Property totals $8,093,750.
APPLICATION OF FUNDS Purchase Price
SOURCE OF FUNDS Trust Equity
$6,625,000
$4,450,000
Legal Fee
$20,000
Debt Facility
$3,643,750
Due Diligence
$66,250
Total
$8,093,750
Stamp Duty
$390,023
Consultants Costs
$18,000
Acquisition Fee
$132,500
Outlays and Valuation
$10,000
Debt Arrangement Fee
$18,219
Loan Establishment Fee
$18,796
Trust Expenses
$15,000
Trust Management Fee (Year 1)
$34,500
Working Capital (Cash Balance)
$745,463
Total
$8,093,750
QUANTA TENNYSON STREET OFFICE TRUST | Information Memorandum
28
SECTION 5 Trust Structure and Management
INFORMATION MEMORANDUM
29
TRUST STRUCTURE AND MANAGEMENT
Trust Structure The Manager will arrange for the Trustee to be incorporated to act as trustee of the Trust, and for the Trustee to establish the Trust, prior to the deadline for submission of Application Forms. The Trust will be an unlisted, unregistered, closed-ended, single asset, illiquid managed investment scheme structured as a unit trust. The initial term of the Trust will be 7 years. The Property will be acquired for the benefit of Investors either as direct assets of the Trust or via a sub-trust agreement with a joint venture party where both the Trust and sub-trust arrangement are managed by the Manager for the benefit of Investors. The Property is a cash flow yielding investment and the Trust is being established to generate investment income. For further details in relation to closed-ended trusts, please visit our website .
QUANTA TENNYSON STREET OFFICE TRUST*
INVESTORS HOLD UNITS
MANAGER PROVIDES SERVICES
QUANTA TENNYSON STREET OFFICE PTY LTD
* Trust to be established.
PROPERTY
9 TENNYSON STREET, MACKAY QLD
QUANTA TENNYSON STREET OFFICE TRUST | Information Memorandum
30
TRUST STRUCTURE AND MANAGEMENT
Key Investor Information Key considerations regarding the operation of the Trust, which may assist Investors to assess the risk and returns of an investment, are summarised below. GEARING RATIO (LVR) The Trustee will monitor and manage the gearing ratio of the Trust on an ongoing basis. The drawn Loan to Value Ratio for the Trust as at Financial Close is anticipated to be approximately 50% with an approved limit of 55%. INTEREST COVER RATIO (ICR) ICR is the ability of the Trust to meet interest payments from earnings and is a key metric used by financiers. It is calculated by dividing the Net Operating Income before interest, by interest cost, and is a measure of the buffer against either interest expense increasing and/ or income decreasing. VALUATION POLICY The Trustee will undertake such valuations as it considers necessary to properly manage the Property on behalf of Investors. RELATED PARTY TRANSACTIONS The Trustee will enter into agreements with related parties on arm’s length terms. WITHDRAWAL RIGHTS An investment in the Trust should be viewed as an illiquid and medium-term investment.
Trust operation The Trust will generate income from the rent received from the Property which will be used to pay distributions to Investors on a monthly basis. Before distributions are made to Investors, the Trustee will use the rental income to pay for expenses such as interest on borrowings, management fees, property related expenses, capital expenditure and other future property related expenses. In addition, the Trustee may retain some of the Net Operating Income as a contingency for other expenses, such as projected increased interest payments on debt. Any capital growth in the investment will occur due to increases in the value of the Property. This may occur if net rental income increases and/or the capitalisation rate that purchasers are willing to pay for the Property improves, generally due to an uplift in market conditions. Who should invest in the trust The Trust is only on offer to wholesale or sophisticated investors who: 1. Are seeking exposure to the property market. 2. Have a medium-term investment outlook; 3. Do not need access to the funds invested within that time frame; and 4. Are seeking regular income payments via monthly distributions. Exit Strategy The Trust will be an unlisted, unregistered, illiquid managed investment scheme structured as a unit trust. The Property is a cash flow yielding investment and the Trust is being established to generate investment income. The Manager will regularly review prevailing conditions and will make recommendations as to any disposal program. The Manager and Trustee will regularly evaluate potential exit strategies for Investors (in part or in full) such as the sale of the Property, or other liquidity events/redemption opportunities.
QUANTA TENNYSON STREET OFFICE TRUST | Information Memorandum
31
Page 1 Page 2 Page 3 Page 4 Page 5 Page 6 Page 7 Page 8 Page 9 Page 10 Page 11 Page 12 Page 13 Page 14 Page 15 Page 16 Page 17 Page 18 Page 19 Page 20 Page 21 Page 22 Page 23 Page 24 Page 25 Page 26 Page 27 Page 28 Page 29 Page 30 Page 31 Page 32 Page 33 Page 34 Page 35 Page 36 Page 37 Page 38 Page 39 Page 40 Page 41 Page 42 Page 43 Page 44 Page 45 Page 46 Page 47 Page 48 Page 49 Page 50 Page 51Powered by FlippingBook