14 february 2019 360 capital total return fund (tot

14 February 2019

Taylor Collison Limited: ABN 53 008 172 450, AFSL 247083 Participant of the Australian Securities Exchange, CHI-X Australia Pty Limited. Adelaide: GPO Box 2046 Adelaide SA 5001. Level 16, 211 Victoria Square Adelaide SA 5000 Telephone: (08) 8217 3900 Fax (08) 8231 3506 Sydney: GPO Box 4261 Sydney NSW 2001. Level 10, 167 Macquarie Street Sydney NSW 2000 Telephone: (02) 9377 1500 Fax: (02) 9232 1677

360 Capital Total Return Fund (TOT) Outperform Initiating Coverage – Income Play with 10.0% Distribution Yield Unit Price: $1.20

Campbell Rawson [email protected] +61 415 146 725

Summary Market Capitalisation $82.6m Unit Price $1.20 52 week low $1.15 52 week high $1.32 Ave Monthly Vol (year rolling) 940k

Key Financials (A$ million) Year End FY18

Actual FY19 Est.

FY20 Est.

TotalRevenue 3.1 8.8 8.9 OperatingExpenses 0.8 0.7 0.7 EBIT 2.3 8.1 8.2 UnderlyingNPAT 5.9 8.1 8.2

UnderlyingEPU 9.0 12.0 12.2

PERatio 13.4 10.0 9.9

DPU(c) 9.0 12.0 12.2

DistributionYield 7.5% 10.0% 10.2%

PayoutRatio 100.2% 100.0% 100.4%

Unit Price Graph (A$)

Our View WeinitiatecoveragewithanOutperformrecommendationand set our target price at $1.32, reflective of 11.0x ourforecastEPU.TOTcurrentlytradesata10%discounttoourvaluation however we note the main attraction forinvestors is likely tobe the10%forecastdistributionyield.We see this yield decreasing gradually and the sharepriceapproachingourtargetpriceastheloanportfoliogrowsviathird party capital during early FY20.We believe that riskhas been relatively well managed with prudent LVR’s afocus with each loan written; and we are particularlyattracted to the flexible nature of the fund wherebystrategy can be adapted through various stages of thepropertycycletomaximiserisk-adjustedreturns. Key Points Key long-term attractions – We believe TOT has a soundstrategywiththefollowingfactorsplayingakeypart:

• Thefundhasabroadmandatetooperate inallareasofAustralian real estate. This allowsmanagement to alterthe funds strategy through different stages of theproperty cycle in order to achieve greater risk-adjustedreturns.Weseethisasabeneficialstructureforinvestorswho need not shift their investment through differentstages of the property cycle in order to achieve greaterreturns, as management are able to adapt on theinvestorsbehalfwhilemaintainingafocusondistributionincome.

• Furthergrowth istobedrivenbyexploitingagap inthepropertydebtfinancingmarket.Attractivefeestructuresare prevalent in this market particularly as the majorbanks have reduced their activity in propertyconstructionmarkets. The fund has lowered overall riskby moving to debt-financing with LVR’s of ~70% on allloans written-to-date creating a 30% buffer should apropertymarketcorrectionoccur.

• Thenon-banklendingsectorisgrowingrapidlywith2017Goldman Sachs research suggesting that a $30bnopportunityoverthemediumtermwaspresenting itselfasbankswere forecast tomove from80% (~$120bn)oftotalcommercialpropertylendingto60%(~$90bn).Withawell establishednetworkofdebtbrokersand lenders,AMF Finance (50% owned by TOT) is well poised toexploitthisgrowingopportunity.

14 February 2019

Taylor Collison Limited: ABN 53 008 172 450, AFSL 247083 Participant of the Australian Securities Exchange, CHI-X Australia Pty Limited. Adelaide: GPO Box 2046 Adelaide SA 5001. Level 16, 211 Victoria Square Adelaide SA 5000 Telephone: (08) 8217 3900 Fax (08) 8231 3506 Sydney: GPO Box 4261 Sydney NSW 2001. Level 10, 167 Macquarie Street Sydney NSW 2000 Telephone: (02) 9377 1500 Fax: (02) 9232 1677

360 Capital Total Return Fund - Financial Summary

PROFIT & LOSS SUMMARY (A$m)

Period

Revenue

Other Income

Total Expenses

EBIT

Statutory NPAT

Operating profit adjustment

Operating Profit

EARNINGS AND DIVIDENDS

Period

Weighted Average Units on Issue

Underlying EPU (c)

PE Ratio (x)

Distribution Payout Ratio (%)

Distribution (c)

Distribution Yield (%)

DEBT RATIOS

Period

Debt Per Unit (c)

Gearing % (LVR)

Adj. EBIT Interest cover (x)

Underlying NPAT cover (x)

Reported NPAT cover (x)


FY17A

3.7

3.6

0.7

6.7

6.7

(3.6)

3.1

FY17A

36.81

8.42

14.25

124.7%

10.50

8.8%

FY17A

0.00

NA

NA

Na

NA


FY18A

2.5

0.6

0.8

2.3

2.4

3.5

5.9

FY18A

65.87

8.98

13.36

100.2%

9.00

7.5%

FY18A

0.00

NA

NA

NA

NA

FY19E

8.1

0.8

0.7

8.1

8.1

0.0

8.1

FY19E

67.46

12.00

10.00

100.0%

12.00

10.0%

FY19E

0.00

NA

NA

NA

NA

FY20E

7.0

1.9

0.7

8.2

8.2

0.0

8.2

FY20E

67.46

12.15

9.88

100.4%

12.20

10.2%

FY20E

0.00

NA

NA

NA

NA

BALANCE SHEET SUMMARY (A$m)

Period

Cash

Loans Receivable

Other Assets

TOTAL ASSETS

Distribution Payable

Trade and other payables

TOTAL LIABILITIES

TOTAL EQUITY

CASH FLOW SUMMARY (A$m)

Period

Net Cash - Operating Activities

Net Cash - Investing Activities

Finance Cost

Net Cash from Financing Activities

Net Cash Flow

Opening Cash Balance

Closing Cash Balance

AMF FINANCE (50% share - equity accounted)

Period

Revenue

Expenses

Profit

TOT 50% Share (see other income)

FY17A

19.9

0.0

0.0

85.2

3.2

0.1

3.3

81.9

FY17A

2.40

(20.74)

0.00

37.11

18.76

1.09

19.86

AMF FINANCE (50% share - equity accounted)

FY17A

NA

NA

NA

NA

FY18A

40.1

39.2

6.5

79.8

1.5

0.1

1.6

78.2

FY18A

2.68

25.31

0.00

(7.77)

20.23

19.86

40.09

FY18A

1.39

0.68

0.70

0.35

TOT

FY19E

24.9

55.0

0.9

80.9

2.0

0.1

2.1

78.8

FY19E

8.07

(68.78)

0.00

45.50

(15.21)

40.09

24.88

FY19E

2.23

0.72

1.51

0.76

$1.20

FY20E

3.5

75.0

2.1

80.7

2.1

0.1

2.2

78.4

FY20E

7.00

(41.00)

0.00

12.60

(21.40)

24.88

3.48

FY20E

4.62

0.75

3.87

1.93

360 Capital Total Return Fund of 13

Taylor Collison Limited 14 February 2019

Initiating Coverage with an Outperform Recommendation WeviewTOTashavingasoundstrategywiththefollowingfactorsplayingakeyrole:

1. The fund has a broad mandate to operate in all areas of Australian real estate. This allowsmanagement toalter the fundsstrategy throughdifferentstagesof thepropertycycle inorder toachievegreaterrisk-adjustedreturns.

2. Furthergrowthistobedrivenbyexploitingagapinthepropertydebtfinancingmarket.Attractivefeestructuresareprevalentinthismarketparticularlyasthemajorbankshavereducedtheiractivityinpropertyconstructionmarkets.

1. ThefundhasabroadmandatetooperateinallareasofAustralianrealestate.TOT listed as an opportunistic fund with a deliberately broad mandate to invest in various forms ofAustralian real estateassets.Bydoing so,managementhave theability toalter the funds strategywherethey see fit in order to achieve greater risk adjusted returns. We see this as a beneficial structure forinvestors who need not shift their investment through different stages of the property cycle in order toachieve greater returns, as the funds management are able to adapt on the investors behalf whilemaintainingafocusondistributionincome.

2. Medium-termgrowthtobedrivenbyexploitingagapinthepropertydebtfinancingmarket.Inthecurrenteconomicenvironmentweareseeingincreasedregulation,particularlyinthebankingsectorandspecificallyonAustralianbanksbyAPRA.Agapinthepropertydebtfinancingmarkethasbeengraduallyemerging, particularly as the major banks have reduced their activity in property construction markets.Consequently, management have identified that at this late stage in the property cycle, direct propertyassets are not appropriately priced and that greater risk-adjusted returns lie in the non-bank, real estatelendingspaceratherthanequityinvesting.Wearebuoyedbythisstrategygiventheattractivefeestructuresthatareprevalentinthismarketandbythemoveoutofthefirst-losspositionwhichoccurswhenholdingtheequityportionofpropertyassets.

We are however cognisant of the potential lumpy nature of revenue. With the TOT balance sheet capitalavailabletolendcappedoutat~$110m,interestfeesandlinefeesreceivedarelimitedtoapercentageofthiscapitaloverthetermofaloan(typically12-24months)anddependentonthespeedwithwhichthefundsaredrawn over this term. Beyond this, other revenue will be attained through the equity accounted for, AMFFinance(TOTowns50%).AMFwillgrowsolelyinlinewiththevalueofnewloanswrittenasAMFreceivesa2%establishmentfeeonthetotalfacility.ThisfeeisreceivedregardlessoftheloanbeingwrittencomingfromTOTbalancesheetcapitalorthirdpartycapital.Withinthecurrentportfolio,theaverageloantermis16.1monthsandthemedianloantermis18months.Oncetheloanfacilityends,thecapitalhastoberepaidtoAMFandthennewloanswritteninorderforAMFtoreceiveanother 2% fee.We understand AMF to have a sound pipeline of deals available, however with the currentfinancingmarketbecominglessfluid,theprocessofreceivingcapitalbackfromborrowerstakesapproximatelysix weeks on average. This in turn may create lumpy income for AMF, depending on how quickly they canredeploythecapital.Weanticipate intheshorttomediumtermthatthirdpartycapitalwillgrowconsistentlyand offset any timing restrictions, however investors should be cognisant that longer term, growth may besomewhatsporadicduetothetimingofloans.Despitethis,giventheexpectedgrowthofthirdpartycapitalandthereforeAMF,coupledwiththecontinuedturnover of the TOT balance sheet capital and subsequent attractive fee structures,we are enticed by thedouble-digit forecastdistributionyieldwith theaddedbenefit ofpotential for capital appreciation.We seeTOToperationsasbeingrelativelylowriskgiventheprudentLVR’sandsubsequent~30%+bufferbuiltintoalltheindividualloans,protectingTOTincomesomewhat,shouldapropertymarketcorrectionoccur.



360CapitalTotalReturnFund-BusinessOverview

CompanyHistory360CapitalTotalReturnFund(TOT.ASX)listedontheASXinApril2015aftercompletinga$40mcapitalraisingandarestructureofexistinglistedfundCVCPropertyFund(CJT.ASX).Thefundlistedasaunique,opportunisticfundinvestinginvariousformsofAustralianrealestateassets.TheFundsobjectiveistodeliveratotalreturnof12.0%+p.a.throughdisciplinedinvestmentinabroadrangeofrealestateopportunities.Uponlisting,thefundownedtwoproperties inNSW(a legacyofCJT)butpromptlyarrangedthesaleofthesewhileconcurrentlymakingan$11.2minvestmentinIndustriaREIT(IDR.ASX).ThroughFY16,itwasdeterminedthatIDRwasundervaluedandhenceTOTgrewtheirstaketo18.1msharesatanaveragecostof$2.01($36.3mtotalinvestment).InlateFY17,thefundcompleteda$40.6mcapitalraisingtoincreasetheirstakeinIDRandtoinvestinnon-banklending.Thefundacquired(foranominalamount)a50%stakeinAMFFinanceinpartnershipwith360CapitalGroup (the funds’ parent) in order to have a vehiclewhichwould provide alternative lending and structuredfinancingsolutionstoAustralianrealestateinvestorsanddevelopers.Muchofthecapitalraisingwasintendedandsince,utilisedasinitialfundingforAMF.InearlyFY18,TOTsolditsIDRstakefor$63.4mat$2.30pershareonanex-distributionbasis.Thisresultedina$6.2mtradingprofitanddeliveredTOTshareholdersanIRRof18.3%p.a.overthetwoyear investment.Sincethispoint,thefundsoperationshavebeenfocusedontherealestatedebtsectorthroughitsstakeinAMF.

Analysis&CommentaryonBusinessOperationsThefund’sobjectiveistodeliveratotalreturnof12.0%+p.a.throughdisciplinedinvestmentinabroadrangeofrealestateopportunities.Theseinclude:

- repositioningassets,includingshorttermre-leasingpositionsandrefurbishmentprojects;- investingininvestmentpropertiesthatgeneraterentalincome;- underwriting potential capital raisings in the real estate sector including syndicates andboth unlisted

andlistedfunds;- takingstrategicpositionsinunlistedfunds,includingprovidingliquiditysolutionstoexistingunitholders

ofthosefunds;- capitalisingonmispricedtradingopportunitieswithinASXlistedAREITsector;- participating inmergers and acquisition activities occurringwithin the Australian real estatemarkets;

and- participating in special situationswhich arise from time to timewithin Australian real estatemarkets

includingdistressedsales,investmentswithrestructuringpotential,andprovidingloans.The360CapitalmanagementteamoperatewiththemantrathatthefundwillachievegreaterreturnsbytimingpropertycyclescorrectlyratherthangrowingAUM(throughthecycle)asthemajorityofA-REIT’saimtodo.Inthecurrenteconomicenvironmentweareseeingincreasedregulation,particularlyinthebankingsectorandspecificallyonAustralianbanksbyAPRA.Consequently,managementhaveidentifiedthatatthislatestageinthecurrentpropertycycle,directpropertyassetsarenotappropriatelypricedandthatgreaterrisk-adjustedreturnslieinthenon-bank,realestatelendingspaceratherthanequityinvesting.Holdingthedebtratherthantheequityportionofaproperty,placesthefundinalowerriskposition.Lateinthepropertycyclethereispotentialforamarketcorrectiontooccurwhererevaluationsdeclinewhichwillhurttheequity holder first. Prudent lending with appropriate LVR’s allows the fund to create a buffer to a marketcorrection and still be able to collect interest fees and ultimately, the initial debt investment, should theunderlyingpropertyneedtobesoldbelowitscurrentvalue.



Asaresultofthisstrategy,TOTrevenueiscurrentlyderivedthroughinterestandlinefeesfromloansprovidedto property developers, loan establishment fees (which are accounted for through the 50% share in AMFFinance)andinterestoncash.AMFfinanceisdetailedbelowbutas it isequityaccounted,TOT’s50%shareofprofitsarerepresentedasotherincomethroughtheTOTP&L.AMFFinance–DetailedOverviewAMFFinancewasestablished in2017andasmentionedabove, thiswas in responseto thechangingdynamicand regulatory environment within the Australian real estate finance market whereby larger financiers arechoosingandbeingforcedto,de-risktheirloanbooks.AMF prides itself on the ability to structure and provide funding solutions that traditional financierswill notentertain. AMF has access to balance sheet capital fromboth 360 Capital Group (TGP) and 360 Capital TotalReturnFund(TOT)aswellasthirdpartyprivatecapitalsources.AMFalsohasundertakenmanytransactionsinpartnership with major Australian banks. To this point, AMF has only utilised TOT balance sheet capital asmanagementhaveindicatedadesiretogrowTOTthroughtheAMFoperation.Weanticipateshorttomediumtermloan-bookgrowthwillbedrivenbyutilisingthirdpartyprivatecapital.TheProductAMF is structured so that finance brokers are able to offer standardised loans to their clients across variousstages of real estate. These include construction, development, investment, bridging and structured financesolutions.AsoftheendofFY18,AMFhad71accreditedbrokersprovidingAMFproductsaspotential loanstoclients.ThestandardisednatureallowsAMFtoprovide loanswithin24hoursshouldallotherrequirementsbemet.Typicallyhowever,thedealstake2-3weekstocompleteasborrowerstendtoneedthistimeinordertoprovide the necessary information for loan approval. Below is a breakdown of products offered and theassociatedfees.

- DevelopmentFinanceProvidesdevelopmentfinanceforupto70%loantovalueand80%loantocost.Mezzanine/PreferredEquityProvidesmezzanineandpreferredequityonselectiveprojects.

- ResidualStockLendingupto80%ofcompletedvalue,fortermsofupto36months.

- BridgingFinanceCan provide credit approval in 24 hoursandfunding within two business days. Rates varysignificantly.

- CommercialPropertyFinanceTermdebtproductswithloansizesfrom$5.0million

TheNumbersAMF is targeting borrowers looking for loans of $2m-$50m ideally with term length of 12-18 months. Thestrategyisfortheloantermnottoexceed24months.Termlengthlessthan24monthsallowsAMFtokeepline-of-sightonthecurrentstageofthepropertycycleandbeyond24months,constructionbecomesdifficultwithover-runsmoreprevalent.Weunderstandthesweetspotisloansinthe$20m-$30mrange–theseprojectsaretypicallylessthan24monthsbutarealsosmallenoughtheforeignbanks,privateequityandoffshoreinvestorsaren’tpreparedtocompeteforfinancingandarestilllargeenoughthefeesareworthwhileforAMFandTOT.AMF’ssolesourceofrevenueisa2%establishmentfeereceivedasaportionofthefacilitylimitatthestartofanynewloanterm.AMFexpensesareanycostinvolvedwiththedebtsideofthebusiness,includingwagesofTOT/TGPstaff.FY18sawAMFachieverevenueof$1.37mforaprofitof$0.7m.Withno recurring revenue,AMFprofitwill bedictatedyear-to-yearby thevolumeof loan facilitiesprovided.WiththeTOTbalancesheetalmostfullyexpended,managementsstrategyistoaccessthirdpartycapital.Thirdpartyproviderswouldreceiveallinterestandlinefeesassociatedwiththeirportionofcapitalprovidedforthe



loan, however AMF will receive all establishment fees as the loans are written. With plans for this growthstrategy still on-going,wenote the possibility of Private Equity groups attaining a stake inAMFwhichwouldbringinsignificantcapitalforoverallloanportfoliogrowth.TheRationale2017GoldmanSachsresearchsuggestedthat80%(~$120bn)ofcommercial realestatedebt isheldbybanks.Theresearchalsoforecastthiswastodropto60%asaresultofregulationchangesandtheproliferationofnon-bank lenders such as AMF Finance. This suggests a $30bn+ opportunity over themedium term for non-banklenders.Throughout FY18, AMF completed deals worth $69m but saw ~$1.6bn worth of deals – in our opinion, thissomewhatverifiesGoldmanSachsresearchsuggestingthesizeoftheopportunityisvastandmoreimportantly,thatAMFhasbeenprudentandselectiveinthechosendeals.Initially,AMFwasestablishedtooffermezzaninedebthowevermanagementhavede-riskedtheproductsomewhatandnowfocusprimarilyonseniordebt.Ascanbe seen from the loanportfolio detailedbelow,most of the current deals areprogressively drawndownsenior debt. We anticipate in the short term for deals to be focused on residual stock financing (wheredevelopersneedcapitaltomovetothenextproject)withthefullfacilitydrawnimmediatelyuponstartofthetermwiththebenefitofprovidinggreaterinterestfeesforthelender.TOTNumbersTOT revenue is all other property related income. At this juncture with the focus on non-bank real estatelending, revenue is limited to the interest fees and line fees associatedwith any loanwrittenbyAMF thatutilisesTOTbalancesheetcapital(currentlyTOThas~$110mofbalancesheetcapitaleitheralreadydeployedoravailableforloans).Interestratesbeginat8%howevertheloandealstodate,havetypicallybeenhigher.Ofthecurrentportfoliotheaverageinterestrateis~11%withthreeofthesevenfacilitiesalsoattractinga2%linefee.TOTexpensesarepredominantlyfixedcostswithcompliance,registryandaccountingfeesunlikelytofluctuatedrastically.Inaddition,TOTpaysTGPamanagementfeeof65bpsoftotalassets.



LoanPortfolioOverview

360 Capital Total Return Fund| FY18 Annual Results August 2018

Loan Portfolio

Hotel Melbourne Medical Centre Accommodation

Loan Type Mezzanine loan Progressively drawn senior loan Progressively drawn senior loan

Project Description Construction of pre-leased hotel in Perth, WA Development of 2,396 sqm (GLA) medical centre in Sunbury, VIC

Development of 28 room residential accommodation facility in Coogee NSW

Size1✓ Gross Realisation: $76.0m ✓ Facility Amount: $7.6m

(70% LVR / 78% LTC)

✓ Gross Realisation: $13.0m ✓ Facility Amount: $9.3m

(71% LVR / 82% LTC)

✓ Gross Realisation: $11.4m ✓ Facility Amount: $8.0m

(70% LVR / 79% LTC)

Interest Rate 15.0% ✓ 12.0% p.a. month 0-15; ✓ 15.0% p.a. month 15-18

Interest rate / Line fee: 10.0% / 2.0%

Term 24 months 18 months 13 months

Credit Enhancements

✓ Registered 2nd mortgage✓ Personal guarantees

✓ 2nd Ranking Security Deed ✓ Inter-creditor deed

✓ Registered 1st mortgage ✓ Personal Corporate guarantee✓ 1st-ranking Security Deed

✓ Registered 1st mortgage ✓ Personal guarantees

✓ 1st-ranking Security Deed

Exit / Repayment Repaid via refinance with term debt at practical completion Repaid via refinance with term debt at practical completion Repaid via refinance with term debt at practical completion

1. Gross Realisation based on “As If Complete” valuation (net of GST)

17


Loan Portfolio

Hotel Residential Residential

Loan Type Progressively drawn senior loan Cash advance senior loan Progressively drawn senior loan

Project Description Development of 162 room 4-star hotel in Melbourne CBDConstruction of 30 residential apartments in Western

SydneyDevelopment of 94 apartments in South West Sydney

Size1

✓ Gross Realisation: $53.0m

✓ Facility Amount: $36.3m

(68% LVR / 77% LTC)



(49% LVR)



(68% LVR / 79% LTC)

Interest RateInterest rate / Line fee:

11.0% / 2.0%

Interest rate:

10.0%

Interest rate / Line fee:

8.0% / 2.0%

Term 9 months 7 months 24 months

Credit Enhancements

✓ Registered 1st mortgage

✓ Personal guarantees



✓ Personal guarantees



✓ Personal and director’s guarantees ✓ 1st Ranking General Security Deed

✓ Tri-partite deed

Exit / RepaymentRepaid via refinance with term debt at practical

completionRepaid via settlement of sales Repaid via settlement of sales

1. Gross Realisation based on “As If Complete” valuation (net of GST)

18


New Investment – Perth Residual Stock (terms agreed)

Property Type Medium Density Residential Development

Loan Type Senior

Size1✓ “In-one line” Valuation: $18.0m (excl. GST)✓ Facility Amount: $9.9m

(55% “In-one line”)

Interest Rate 10.0% p.a. capitalising monthly

Term 18 months

Credit Enhancements✓ Registered 1st mortgage✓ Parent company guarantee✓ 1st Ranking General Security Deed

Exit / Repayment The loan is to be repaid through the sell down of residual stock.

19



PeerComparisonGiventhebroadrangeofrealestateopportunitiesTOTisabletoparticipateinandthecurrentnatureofthoseactivities solely being debt financing, it is difficult to find suitable peers for comparisonwith themajority ofpropertyfundsholdingalevelofequityinpropertyassetseitherdirectlyorindirectlyaswellasparticipatinginotherareasoftherealestatemarket.QualitasRealEstateIncomeFund(QRI.ASX)isarecentlisting(November2018)andismostcomparabletoTOTgivenitssolefocusistoinvestinrealestateloanssecuredbyfirstandsecondmortgages.QRIhasatargetreturnof8%p.a.comparedwithTOT’stargetreturnof12%andascanbeseenbelow,iscurrentlytradingatapremiumtoit’s$1.60NAV.QRIis~3xthesizeofTOTwithacurrentmarketcapof$245m.WhilstTOTmanagementhavevastexperienceinpropertymarkets,QualitasGrouphasexplicitlybeenprovidingcommercial realestate loanssince inception in2008. Currently the group has ~$2.0bn of capital committed to various commercial property loans across itsvariousbusinessesandhasquicklydeployedthe$230mofcapital raisedat theendofNovember.WebelievethistrackrecordisakeyreasonwhyQRItradesatagreaterpremiumtoNTAthanTOTcurrentlydoes.In comparison, TOT has deployed $111m of loan facilities since determining the change in strategy and iscurrentlytradingaroundNTA.Investors inthis lowinterestrateenvironmentaresearchingforgreater incomeandmoreattractiveratesofreturnoncapitalandwebelieveTOTwilltradeatapremiumtoNTAlongertermastheloanportfoliogrowsviathirdpartycapital,particularlywiththeon-goingattractivedistributionyield.

Company

360 Capital Total Return

Fund

Qualitas Real Estate

Income Fund

Stock Code TOT.ASX QRI.ASX

Current Unit Price $1.20 $1.70

NTA $1.17 $1.60

Premium/(Discount) to NTA 2.50% 5.88%

Target Return 12%+ 8%+

Market Capitalisation $82.6m $245.7m

Forecast FY19 Distribution (cpu) 12 12.8

Forecast FY19 Dist Yield 10.0% 7.5% ValuationWeholdtheviewthatawellestablishedrealestatelendingbusinesswithattractiveyieldshouldtradeona12-12.5xmultiple.TOTiscurrentlytradingon10xourFY19EEPUhoweverwebelievegiventhecurrentportfolioofloans and the growthwe expect from third party capital in the short term, TOT is worthy of trading on 11xforwardearningsandas suchwesetour targetpriceat$1.32.This is10%above thecurrent sharepriceand12.8%aboveNTA.GivenwearemostattractedtoTOTbythedistributionyieldandsubsequentincomestory,webelievea10.0%forecastdistributionyield is toohighandwe think the sharepricewill approachour targetprice in the shorttermasTOTprovesupthestrategyandattractsmorethirdpartycapital.



UnitRegister

Name #Shares %1 360Capital 15,621,124 23.722 NaosAssetMgt 12,764,006 19.383 MoelisAustraliaAssetMgt 5,229,214 7.944 SaltFundsMgt 4,576,275 6.955 WilsonAssetMgt 2,872,947 4.366 Greig&Harrison 2,815,428 4.287 LHCCapital 2,665,503 4.058 AdamSmithAssetMgt 2,355,464 3.58- PrivateClientsofFirstSamuel 2,211,886 3.369 WyllieGroup 1,600,000 2.4310 RenaissancePropertySecurities 1,155,657 1.7511 MrTonyRPitt 796,300 1.2112 AccidentCompensationCorp 402,114 0.6113 MrAndrewGMoffat 400,000 0.6114 AspiringAssetMgt 235,000 0.3615 Mr&MrsAlanRSutton 200,000 0.3016 MrAndrewLKing 193,775 0.2917 MorgansFinancial 171,163 0.2618 MrMatthewJAnderson 167,724 0.2519 MissRosemaryARaffaele 142,108 0.2220 MrSimonDSamuel 140,000 0.21 Total 86.1

FinancialForecastsFY19ThroughFY19weforecastrevenueaccordinglyfrominterestpaymentsinlinewiththepropertyportfolioabove.With$53moffacilitiestoreturntoTOTin2H19,weforecast$35mofthistoberedeployedpriortoendofFY19and forecast the redeployed facilities to be fully drawn immediately (at an interest rate of 10% p.a.) uponredeploymentundertheassumptionthesewillberesidualstockdeals.In addition, we forecast $35m of third party capital to be utilised for a portion of 2H19 and subsequently,includingtheotherdealsalreadyandforecasttobewritten,weforecastTOT’sequityaccountedshareofAMFprofittototal$0.75mor8.6%oftotalrevenue.FY20In FY20we continue to forecast revenue in linewith the existing loan portfolio and assume all facilities thatcometoanendduringFY20,areredeployedsixweeksaftertheendoftheindividualfacilityataninterestrateof10%.Withtheadditionoflinefeesandpotentiallyhigherinterestrates,upsideexiststoourFY20forecasts.ThemainchangefromFY19isourassumptionofastepupinthirdpartycapitalavailableforloansandthereforethefeerevenuereceivedbyAMFfinance.Weassume$200mofthirdpartycapitalisdeployedinFY20andTOT’s50%shareofprofitstototal$1.93mor21%oftotalFY20TOTrevenue.



KeyRisksInterestRatesFluctuations in interestrateswillaffecttheperformanceoftheFund.Totheextentthat interestratesarenothedged, the financial position including the cost of debt will be affected, and could result in decreaseddistributionstounitholders.

AvailabilityofsuitableinvestmentopportunitiesThe performance of the Fund is to a large extent dependent on the ability of the seniormanagement teamwithin360Capital to identifyand source suitable investmentopportunities. Suchopportunitiesare subject tomarket conditions and other factors outside the control of the senior management team. Failure of theResponsibleEntitytoidentify,sourceandenterintosuitableinvestmentswilladverselyaffectreturnsavailabletoStapledUnitholders.AstheFund’sinvestmentmandateisopportunisticandnotdefinitiveitisnotpossibletoquantifyincomeandcapitalreturnsofanynewinvestments.PropertyValuationsWhile the fund does not currently own any property directly, the LVR ratios on current loans are based onindependent valuations. Theongoing valuation and revaluationof a property (or a newacquisition) is largelyinfluenced by changes in greater market property drivers including supply, demand, capitalisation rates,occupancylevels,leaseexpiries,incentivesandcapitalexpenditure,andnearbyamenities.Thereisnoguaranteethatapropertywillachieveamarketorsalepriceapproachingthevaluation,orthatthevaluationuponwhichthe fund bases its loans leads to subsequent sales and thereforemay impact the speedwithwhich the fundreceivesbackitscapital.

DilutionEffectsFuturecapitalraisingsandequity-fundedacquisitionsbytheFundmaydilutetheholdingsofunitholders.TheremaybeaneedtoraiseequityinthefuturetopartlyfundNewAcquisitions,reducedebtorrecapitalisetheFund.ShouldtheFundneedtocompleteanyformofequityraisingthroughUnitissueswhichmayoccuratadiscounttoNTA,anyunitholdersthatdonotparticipatemayhavethenetvalueoftheirUnitsaffectedduetothedilutioneffectwhichmayresultinacapitallossorreductioninDistributions.

RankingIf theFund iswound-up,StapledUnitholderswill rankbehindsecuredandunsecuredcreditorsof theFund. Ifthereisashortfalloffundsonwinding-up,thereisariskthatStapledUnitholderswillreceivelessthantheNTAperStapledUnit.ResponsibleEntityriskByinvestingintheFund,investmentdecisionsaredelegatedtotheResponsibleEntity.TheperformanceoftheFundisaffectedbytheperformanceoftheResponsibleEntityandthatoftheexternalserviceprovidersengagedbytheResponsibleEntityandisthereforenotassured.ConflictofinterestriskTheResponsibleEntity is amemberof the360CapitalGroup.Thedirectorsof the360CapitalGroupare thesameastheDirectorsoftheResponsibleEntity.Thiscreatesthepotentialforaconflictofinterestinassessingandprocuringinvestmentopportunities.360Capitalwillfollowformalprocedurestoensurethataninvestmentopportunitysourcedby360Capitalisofferedtothemostappropriate360Capitalentitybasedontherelevantentity’sinvestmentmandate.TaxationtreatmentofStapledUnitsmaychangeInvestors should be aware that changes in Australian taxation law (including changes in interpretation orapplication of the law by the courts or taxation authorities in Australia) may materially affect the taxationtreatment of an investment in Stapled Units, the holding or disposal of Stapled Units or the treatment ofdistributionsand the financialperformance, financialposition, cash flows,distributions,growthprospectsandthequotedpriceofStapledUnits.



BoardofDirectorsDavidvanAanholtChairmanandIndependentDirectorDavidhascloseto30yearsofexperienceinthepropertyandfundsmanagementindustry.Priortoestablishinghisownpropertygroupin2007,DavidwastheChiefExecutiveOfficer(AsiaPacific)oftheASXlistedGoodmanGroup (previously known asMacquarie Goodman). Davidworked for Goodman formore than a decade andbefore joining themhewasaFundManageratPaladinAustralia Limited (acquiredbyDeutscheBank)andanAssociateDirectorofCDHProperties (acquiredbyKPMG).DavidholdsaBachelorofBusiness (LandEconomy)and a Post Graduate Diploma inManagement and aMaster’s in Business Administration. He is IndependentChairmanoftheKennardsSelfStorageGroup.DavidisChairmanoftheASXlistedAsiaPacificDataCentreGroupandisontheCounciloftheUniversityofNewEngland.DavidisaFellowoftheAustralianPropertyInstitute.TonyPittManagingDirectorTony is a founding Director of 360 Capital and hasworked in the property and property fundsmanagementindustries for approximately 20 years. Tony is responsible for the performance of 360 Capital’s variousinvestments and funds, including the investment analysis,management, acquisitions and disposal and overallGroupandinvestmentstrategy.HehasoverseentheIPOontheASXofthreeAREITssince2012aswellasthecreationofvariousunlistedfunds,undertakencorporateacquisitionsandtheASX listingof360CapitalGroup.Tony has formerly held numerous senior roles and directorships atMirvac Group, James Fielding Group andPaladinAustralia.HealsoheldpositionsatJonesLangLaSalleandCBRichardEllis.TonygraduatedfromCurtinUniversitywithaBachelorofCommerce(Property),hasaGraduateDiplomainAppliedFinanceandInvestmentfromtheFinancialServicesInstituteofAustralasia.AndrewMoffatIndependentNon-ExecutiveDirectorAndrewhasinexcessof23yearsofcorporateandinvestmentbankingexperience,includingservingasadirectorofEquityCapitalmarketsandAdvisoryforBNPParibasEquities(Australia)Limited.Andrewisthesoleprincipalof Cowoso Capital Pty Ltd, a company providing corporate advisory services. Andrew is also a non-executiveDirectorofPacificStarNetworkLimited.HispastpubliccompanydirectorshipsincludeRubikFinancialLimited,KeybridgeCapitalLimited,CCKFinancialSolutionsLimited,itXGroupLimitedandInfomediaLimited.JohnBallhausenIndependentNon-ExecutiveDirectorJohnisafinancialservicesprofessionalwithover35years'experience.HeisaprincipalofQuayFundServicesprovidingresponsibleentityandtrusteeservicestofundmanagers.JohnestablishedRimcorpPropertyLimitedandbecame itsManagingDirector. In2008,Rimcorpwassuccessfully soldwithapproximately$100million infundsundermanagementspreadoverfourregisteredpropertyschemes.Before2002,JohnheldthepositionofChief Investment Officer of HIH Insurance, with responsibility for more than $3 billion of funds across fixedinterest,equitiesandpropertyassetclasses.Johnisalsoanon-executiveDirectorofArcticIntelligence.HehasaBachelorofCommercefromtheUniversityofNSW,isaFellowoftheFinancialServicesInstituteofAustralasiaandaGraduateoftheAustralianInstituteofCompanyDirectors.GrahamLenzerIndependentNon-ExecutiveDirectorGrahamhashadacareerspanningfourdecades,withparticularemphasisonfundsmanagementandfinancialmarkets.GrahamwasanExecutiveDirectorof theArmstrong JonesGroup for12years, the last fouryearsasJointManagingDirector.OtherpreviousrolesincludeFinanceandDeputyManagingDirectorofAquilaSteelandGeneralManager Finance and Investments ofMMI Insurance Limited. Graham has served on the Board of anumberofpublicandprivatecompanies.HeiscurrentlyChairmanofDeviceTechnologiesAustraliaPtyLimitedandanon-executiveDirectorofTZLimited.



SeniorManagementGlennButterworthChiefFinancialOfficerGlenn Butterworth was appointed as the new 360 Capital Group Chief Financial Officer effective from hiscommencementdate inDecember2013.Akeyexecutivewithin thebusiness,Glenn is responsible forall 360Capital’s financial management activities. Glenn has over 24 years' experience and joined 360 Capital fromMirvacwherehehadspenttheprior11years.His lastrolewasasFinancialControllerofMirvac's InvestmentDivisionforthelast7yearswherehewasresponsibleforMirvacPropertyTrust,listedandwholesalemanagedfundsandpartnershipstructures.Glennhasawealthoftransactionalandfinancialmanagementexperience.JamesStoreyFundManagerJameshasover11years'experienceinpropertyfundsmanagementincludingsuchareasasassetmanagement,capital transactions, analytics and valuations. Prior to his current role, James had a wide-ranging role atBrookfieldOfficeProperties,workingdirectlywith theChiefOperatingOfficer acrossportfoliooperationsandcapitaltransactions,includingthemanagementoftheAustraliananalytical,valuationandresearchteams.Jamesalsoworkedcloselywithseniormanagementinformulatingandimplementingassetstrategies.Jameshasalsoheld the roleof SeniorAnalyst atValadPropertyGroupandworked for Ernst&Youngwithin its TransactionAdvisoryServicesteam.JameshasaBachelorofBusiness(PropertyEconomics)fromtheUniversityofWesternSydneyandagraduatecertificateofappliedfinanceandinvestment.Heisalsoaregisteredvaluerandlicensedrealestateagent.JamesCamaHeadofRealEstateDebtJames is a property finance specialist with over 12 years of banking and finance experience. James waspreviouslyAccountManager–CommercialPropertyFinanceNSWatINGDirectAustraliaandwasawarded2016AccountManageroftheyear–CommercialPropertyFinance.PriortoINGDirect,Jameshadvariousrolesinrealestate finance at St George Bank over a 10-year period. James has extensive experience in the funding ofcommercial real estate investment and development transactions with both private and institutional clients.James holds a Bachelor of Business and Commerce majoring in Applied Finance from the Western SydneyUniversity.ScottMorganDebtOriginationManagerScotthas20years'experience inrealestate investmentsand isskilled instrategy,dealorigination,execution,management and investor relations. Scott establishes strong relationships and is able towork collaborativelywithawiderangeofstakeholdersapplyingcommercialacumentoachievegreatoutcomes.Priortohiscurrentrole,ScottwasaDirectorwithNewgroundCapitalPartnersresponsiblefororiginatingrealestatetransactions,capitalraising,fundmanagementandreportingtoinvestors.ScotthasalsoheldseniorrolesatInvestaPropertyGroup,BabcockandBrown,InvestecandledtheSydneyDeloitteRealEstateteamasaDirector.JonathonNguyenRealEstateDebtAnalystJonathon joined360Capital asanAnalyst in2018.Prior to this, JonathonwasaTreasuryAnalyst (ALM) foramutualbank,responsiblefortheliquidity/fundingrequirementsandmanagementoffixedincomeinvestmentsinthebankingportfolio.HeinitiallystartedhiscareerasaGraduateatStateStreetBank&TrustCo.,workingintheGlobalMarketsDivision.JonathonholdsaB.CommfromtheUniversityofNewSouthWales.



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Warning (General Advice Only): Past performance is not a reliable indicator of future performance. This report is a private communication to clients and intending clients and is not intended for public circulation or publication or for the use of any third party, without the approval of Taylor Collison Limited ABN 53 008 172 450 ("Taylor Collison"), an Australian Financial Services Licensee and Participant of the ASX Group. While the report is based on information from sources that Taylor Collison considers reliable, its accuracy and completeness cannot be guaranteed. This report does not take into account specific investment needs or other considerations, which may be pertinent to individual investors, and for this reason clients should contact Taylor Collison to discuss their individual needs before acting on this report. Those acting upon such information and recommendations without contacting one of our advisors do so entirely at their own risk. This report may contain “forward-looking statements". The words "expect", "should", "could", "may", "predict", "plan" and other similar expressions are intended to identify forward-looking statements. Indications of and guidance on, future earnings and financial position and performance are also forward looking statements. Forward-looking statements, opinions and estimates provided in this report are based on assumptions and contingencies which are subject to change without notice, as are statements about market and industry trends, which are based on interpretations of current market conditions. Any opinions, conclusions, forecasts or recommendations are reasonably held at the time of compilation but are subject to change without notice and Taylor Collison assumes no obligation to update this document after it has been issued. Except for any liability which by law cannot be excluded, Taylor Collison, its directors, employees and agents disclaim all liability (whether in negligence or otherwise) for any error, inaccuracy in, or omission from the information contained in this document or any loss or damage suffered by the recipient or any other person directly or indirectly through relying upon the information. This report was prepared solely by Taylor Collison Limited. ASX did not prepare any part of the report and has not contributed in any way to its content. The role of ASX in relation to the preparation of the research reports is limited to funding their preparation by Taylor Collison, in accordance sith the ASX Equity Research Scheme. ASX does not provide financial product advice. The views expressed in this research report may not necessarily reflect the views of ASX. To the maximum extent permitted by law, no representation, warranty or undertaking, express or implied, is made and no responsibility of liability is accepted by ASX as the adequacy, accuracy, completeness or reasonableness of the research reports Disclosure: Analyst remuneration is not linked to the rating outcome. Taylor Collison may solicit business from any company mentioned in this report. For the securities discussed in this report, Taylor Collison may make a market and may sell or buy on a principal basis. Taylor Collison, or any individuals preparing this report, may at any time have a position in any securities or options of any of the issuers in this report and holdings may change during the life of this document.

Analyst Interests: The Analyst(s) does not hold the product(s) referred to in this document, Analyst(s)’ holdings may change during the life of this document.

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Date Prepared: February 2019 Analyst: Campbell Rawson Release Authorised by: Mark Pittman

14 february 2019 360 capital total return fund (tot

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