360 Capital REIT Boosts FY26 EPS by 10% with $10M Structured Equity Investment

• Completed $10 million structured preference equity investment with 360 Capital Private Equity Fund 1
• Investment targets a $49.9 million new apartment block near Sydney CBD
• No capital raising required by 360 Capital REIT for this investment
• FY26 earnings forecast upgraded by 10% to 3.3 cents per security
• Distribution forecast maintained at 3.0 cents per security, fully tax deferred

Strategic Equity Investment Completed

360 Capital REIT (ASX – TOT) has taken a significant step to diversify its portfolio by committing $10 million in structured preference equity alongside a new private equity fund, 360 Capital Private Equity Fund 1 (PEF1). This partnership is focused on acquiring a brand-new block of one, two, and three-bedroom apartments located approximately six kilometres from Sydney’s central business district, with the total acquisition valued at $49.9 million.

Unlike many equity investments that require raising new capital, TOT has confirmed that this commitment will be funded without a capital raising, preserving its current capital structure. The investment is structured to provide TOT with preference equity status, positioning it ahead of ordinary equity holders in the repayment hierarchy.

Investment Strategy and Profit Sharing

PEF1’s strategy involves selling individual apartments over the next two years to maximise returns. Proceeds from these sales will first repay bank debt and TOT’s preference equity investment before ordinary equity investors receive returns. TOT is also entitled to a profit share once the ordinary equity achieves a specified return threshold, although no profit share is expected to be realised in FY26.

This approach allows TOT to participate in active real estate opportunities that complement its traditionally stable passive portfolio, aiming to enhance overall earnings and reduce the substantial 31% discount at which its securities trade relative to net tangible assets.

Upgraded Earnings Outlook for FY26

Following the completion of this investment, TOT has upgraded its forecast earnings per security (EPS) for FY26 from 3.0 cents to 3.3 cents, representing a 10% increase. This upgrade reflects the expected contribution from the structured preference equity investment. Despite the earnings upgrade, TOT will maintain its distribution forecast at 3.0 cents per security, which is anticipated to be 100% tax deferred.

The REIT’s management remains cautious on leasing assumptions, maintaining the forecast without assuming further leasing of vacancies, including the notable vacancy at 510 Church Street in Cremorne, Victoria. This conservative stance underscores a prudent approach to forecasting amid ongoing market uncertainties.

Looking Ahead

360 Capital REIT’s move to invest in PEF1’s Sydney apartment project signals a strategic pivot towards active investment opportunities that can drive earnings growth and portfolio diversification. The market will be watching closely to see how the asset sales unfold over the next two years and whether the anticipated profit share materialises in FY27 and beyond.

Bottom Line?

360 Capital REIT’s $10 million Sydney apartment investment and earnings upgrade mark a pivotal step in closing its valuation gap and enhancing future returns.

Questions in the middle?

• When might TOT begin to realise profit share returns from the PEF1 investment?
• How will leasing activity at 510 Church Street impact future earnings and distributions?
• Could TOT pursue further active investments to accelerate closing its NTA discount?