After closing its first round of equity raising oversubscribed late last month, Perth-based property funds management company, Quadrant Investments, has established its new QI Diversified Income Trust No 1, facilitating the acquisition of a prominent two-level office building in the core of the Midland CBD later this month.

The QI Diversified Income Trust No 1 is forecast to deliver a commencing return to investors at 7.0% pa, paid monthly, on the back of the first acquisition at 2 Keane Street, Midland. The Trust will provide its investors with a diversified portfolio of income streams and it intends to add additional properties across various sectors and locations to the Trust through future acquisitions, which will also see future rounds of equity raising. Once fully invested, the Trust aims to achieve a combined value of up to $40 million.

The high-profile property on the corner of Keane Street and Great Eastern Highway is situated within a core city centre location of Midland, which sits approximately 17km north east of the Perth CBD. The modern two-storey office building comprises a net lettable area of 1,367sq m and also features a secure basement car park for up to 33 vehicles, plus end of trip facilities and bike parking.

The property was purchased for $7,250,000 through a campaign managed by Savills Associate Director Barney Dear. According to Mr Dear, the property was hotly contested and highly sought after due to its long-lease to the “AA+” rated WA State Government, evidenced by the generation of over 115 enquiries from the marketing process and the end sale price, which reflected an initial yield of 5.78% and a 6.25% reversionary yield on market rent.

“We’ve certainly seen high demand for premium assets with long leases to A-grade tenants such as 2 Keane Street, Midland,” commented Mr Dear.

“This asset not only delivers an A-Grade tenant in the WA State Government until July 2028, but also delivers a strategic central location within the Midland city centre – a locality that has benefited already from almost $1.5 billion worth of investment from the Government and private sector, with more to come,” added Mr Dear.

Quadrant Investment’s Managing Director Phil Fogliani said the acquisition provided the perfect foundation asset for the QI Diversified Income Trust No 1.

“The first acquisition provides this trust with a stable income from a reliable tenant in the WA State Government until July 2028, a highly prized attribute in the current landscape which has seen periods of uncertainty and continuing low returns below current inflation from bank term deposits,” commented Mr Fogliani.

“The solid attributes of 2 Keane Street, Midland provides us with an exceptional foundation for the Trust that we can build on with future acquisitions,” Mr Fogliani added.

According to Mr Fogliani, the asset will also deliver the Trust a significant tax-deferred component to its distribution income owing to its attractive depreciation benefits.

“The reasons for acquiring the property were compelling on its obvious fundamentals, but perhaps one of the most important and valuable reasons we saw was the strong prospects for future rental growth,” explained Mr Fogliani, adding, “Our assessment of the economic rent required to justify the construction of a new building of comparable quality in the Midland city centre, including matching its exceptional 1 per 41 square metre car parking ratio, is significantly higher than the current passing rent, which will not only improve the prospect for rent growth upside but also in retaining the existing tenant.”

With the equity raising closing oversubscribed, Mr Fogliani noted that they were eagerly looking forward to securing the next asset for the diversified trust.

“A number of the current first round investors in the Trust have already indicated their wish to increase their investment and we are also taking registrations of interest from investors, including those who missed out, for our planned second raising,” stated Mr Fogliani.

The acquisition and the establishment of the QI Diversified Income Trust No. 1 adds to Quadrant Investments’ growing portfolio of assets under management, which has grown to almost $60 million in just under 36 months.

Key highlights:

• Closed-end, wholesale Unit Trust structure established by Quadrant Investments, the holder of an Australian Financial Services Licence.
• The Trust’s initial forecast income distribution of 7.00% pa (pre-tax, after costs) is paid monthly to investors.
• Intention to acquire additional properties, with the fully invested Trust having a combined end value of up to $40 million.
• Initial Trust term of seven years.
• 2 Keane Street, Midland has a core city centre location in the strategic Midland City Centre, which, according to State Government sources, has benefited from over $1.5 billion of government and private investment.
• The property was sold via an on-market Expressions of Interest campaign by Barney Dear of Savills.
• The building is 100% leased to the WA Government with an expiry of July 2028.
• The WA Government has been in occupation of the building since 2009 and become the sole tenant of the entire building in late 2020.
• Exceptional, difficult to replicate car parking allocation via secure basement car bays at 1 per 41 square metres.
• Significant depreciation benefits and prospects for future rent growth.