Rising Sydney Exposure: Can 360 Capital Mortgage REIT Sustain Its 62 Cents Distribution?

• New $9.2 million senior loan secured by completed Western Sydney houses
• Extension and conversion of $17.6 million North-western Sydney loan into construction financing
• Weighted average interest rate of 11.8% across eight loans with fixed rates
• Portfolio now includes 67 residential properties across Sydney
• FY25 distribution guidance maintained at 62.0 cents per unit

Strategic Expansion in Sydney Housing Loans

360 Capital Mortgage REIT (ASX: TCF) has announced a significant step in expanding its mortgage loan portfolio with the addition of a new $9.2 million senior loan secured by completed houses in Western Sydney. This move complements the Trust’s existing exposure to Sydney’s residential property market, particularly in growth corridors, and underscores its strategy to diversify and strengthen its asset base.

The new loan is backed by 10 individually registered first-ranking mortgages on completed houses, supported further by personal and corporate guarantees, as well as a general security agreement over the borrowing entity. Notably, the loan carries a fixed interest rate of 10.8% per annum, with a loan-to-value ratio (LVR) covenant capped at 70%, ensuring prudent risk management before any proceeds from house sales are released.

Extension and Conversion of Existing Facility

In addition to the new loan, TCF has extended an existing $17.6 million loan in North-western Sydney by 12 months, converting it from residual stock land financing into a construction loan. This facility will support the development of 13 freestanding houses across 13 lots, with interest rates fixed at 13.0% during land holding and construction phases, reverting to 10.5% upon issuance of occupation certificates.

This extension reflects confidence in the borrower’s capacity to progress construction and aligns with TCF’s focus on residential assets. The loan is similarly secured by first-ranking mortgages, personal and corporate guarantees, and cross-collateralisation within the borrower group, maintaining the 70% LVR covenant to safeguard the Trust’s interests.

Portfolio Composition and Distribution Outlook

With these transactions, TCF’s portfolio now comprises eight loans, predominantly residential, with 67 individually titled and mortgaged houses or lots across Sydney. The weighted average interest rate stands at a robust 11.8%, with an average maturity of nine months, reflecting a relatively short-term, high-yield lending approach.

Importantly, all loans carry fixed interest rates, providing income stability. Supported by this portfolio, 360 Capital Mortgage REIT maintains its FY25 distribution guidance at 62.0 cents per unit, signaling steady returns for investors amid a dynamic property lending environment.

Looking Ahead

Further pipeline opportunities are anticipated through 360 Capital Group’s Private Credit Fund, which has underwritten approximately $18 million in loans, potentially feeding into TCF’s portfolio during FY26. This suggests ongoing growth and diversification prospects for the Trust, leveraging Sydney’s residential property market dynamics.

Overall, these loan arrangements highlight TCF’s disciplined asset selection and risk management, positioning it to capitalize on Sydney’s housing sector while delivering consistent income to investors.

Bottom Line?

As Sydney’s housing market evolves, TCF’s strategic loan portfolio adjustments could set the tone for its income stability and growth trajectory.

Questions in the middle?

• How will the construction progress on the North-western Sydney project impact loan performance and timing of returns?
• What is the credit quality and risk profile of the borrowers behind these new and extended loans?
• How might changes in Sydney’s housing market prices affect the LVR covenants and overall portfolio risk?