Qualitas raising $50m to capitalise on fast-growing private credit portfolio

Qualitas raising $50m to capitalise on fast-growing private credit portfolio

The $450 million Parramatta development being undertaken by the GQ build-to-rent platform

Qualitas Real Estate Income Fund (ASX: QRI) is raising $50 million through a placement from wholesale and institutional investors, with the funds to be applied to its highly profitable commercial property investment loan portfolio.

The alternative investment manager, which has $8 billion in funds under management, is issuing 31.25 million QRI units at $1.60 each, which matches the most recent price at which Qualitas units last traded.

The Melbourne-based fund, which was established in 2008 and listed on the ASX in 2021, is aiming to more than double its funds under management to $18 billion by 2028.

While the strategy to increase funds under management will include potential bolt-on opportunities, Qualitas is also seeking to take advantage of organic growth within its current business pillars.

In its most recent market update, Qualitas revealed that growth in funds under management in its commercial real estate private credit portfolio is outperforming the market, with the asset class appealing to investors seeking ‘attractive risk-adjusted returns delivered by private credit’.

Qualitas has revealed internal rates of return of between 14 and 17 per cent from mezzanine debt facilities alone.

Private credit has been growing in popularity for commercial property developers amid tougher bank lending conditions, with Qualitas noting that the overall loan exposure of traditional banks to commercial real estate as a percentage of total assets has fallen sharply over the past decade.

Qualitas’ investment strategies include senior and mezzanine debt, preferred and ordinary equity investments in real estate development, value-add and other ‘opportunistic’ transactions.

In partnership with Tim Gurner’s Gurner Group, the fund controls GQ which at $3.2 billion is said to be Australia's largest build-to-rent platform in terms of committed funds under management.

The GQ platform has four projects in train, including a $450 million mixed-use tower in Paramatta’s Hassall Street, with a total project pipeline of 3,600 apartments in Sydney, Melbourne and Brisbane.

The $50 million raised from the latest capital placement is expected to be applied to first and second mortgage opportunities.

This time last year, Qualitas established a $50 million warehouse facility in order to maximise returns for investors.

At the time, Qualitas said the rationale for the new facility was to minimise the opportunity cost of holding excess cash. Qualitas says the cash drag occurs when it 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 fund said after securing the facility.

At the end of September, Qualitas had drawn down $25.7 million of the warehouse facility which it now says is delivering an incremental 1 per cent per annum return on the drawn balance for unitholders.

The fund’s net return for 12 months was tracking at 8.35 per cent at the end of September, with the fund also reporting no interest arrears or impairments in its portfolio.

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