The end of the road for some LMIs and just the start for others

Share/Unit holders of a number of LMIs had their say during the month of June with MGF unitholders approving the exchange to open-ended units, QVE shareholders voting in favour of the merger with WLE and MAAT delisting as a result of unitholders approving a merger with the equivalent unlisted fund. While it is the end of the road for some LMIs it is the beginning for others with PCX listing during the month. Below we take a look at the key news flow for LMIs in June. 

KKC Provides FY25 Distribution Guidance

The distribution represented an annualised yield of 8.0% based on the NAV as at 31 May 2024 and 8.5% based on the unit price as at 31 May 2024. The target distribution assumes income levels based on current and future cash flow from the portfolio after fees and costs.

QVE Shareholders Vote in Favour of Acquisition by WLE

MGF Unitholders Vote in Favour of Conversion to Open-Ended Units

MGF units are scheduled to be suspended from trading on 11 July 2024 with a Conversion Date of 15 July 2024. The number of units in MGOC received by MGF unitholders will be based on the Conversion Ratio which is the NAV of MGF divided by the NAV of MGOC on the Calculation Date.

Pengana Global Private Credit Fund (ASX: PCX) Lists

The Trust will invest in a portfolio of private credit funds with the goal of generating strong risk-adjusted returns with a high degree of capital protection. The Trust has a target cash distribution yield of 7%p.a. (net of fees, costs and taxes) with distributions intended to be paid monthly.

The Trust is seeking to mitigate one of the pitfalls of listed closed-ended structures, the potential dislocation between the portfolio value and market price. The Trust is seeking to do this through the provision of a regular off-market buy-back scheme, in which the Responsible Entity will offer to buy-back up to 5% of the issued capital on a quarterly basis. The buy-back price will be equal to the NAV per unit at the buy-back pricing date plus the amount of distributions that unitholders would be entitled to if the units were not cancelled from the buy-back. This is the first time such a mechanism has been used for a closed-ended vehicle. Only time will tell whether or not the buy-back scheme achieves the desired result with some potential pros and cons associated with the scheme.   

SEC Increases Quarterly Dividend Target

 The increased dividend target will be effective for the June quarterly dividend. The increase in the dividend target comes from a strong level of dividends received from the investments in the portfolio combined with a healthy level of retained profits and franking account.

SEC has provided a growing dividend since the commencement of dividends in 2018. Initially the Company had a target quarterly dividend of 1.0% of post-tax NTA. This was increased to 1.25% of post-tax NTA for the June 2023 quarter before the most recent increase to 1.5% of post-tax NTA.

The Company has sought to implement a number of initiatives to create demand and narrow the discount to NTA, with the Company proposing to pursue avenues to exchange shares for units in the Spheria Australian Smaller Companies Fund in the event the average discount during the 4Q’CY24 exceeds 5%. Since this announcement, the discount has narrowed with SEC trading at a discount of 4.1% to pre-tax NTA as at 31 May 2024. This compares to an average discount of 11.2% since listing.

OPH Estimates Annual Distribution of 6 cents per Unit

In May, the Trust announced changes to the Distribution Reinvestment Plan (DRP), which will be available for the annual distribution. Units issued in the DRP will now represent the lower of the NAV or the market price. Where the units are trading at a discount to NAV, units will be purchased on-market. If the NAV is below the market price new units will be issued. We view the change as a positive for unitholders, particularly given the discount at which OPH units have been trading. Purchasing units on-market to satisfy the DRP in the event units are trading at a discount removes the potential dilutionary impact that would occur if new units were issued at the discounted price. 

QRI Raises More Capital

The Trust has continued to raise capital to increase the size of the Trust when trading at or above NAV. The Trust has now grown to a market cap of in excess of $660 million with 422.8 million units on issue.    

WGB Announces Increased Final Dividend

WGB has been reasonably aggressive with its increases in annual dividend since listing as shown in the below chart, although we note the extent of the increases has tapered off in recent years. The Company is seeking to provide shareholders with an above market yield, which is one of the mechanisms used to create demand and manage the discount. Based on the share price at 31 May 2024, the FY24 dividend of 12 cents per share represented a yield of 5.4% (7.7% grossed-up). This is an attractive yield for a global portfolio.   

RF1 Estimates Semi-Annual Distribution of 15 cents per Unit

The DRP will be available for the distribution. The DRP price will consider the relationship between the NAV and the market price of RF1, with new units issued through the DRP at the lower of NAV or the market price. 

The estimated distribution would take the distribution for the FY24 period to 22 cents per unit, slightly below the 22.78 cents per unit in the prior year. 

MAAT Calls it a Day

MAAT was originally structured as a LIC before restructuring to an active ETF structure. However, the fund has struggled to grow with the Manager deciding to merge the units with the equivalent unlisted fund. Given the inability to scale the ETMF it appears in the best interests to convert into the unlisted fund structure for MAAT unitholders.