The Fortius Grenfell Car Park Trust (“the Trust” or “the Fund”) is an unlisted property fund with an initial term of five years. The Trust Manager, Fortius Funds Management Pty Limited (the “Manager”) is seeking to raise $29.5M through the issue of 29.5M units at $1.00 per unit (“the Offer”) to acquire the car parking station at 90-100 Grenfell Street, Adelaide SA (“the Property”). The offer is available to wholesale investors only.
The Trust provides a rare opportunity to invest in a pure car parking asset located in a prime CBD location, currently managed by Secure Parking, a leading national car park operator.
The Property is a dominant car park with 506 car spaces over seven-levels, located in the heart of the Adelaide retail and CBD precinct. The car park provides direct access across five levels to Rundle Place, the premium retail shopping centre, and is connected via one level to the office building at 80 Grenfell Street. The car park is supported by economic factors which include a high proportion of car usage in Adelaide, with over 80% of the SA population commuting via motor vehicles. Core Property considers the car park to be in a premium location and expects it will be well sought after by car park operators.
The Trust seeks to initially provide investors with distributions based on the operating profitability of the car park. This is dependent on the revenue from the car park (or parking fees) less expenses (property, management fees and Trust expenses). Secure Parking undertakes the day to day operations of the car park, under a management agreement which runs to May 2022. At expiry (or earlier), the Manager expects to enter a new lease agreement or extend the management agreement. A new lease agreement would provide a stable, secure income stream for investors, effectively transferring the risk and profitability of the car park to the operator. However, a continuation of the management agreement would mean investors will continue to receive distributions from the profitability of the car park.
The Manager is forecasting an initial distribution of 7.00% p.a. in the first year, which includes an allowance for a decline in car park revenue over the first 12 months. Distributions are forecast to be 7.2% – 8.5% for years 2-5. Core Property notes the distributions are dependent on the continued strong performance of the car park under the management agreement.
Core Property notes the initial NTA is forecast to be $0.96 per unit, with investors benefitting from no stamp duty expenses in SA. This supports overall investor returns as well as distributions due to lower equity requirements.
The Fund will look to establish a three-year debt facility with an initial Loan-To-Valuation Ratio (LVR) of 46.5% against an expected LVR covenant of 55.0%. The LVR is forecast to peak at 47.4% during the initial five-year term of the Trust. Fees paid by the Fund are at the low end of what Core Property has seen in the market.
Core Property estimates the Trust to deliver a pre-tax Internal Rate of Return (IRR) of between 8.2% p.a. – 11.9% p.a. (net of fees) based on our assumptions (see Expected Future Performance). It should be noted a base case IRR of 10.6% p.a. assumes flat capitalisation rates. Our analysis includes the potential that investors may receive a capital gain or loss, and an IRR outside this range is possible based on market conditions.
It is important that investors acknowledge that a pandemic caused by the spread of the COVID- 19 virus can adversely impact the performance of the Trust amidst macroeconomic uncertainty. The duration and severity of the outbreak is uncertain and may negatively impact property values and potentially lower investor returns.
Please download the report for full details on the Fortius Grenfell Car Park Trust Unlisted Property Fund.