An ideal hedge as rates rise and credit risk ratchets up
The rise of Australia’s official interest rate plays directly to the strengths of the Qualitas Real Estate Income Fund (ASX: QRI).
QRI is a portfolio of investments with exposure to Commercial Real Estate (CRE) debt investments which are secured by real property mortgages. Located primarily in Australia, these loans are diversified across borrowers, loan types, property sectors and locations.
As of 31 May 2022, 51% of QRI's portfolio is based on a variable interest rate. The variable rate is calculated on BBSY as at 1st business day of each month, meaning that these increases will directly be passed through to investors in the next monthly distribution.
QRI manages a book of 39 individual loans, predominantly first mortgages, with an average loan-to-valuation ratio of 66%.
The portfolio composition remains very simple. We know every security, property and borrower intimately, to ensure the covenants for the loans are adhered to and that any potential issues are predicted and dealt with in a timely manner.
We’ve maintained an enviable track record of zero losses of investor capital since we launched the firm back in 2008. The following attributes have been key in achieving this:
- An arms’ length separation of Qualitas’ Investment teams, risk teams and investment committees, and
- A strong focus on sponsor quality, which means only the highest-quality loans are approved after a detailed process covering initial valuation, detailed due diligence, formal investment committee meetings, third-party documentation provision, and loan settlement.
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