Qualitas Managing Director, Real Estate Finance, Tim Johansen talks about the Qualitas Real Estate Income Fund Limited (ASX:QRI) IPO, its appeal to income investors, the market for real estate finance, the company's long track record and the opening up of the market.
Jessica Amir: Welcome to The Finance News Network, I'm Jessica Amir. Today I'm with Qualitas Managing Director of Real Estate Finance, Tim Johansen. Tim, welcome to The Network.
Tim Johansen: Thanks, Jessica.
Jessica Amir: First up, Tim, can you give us an introduction to the Real Estate Income Fund (ASX:QRI), and tell us why you're so unique?
Tim Johansen: Sure, Jessica. Qualitas has been running for 10 years. We're a real estate investment manager. We've been investing and lending into the commercial real estate market. As part of our evolution, we've created the Qualitas Real Estate Income Fund (ASX:QRI),which is to be listed on the Australian Stock Exchange. We're targeting 8 per cent per annum, payable monthly to investors, and we're looking to co-invest $10 million of our own capital.
Jessica Amir: Thanks, Tim. Now can you share with us the outlook for this sector and the long term growth for real estate commercial loans?
Tim Johansen: The commercial real estate market in Australia is about a $280 billion market. We think the banks have about 80-85 per cent of that market, so they're very dominant. When you look at overseas markets, generally the banks are around 40-60 per cent of those markets, so we're very heavily weighted with the banks in that market in Australia.
What you've seen in recent times is the banks have pulled back from commercial real estate lending, and that's due to a few factors. Firstly, they're looking to reduce their exposure to real estate, relative to other sectors on their balance sheets. Secondly, there's significant regulatory pressures that the banks are facing at the moment, and there's the royal commission going on, so that's caused the banks to pull back. In concert with that, you have a lot of non-bank lenders and alternate lenders, such as Qualitas, who have come into the market and are participating in that senior debt market, which was previously occupied by the major banks. That's quite profound at the moment, and it is a significant structural change to what is happening in the commercial real estate market.
Jessica Amir: And Tim, we've seen the residential sector in terms of approvals and construction slow, while the commercial space is increasing. What's the flow-on effect for Qualitas?
Tim Johansen: Yeah, look, we've seen a long period of growth in the residential sector, leading up to maybe 18 months ago, and you expect after that period of growth, you'd have a slow-down and a resetting of the market, so that's occurring at the moment and we're quite happy with the position of the market. It does allow demand to catch up with supply. That's a good feature.
Also, underneath all of that, we still believe strongly in the growth of that market. Australia still has strong levels of population growth, circa 400,000 a year, which Melbourne and Sydney capture much of. That supports the continued development of residential property, particularly. So that demand for continued finance to that sector, along with the withdrawal of the banks, is causing the continued supply of finance to be important to the market.
Jessica Amir: Thanks, Tim. Now to the fund in more detail. Just tell us what you're investing in.
Tim Johansen: This fund's going to be doing exactly what Qualitas has been doing for the last 10 years. That is, we're providing loans to purchase, invest and develop industrial, office, retail and residential properties. We'll be focused on the eastern seaboard, in the capital cities, and we're looking to provide first and second mortgages, with a particular focus on first mortgages because of their security structure, and we're trying to construct a conservative and well-balanced portfolio.
Jessica Amir: You mentioned the track record of 10 years, how has Qualitas performed?
Tim Johansen: Look, over that 10 year period, we've grown to a business now that manages around $2 billion of funds under management. That's been created through a very experienced team that has been assembled to deliver in our business, both across equity and our debt business. We have very deep industry connections and much of the real estate business is about relationships. We take advantage of those relationships to grow our business.
Jessica Amir: Sounds great. Now, Tim, let's talk about the IPO. How much are you looking to raise, and where will the funds be invested?
Tim Johansen: Okay, so we're looking to raise a minimum of $150 million, to a maximum of $500 million. The offer opens to the general public in mid-October with a listing expected to be towards the end of November, our issue price will be $1.60, and those funds will be deployed into the loans that I mentioned earlier.
Jessica Amir: Great, and how can investors find more information?
Tim Johansen: Okay, the PDS is on our website, qualitas.com.au. They can contact our lead manager, Evans Dixon, or they can speak to their own broker.
Jessica Amir: Great, and lastly, Tim, why should investors consider adding this IPO to their portfolio?
Tim Johansen: Look, we've been operating for 10 years. We've got an unblemished track record. We haven't had any losses in our portfolio in that period of time. We have deep industry connections into the real estate market, and this product, we're aiming to achieving an 8 per cent return in what is otherwise a very low interest rate environment.
Jessica Amir: Great. Tim Johansen, thank you so much for your time, and good luck with the IPO.
Tim Johansen: Thanks, Jessica.