QUANTACAST Episode 8 | July 2024

Join us in this episode of the Quantacast with our host and COO, Tim MacKinley, as he explores our exciting new industrial investment opportunity in Paget, Mackay.

Tim joins our CEO, Stacey Jones, and Head of Property Investments, Chris Carrigan, to discuss the details of our latest offer. An industrial site spanning an impressive 3.1 hectares and boasting a net lettable area of almost 9,000 square metres, the property is full of potential.

What makes this industrial investment particularly enticing is the long-term lease to United Group Limited (UGL), a subsidiary of HOCHTIEF, one of the world’s largest infrastructure contracting groups.

Tune in as Tim, Stacey, and Chris provide the metrics and details of this opportunity including a compelling 8.25% 5-year average distribution (7.50% year 1 – paid monthly).

Whether you’re an experienced investor or looking to start your journey in commercial and industrial real estate investing, this episode offers valuable insights and analysis you won’t want to miss.

Transcript

00:00:19:18 – 00:00:36:07
Tim McKinley
Welcome, everybody to our latest Quantacast. My name’s Tim McKinley and I’m the COO here at Quanta. I’m joined on my left by Chris Carrigan. Nice to have you here Chris. And on my right, Stacey Jones, our CEO. Welcome, Stacey. We’re coming from a different, environment today. We’re in our brand new offices in the middle of the Brisbane CBD.

00:00:36:08 – 00:00:38:05
Tim McKinley
How have you found the offices so far?

00:00:38:07 – 00:00:51:01
Chris Carrigan
It’s fantastic Tim. We’ve, it’s really a good contemporary office that, you know, our teams are working well and everyone set up, you know, so that we can collaborate well and and work, work together to get really good outcomes. Yeah.

00:00:51:01 – 00:00:54:00
Tim McKinley
Look, we’ve always had a great culture, but the vibes really picked up Stacey.

00:00:54:02 – 00:01:07:20
Stacey Jones
Yeah it has. It’s a premises that is really inviting and really well suited for the teams to work together. Great collaboration across the office and great for this to be our new home for the next…I don’t know.

00:01:07:22 – 00:01:09:05
Chris Carrigan
Five years or.

00:01:09:06 – 00:01:25:24
Tim McKinley
More. We are here to talk about 91 Connors Road in Paget in Mackay. We visited the property very recently and are very impressed with this, this asset. Well, two buildings on this property. So, Chris, talk to us a little bit about what’s happening at Connors Road.

00:01:26:01 – 00:01:51:05
Chris Carrigan
So Connors Road is, a great industrial investment that we’ve found for our investors. It’s a land rich, single tenanted building that with a great tenant, long term lease. It’s really under rented. So we think there’s great rental upside and therefore great capital uplift. We’re buying it, very well. At a market yield of 8.3%.

00:01:51:07 – 00:01:57:00
Chris Carrigan
So we’re looking forward to bring this one to investors, because we think it’s pretty compelling.

00:01:57:02 – 00:02:16:18
Tim McKinley
I did when when I went, we went to look at the site, we circled it quite a bit. And there’s a lot of activity there Chris. I wouldn’t quite say a village of dongas, but there’s a lot of, external buildings, temporary buildings there, which tells me, they’re fairly full up, but there’s a lot of land there that we can do further things with for them on a more permanent basis.

00:02:16:20 – 00:02:27:03
Tim McKinley
There’s a lot of people on site. There’s a lot of cars parked on the site. It’s a facility, for UGL that is quite specific to various…what need is there Chris?

00:02:27:03 – 00:02:55:23
Chris Carrigan
So Tim, the tenant is UGL, which is a great tenant. They’re ultimately owned by, a multinational company. Germany’s largest builder, with a, $12.5 billion in Australian dollars market capitalisation. Great tenant. What they do there is, recondition and, heavy equipment that’s predominately for the mining industry. The, this facility is the Queensland facility for UGL.

00:02:55:23 – 00:03:22:00
Chris Carrigan
There’s also a New South Wales facility. So all items that need reconditioning, in this territory come to this location. It’s got, it’s got specialised equipment in there. It’s, and it’s got some specialisations that the, the New South Wales facility doesn’t have. So some items get sent from Sydney up to Queensland. So, look, it’s a very good facility.

00:03:22:00 – 00:03:30:24
Chris Carrigan
We inspected it the other week. Very professionally run. and you know, a very busy operation.

00:03:30:24 – 00:03:39:02
Tim McKinley
So on the 3.1 hectare site, Chris there’s actually two buildings. Are they of equal size? And what sort of square metre do we have under roof there?

00:03:39:04 – 00:04:06:21
Chris Carrigan
So combined, there’s just under 9000m² of, lettable area that both…materially both buildings are the same size. But one of the buildings is for mechanical engineering and the other building is electrical engineering. so different processes in each. And then there’s a hardstand, for storage of certain materials and, and some logistics.

00:04:06:21 – 00:04:14:10
Tim McKinley
Okay. Great. Stacey I’ll bring you in. What’s your first impressions? You went and had a look at the site as well. What did you think on your first look?

00:04:14:12 – 00:04:34:05
Stacey Jones
Very well-kept, very, tidy operation as Chris said, very professionally run you know some of those industrial properties you can walk in and it can be a bit of a dog’s breakfast in there, but no that place, they clearly have a very keen focus on workplace health and safety because everything was where it should be. Incredibly busy.

00:04:34:05 – 00:05:03:18
Stacey Jones
Lots of work on. The tenant representative who showed us around was very, complimentary of the site, they’ve been there for a significant amount of time. It works well for them. High investment in terms of the, machinery and equipment that is in there. And relocating it would be very costly. Works well for them. It was a very impressive site and a very impressive tenant.

00:05:03:24 – 00:05:27:01
Tim McKinley
Great. So thanks, Stacey. So let’s have a look at the metrics. Chris $16.7 million purchase price. Correct. day one distribution for our investors of 7.5%, with, an average of 8.25% over a five year term. And then the horizon again, it’ll be 5 to 7 years of, and closed-ended, the fund, 100% leased 4.8 year WALE to UGL.

00:05:27:03 – 00:05:44:24
Tim McKinley
Site cover is about 27%. So CPI increase of sorry increase of CPI annually plus 1%. Yeah. So it really is and again distributions of 7.5% averaging 8.25 over five. That’s very strong for again industrial. Yeah.

00:05:44:24 – 00:06:27:09
Chris Carrigan
Yeah I mean we’ve been really keen to find investors a high yielding, secure, industrial asset with rental upside and we found it in this. So the rent paid by the tenant is $141 per square metre. The market is $160 or $170 a square metre. So the strategy here is to enjoy the 8.25% average distribution on the way through, renew the tenant at the end of the end of their lease, revert the rent to market so bring it up to 160, 170, which will improve distributions, improve capital value and then prior to that seven year expiry of the term, sell it for more than we bought it for.

00:06:27:15 – 00:06:40:04
Tim McKinley
Look it does…It looks like very good value. And as I said I had a look at the side as well. Help me understand is there some capital works for the current tenants that are happening now? or that are going to begin.

00:06:40:06 – 00:06:53:05
Chris Carrigan
Yeah. Look, as…As part of the deal there’s $1.5 million being spent on capital improvements to the building that is being paid for by the vendor. And that’s part of the, lease agreement with the tenant.

00:06:53:07 – 00:07:05:22
Tim McKinley
Thanks very much, Chris. Great information. Stacey. $16.7 million. We should raise this quite quickly. We know there’s demand there for our investors. Do you want to talk a little bit about, you know, how we establish where that demand is from our investors.

00:07:05:22 – 00:07:30:06
Stacey Jones
So every year we conduct a survey of our investors. And in between, of course, we’re actively talking with investors, even through functions or when, when we’re speaking with them on the phone. And overwhelmingly the preference is for industrial assets. And it’s just been the case that we haven’t been able to, find a industrial asset that would present a return that would be favourable to our investors previously.

00:07:30:06 – 00:07:55:24
Stacey Jones
So, with that in mind, I do expect that this one will go pretty quickly. Not a sales tactic, but, I wouldn’t delay. This is something, if you’re keen on it, get in contact with Dave. Register your interest early. It’ll, of course come out. You know, we won’t take official registrations until the IM is released, but, I do think it will go quite quickly.

00:07:56:01 – 00:08:06:06
Stacey Jones
Similar to our ones before. It’s got a seven year term, so fixed term, single asset, certainty as to what you’re putting your money into and a time frame as to when we intend on exiting.

00:08:06:08 – 00:08:10:17
Tim McKinley
Thanks, Stacey. Chris, over to you. Tell us a little bit about the location in Paget.

00:08:10:19 – 00:08:26:11
Chris Carrigan
So, Paget is around six kilometres south west of the Mackay CBD. It’s Mackay’s premier industrial precinct. it’s got a great it’s got great access to all modes of transport, close to the highway.

00:08:26:13 – 00:08:45:07
Tim McKinley
And Chris, also to add to that, just in our driving around the Paget precinct, you can see whilst there’s some land available from a standing building point of view that they seem to be overflowing with, activity and people and, and, you know, machinery, etc. on these sites. So what’s the market like in terms of vacancy there?

00:08:45:09 – 00:08:56:13
Chris Carrigan
So from, from our time up there. Yeah. Tim. It’s there’s full built product. It’s very low vacancy. There’s a lot of good tenants up there and it’s a really good market for us.

00:08:56:15 – 00:09:18:04
Tim McKinley
Thanks very much, Chris. So let’s just I’ll just go over the metrics again one more time for our investors at home. $16.7 million purchase price, day one distribution 7.5%, 8.25% average over five years, 100% leased with a 4.8 year WALE, it’s a single tenant, there’s some built in rent increases year on year, CPI plus 1%.

00:09:18:06 – 00:09:39:18
Tim McKinley
We, we know there’s some, capital works that are going to be done on site, which is hopefully concreting or cementing the, the tenant there for many years to come. And we know that the sites on the little areas only covering 27% of the site and it’s a 3.1 hectare site. So it’s a it’s a very, very, a very, very good product for us to put out to investors.

00:09:39:18 – 00:09:52:11
Tim McKinley
Again. It was another great one for us to inspect and look at. and we’re really pleased. So I think on that note, Chris, thanks very much for being with us again today. Stacey, thanks for being with us again today as well. And we look forward to bring our next Quantacast to you soon.