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14 Feb 2024
Metrics Income Opportunities Trust (ASX: MOT) Review
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Metrics Income Opportunities Trust (ASX: MOT) Review
- Published:
14 Feb 2024 -
Author:
Independent Research -
Pages:
24
Metrics Income Opportunities Trust (ASX: MOT) (“MOT” or the “Trust”) listed in April 2019 raising $300 million through the issue of 150 million units at a price of $2.00 per unit. Since listing the Trust has grown to a market cap of in excess of $570 million as at 31 December 2023 and has 266.6 million units on issue. The Trust is managed by Metrics Credit Partners (“Metrics” or the “Manager”) and is the second LIT issued and managed by Metrics, the first LIT being Metrics Master Income Trust (ASX: MXT). Metrics is an Australian debt-specialist asset manager founded in 2011 and with significant expertise in the Australian corporate loan market. MOT provides exposure to a portfolio of private credit investments. It does so through an investment in and alongside four wholesale funds managed by Metrics, with the Trust providing exposure to the full spectrum of the capital stack – senior ranking debt, subordinated debt and equity. The Trust is mostly exposed to loans, however may also provide investors with the potential for upside gains through exposure to private equity and equity-like securities. The portfolio will be exposed to low investment grade and sub-investment grade loans (BBB to Not Rated), with the portfolio historically being predominantly allocated to sub-investment grade exposure. The Trust has a fixed target cash distribution of 7.0%p.a. and a target total return of 8%-10%p.a. through the economic cycle which reflects the potential for capital gains as well as income. The Trust pays Metrics a management fee of 1.03%p.a. on the gross assets of the Trust. There is no double layer of fees with fees charged only at the Trust level. No fees charged at the wholesale fund level. The Manager is eligible for a performance fee of 15.38%p.a. of the total return in excess of the hurdle rate of RBA Cash Rate + 6.0%.
Independent Investment Research (IIR) has maintained a Recommended rating for the Metrics Income Opportunities Trust (ASX: MOT). MOT’s portfolio has delivered an attractive risk-adjusted return when compared to domestic equities and Australian Investment Grade and High Yield Corporate Bonds. The portfolio has benefited from the increasing interest rate environment with the portfolio having a large floating rate exposure. We note there is some fixed rate exposure in CT combined with equity which has seen the increase in the cash distribution somewhat muted when compared to the rise in interest rates. The increase in interest rates has seen the cash distribution exceed the target cash distribution over the last 12-months and assisted with the portfolio delivering on its target return objective of delivering a return of 8%-10%p.a. through the economic cycle. The portfolio is diversified by investment and borrower, however is exposed predominantly to the CRE debt market through its exposure to REDF and CT with over 80% of the portfolio exposed to the real estate sector at 31 August 2023. As such, a prolonged downturn in this sector of the private credit market, in particular the residential CRE market, may have an adverse impact on the performance of the Trust. There are a number of tailwinds for the residential CRE debt market, including population growth and housing under supply, however there are also elevated risks as the impact of the increase in interest rates continues to filter through the economy and a slowing growth backdrop, which may result in an increase in the number of workouts required within the portfolio. The hands on, active style of management of the Manager is expected to be beneficial during this period of elevated risk.