Centuria ties up 360 Capital platform in $290m deal

23 November 2016

Publication: Commercial Real Estate
Sydney, 24 November 2016

Centuria ties up 360 Capital platform in $290m deal

John McBain’s Centuria Capital is buying out the 360 Capital Group real estate platform established by Tony Pitt in a $290 million deal that defies recent negative sentiment towards the property sector.

The tie-up between the listed property fund managers is the first big transaction in the listed real estate sector since Donald Trump’s US presidential election victory sharpened the sell- off in the sector.

But the prospect of corporate action has also been increasing in the sector as fund managers look for scale to increase their earnings.

It is the second time out in the market this year for John McBain after an unsuccessful tilt at taking over the GPT Metro Office Fund with his own listed office fund Centuria Metropolitan REIT.

Success has come with 360 Capital instead. The deal includes a $91.5 million cheque for its property fund management rights and $115.8 million to buy out stakes in two listed funds managed by Mr Pitt’s outfit, an office fund and an industrial fund.

Funding for the deal will come from a $150 million capital raising along with $50 million in vendor financing.

As part of a complex transaction, Centuria Metropolitan REIT will also buy a stake in the listed 360 Capital Office Fund, with a view to ultimately merging the two funds.

More clout
Centuria, which was advised by Moelis, has also entered into a two-year put-and-call option over 360 Capital’s equity interests in four unlisted funds for $59 million.

For John McBain, who set up his management platform 20 years ago, the deal will take funds under management from $2.2 billion to $3.6 billion.

Centuria’s market cap, now at $80 million, will increase to about $230 million, giving Mr McBain the clout he needs in the broader market.

“You’ve got to have the potential with your headstock to raise capital easily to support the growth of the (managed) REITs because you must maintain the coinvestment stakes,” he told The Australian Financial Review.

Mr McBain and Mr Pitt, both New Zealanders by origin, reviewed their deal in the days after the Trump effect had hit the market and considered it still made sense.

“We think the sell-off in the REIT market has been well overdone,” Mr McBain said, adding that claims the “yield play” which attracts property investors was over were also wrong.

The deal leaves Mr Pitt in charge of listed headstock, 360 Capital, with no debt and cash on hand of $100 million, rising to $200 million subsequently. Mr Pitt flagged he was looking at a potential venture with private equity.