Build-to-rent to hit the bourse as ARBT Funds Management builds $500m portfolio
The build-to-rent industry could see one of its first listings on the Australian Securities Exchange by a specialist fund that boasts of a unique way of rapidly constructing apartments.
Sydney-based ARBT Funds Management is backing a series of new projects that use a hi-tech prefabricated system.
ARBT is part of the Australian Robotics Building Technology Group that has been manufacturing and constructing hi-tech medium and high-density residential housing projects for the last decade.
It believes that it is well positioned to dramatically expand along the eastern seaboard ahead of a planned ASX listing in about three years once it has bulked up, and could grow to a $1bn stock from there.
The BTR Residential REIT has grown out of international group ARBT, controlled by businessman Solomon Noel, who is also executive chairman of the separate funds manager unit.
ARBT Funds Management chief executive Andrew Howard says that the developer realised it could grow quickly using its unique manufacturing model, to which the fund will have an exposure.
This system sees state-of-the-art prefabricated modules built in Malaysia and transported to Australia in parallel with onsite works.
ARBT believes the model will give it the edge in the industry as it can deliver a finished product in less than 12 months.
Multiple modules connect using a patented interlocking system that provides structural stability for up to 40 storeys, although much lower rise projects are planned.
This also makes construction about 30 per cent cheaper and 60 per cent faster than conventional construction methods.
The trust is starting as an unlisted vehicle and will mainly reap revenue from rent income from occupied apartments as well as a one-off manufacturing margin of 15 per cent of the improved value of newly completed properties.
Mr Howard said the company was not tied to the property cycle as it could put up its buildings in just 10 months and was not hostage to price hikes by trades or suppliers.
The trust will be geared at 25-40 per cent and will only raise capital as it finds projects.
“We’re not going to be a cash box … we’ll only raise when we need to,” Mr Howard said.
The company is optimistic that it will provide better quality control than rival businesses and also be able to grow.
“We can scale up very quickly and take advantage of lulls,” Mr Howard said.
“There will be periods where you get an undersupply in the market and we can fill that very quickly.”
ARBT is looking to establish a position in build-to-rent that capitalises on its cost-effective and rapid building style, which is well-suited to middle ring suburbs and regional Australia.
The company is pitched at the mid-market rather than seeking a premium for its buildings or being at the affordable end.
The fund’s initial portfolio will consist of three properties with 96 apartments located in Brisbane, which have been independently valued at $62.9m.
They are two projects in Upper Mount Gravatt – one in Ventura Street and another in Mascar Street – and another in Carl Street in Woolloongabba.
It has also struck deals to acquire two development sites where construction is expected to be completed before the end of fiscal 2022.
All up, the five assets will constitute 245 apartments worth about $132.8m.
The two income-producing assets are 97 per cent occupied and have a gross rent yield of 4.3 per cent.
The city will be a springboard but will ultimately make up just 20 per cent as the fund is aiming to for 40 per cent weightings to each of Sydney and Melbourne.
“All of our future pipeline is concentrated in NSW and Victoria,” Mr Howard said.
It has estimated the end value of the pipeline to more than $500m with several assets under due diligence.
Investors in the fund’s initial $50m raising will have the opportunity to exit the fund at the proposed IPO.
The manager plans to seek a listing on the ASX in mid-2024 if the trust hits the target of gross assets of at least $300m.
But the manager has much grander ambitions.
It may list even sooner if it can find suitable sites and Mr Howard said there was capacity to target more than 5000 apartments.
“We see this as quite scalable, growing up to $2bn to $3bn worth,” he said.
“We’d certainly be an attractive proposition.”
The proceeds of the initial raising will be used, in conjunction with $2.2m of existing equity held by Mr Noel, and debt, to acquire $62.9m of assets across the first three apartment complexes in suburban Brisbane.
The trust is forecast to spin off distribution equating to a yield of about 7 per cent in its first years as it benefits from the manufacturing margins.