Leasing Challenges at 510 Church Street Could Pressure 360 Capital REIT
360 Capital REIT (ASX – TOT) has reported a return to profitability in FY25, extending its debt facility and completing key leasing deals, while preparing for leasing challenges in FY26.
- Statutory profit of $1.3 million, reversing prior year loss
- Extended debt facility to FY28 with reduced interest costs
- Leased all vacancies at 38 Sydney Avenue, Forrest ACT
- Property valuations stabilised despite slight overall decrease
- FY26 earnings forecast up 25%, distributions maintained at 3.0 cps
Financial Turnaround and Debt Management
360 Capital REIT (ASX, TOT) has marked a significant financial turnaround in the fiscal year ending June 2025, reporting a statutory profit of $1.3 million compared to a loss of $21.9 million in FY24. This improvement was supported by a 24.8% increase in operating profit to $5.2 million and a return to positive earnings per security. A key contributor to this recovery was the successful extension of the Fund's debt facility to FY28, negotiated at a reduced interest margin, which has lowered finance costs and improved capital stability.
Leasing Success and Portfolio Composition
The Fund completed leasing all remaining vacant space at its flagship property, 38 Sydney Avenue in Forrest, ACT, boosting the weighted average lease expiry (WALE) at that site to 9.0 years. Notable leases include CropLife Australia Limited securing 754sqm for seven years and the Commonwealth of Australia’s ACIAR division taking 1,427sqm on a 12-year lease. The portfolio, comprising three modern assets across Melbourne, Canberra, and Brisbane, remains 93.4% occupied with a strong average NABERS rating of 4.8 stars, reflecting its quality and tenant covenant strength.
Valuation Stability Amid Market Pressures
Despite a marginal overall portfolio valuation decline of 0.2% to $201 million, the Fund’s assets showed signs of stabilisation. The weighted average capitalisation rate softened from 6.16% to 6.43%, but this was offset by a 6.4% increase in market rents over the past year. Market dynamics suggest that valuations are now well below replacement costs, providing a floor for rents and underpinning confidence as interest rates begin to ease and transactional activity picks up.
Capital Management and Fee Simplification
Capital management remains a priority, with borrowings reduced by $1.6 million during FY25 and the debt facility drawdown lowered to $72 million. The Fund also suspended its distribution reinvestment plan (DRP) following these improvements. Additionally, a new Investment Management Agreement approved in February 2025 has simplified and reduced fees by approximately $100,000 annually, eliminating performance fees and enhancing cost efficiency.
Looking Ahead, Leasing Challenges and Earnings Growth
Management’s primary focus for FY26 is addressing the vacancy at Level 2, 510 Church Street, Cremorne VIC, which represents 6.7% of the portfolio. Leasing has been slow due to economic conditions and competition from Melbourne’s CBD, with the Fund assuming this space will remain vacant throughout FY26 in its forecasts. However, the Fund anticipates a 25% increase in operating earnings to 3.0 cents per security, driven by prior leasing successes and expected interest rate cuts. Distributions are forecast to remain steady at 3.0 cents per security, now 100% tax deferred, reflecting the Fund’s strategy to utilise depreciation benefits from its modern portfolio.
Bottom Line?
As 360 Capital REIT navigates leasing hurdles and market shifts, its FY26 performance will be a key indicator of sustained recovery and growth.
Questions in the middle?
- Will the Fund successfully lease the remaining vacancy at 510 Church Street in FY26?
- How will further interest rate changes impact the Fund’s borrowing costs and earnings?
- What strategic options might 360 Capital REIT pursue to narrow its trading discount to NTA?
