A Specialist Healthcare Funds Management Vehicle

Centuria has entered the strongly performing healthcare real estate sector with its wholly-owned subsidiary, Centuria Platform Investments Pty Ltd, acquiring a 63.06% economic interest in Heathley Limited’s (Heathley) property funds management platform for $24.4 million.

The transaction has been funded from Centuria Capital Group’s balance sheet.  On completion of the transaction, the resulting Centuria Heathley vehicle will be jointly owned by Centuria and interests associated with Heathley management.

Transaction Overview

Heathley is a specialised healthcare property fund manager with a $620 million AUM platform of unlisted funds with nationally diversified assets and a strategic focus on the healthcare chain, including medical centres, day hospitals and tertiary aged care.

Centuria Heathley increases CNI’s unlisted real estate AUM by $0.6 billion, taking Group AUM to $6.2 billion1. The transaction introduces a new asset class to Centuria’s expanding real estate platform and fully aligns it to the healthcare property sector though a preferred, specialised manager.

The Healthcare Funds Management Landscape

The Australian real estate healthcare sector is highly fragmented with a limited number of securitisation and institutional real estate managers servicing the asset class.

Centuria Heathley has capacity to expand to circa $1.0 billion AUM in the near term with known potential projects as well as the ability to expand its asset footprint and unlock new retail and wholesale mandates within the sector.

Healthcare real estate has tended to produce higher total returns compared to traditional real estate sectors and is underpinned by fundamentals from Australia’s growing and ageing population, longer life expectancy, increased requirements for ongoing healthcare and continued focus from the Federal Government on preventative care. Healthcare expenditure accounted for $170 billion2 growing 4.7%2 over the 10 years to 2015-16 and is one of the largest contributors to Australia’s GDP at 10.3%2.

John McBain, Centuria Group CEO, said: “The formation of Centuria Heathley marks another important step in Centuria’s growth path. Centuria Heathley demonstrates our commitment towards identifying and executing transactions that complement CNI’s existing platform. Centuria Heathley will provide additional opportunities to grow both our assets under management and recurring revenues.”

Andrew Hemming, Heathley Chief Executive Officer, said: “We welcome the establishment of Centuria Heathley and the opportunity to continue utilising our specialised management capability within the healthcare sector while accessing new capital sources and distribution networks as well as Centuria’s experienced real estate team.”

“We are extremely confident that the combination of skills and attributes each partner brings to Centuria Heathley will not only accelerate growth in our traditional vehicles but will allow us to bring our pipeline forward, enabling us to execute on much larger assets and crystalise wholesale mandate discussions we are presently finalising.”

Jason Huljich, Centuria Director and Head of Real Estate and Funds Management, said: “Establishing a large footprint in healthcare with such a well credentialed manager provides exposure to an asset class with sound underlying fundamentals and increasing national demand. Along with office and industrial, Centuria’s core real estate platform is now aligned to three strong performing real estate sectors and will gain further access to new unlisted retail and wholesale mandates.”

Disclaimer

This announcement contains selected summary information and does not purport to be all-inclusive, comprehensive or to contain all of the information that may be relevant, or which a prospective investor may require in evaluations for a possible investment in CNI. It should be read in conjunction with CNI’s periodic and continuous disclosure announcements which are available at www.centuria.com.au.

This announcement is provided for general information purposes only. It should not be relied upon by the recipient in considering the merits of CNI or the acquisition of securities in CNI.

Before making an investment decision, the recipient should consider its own financial situation, objectives and needs, and conduct its own independent investigation and assessment of the contents of this announcement, including obtaining investment, legal, tax, accounting and such other advice as necessary or appropriate.

This announcement may contain forward-looking statements, guidance, forecasts, estimates, prospects, projections or statements in relation to future matters (‘Forward Statements’). No independent third party has reviewed the reasonableness of any such statements or assumptions. No member of CNI represents or warrants that such Forward Statements will be achieved or will prove to be correct or gives any warranty, express or implied, as to the accuracy, completeness, likelihood of achievement or reasonableness of any Forward Statement contained in this announcement.   

CA-CPFL-22/05/19 PM-00984

1 AUM as at 31 December 2018 with pro forma adjustments to reflect Centuria Heathley Transaction

2 Australian Institute of Health and Welfare – Health Expenditure Australia 2015-16. Figures exclude aged care

For the ninth quarter in a row, Centuria’s Unlisted Property team has achieved six funds in the top 10 in the Australian unlisted retail property sector’s leading index.

Once again Centuria has taken the top honours in the recently released March 2019 quarter, with Centuria funds taking five of the top six places based on total return performance for the 12 months to 31 March 20191:

  • 1st: Centuria Zenith Fund
  • 2nd: Centuria 203 Pacific Highway Fund
  • 4th: Centuria 8 Central Avenue Fund 2
  • 5th: Centuria 2 Wentworth St Fund
  • 6th: Centuria 8 Central Avenue Fund
  • 9th: Centuria ATP Fund

The Property Council of Australia/MSCI Australia Unlisted Retail Quarterly Property Fund Index (Unfrozen) measures net asset value2 total returns for core unlisted retail funds within the index in the Australian market. Participants include Centuria Property Funds, Charter Hall Group, Australian Unity and Cromwell Property Group.

The index takes account of the performance of the properties held within the unlisted fund structure, together with the impacts of non-property assets, cash holdings, debt, and fees, to produce an overall investment return. They are produced to help the real estate investment sector raise its information, reporting and transparency standards to the level of the mainstream exchange traded asset classes.

For the March 2019 quarter, the index included 29 funds totalling $6.96 billion in gross asset value.

Unlisted property funds provide investors the opportunity to pool their capital to invest in commercial, retail or industrial properties, which may otherwise require too much capital to invest in directly. They generally provide monthly or quarterly income with the potential for capital upside and may be suit as a mid-term investment, with funds locked up for between five to seven years.

The PCA/MSCI Australia Unlisted Retail Quarterly Property Fund Index (Unfrozen) is the only index in Australia that measures performance of unlisted retail property funds. They are produced by MSCI, a world leader in index measures with one of the most extensive private real estate databases in the world.

Download the IPD Australia Unlisted Core Retail Property Fund Indexes :

Annualised total return for Centuria’s funds are calculated by Centuria Property Funds Ltd (ABN 11 086 553 639, AFSL 231149) as responsible entity/trustee since 1998 and includes net asset value as well as distributions. Each fund managed by Centuria Property Funds will have different characteristics, properties and risk and should be assessed by an investor independently. None of the Centuria funds listed in this media release are open to investment and should not be relied on by investors when making a decision to invest in any of Centuria’s open funds. Investors should rely on information in a product disclosure statement of any fund open for investment.

1 Past performance is not a reliable indicator of future performance.
2 Net of fees.

Purchase of 381 Macarthur Ave for $19.74 million

Centuria Capital Group (Centuria) has today announced the acquisition of 381 Macarthur Avenue, Northshore Hamilton, QLD. The new-build office, purchased by the Centuria Diversified Property Fund (CDPF, the Fund) for $19.74 million, is the Fund’s first direct property acquisition. Settlement is expected by the end of May 2019.

CDPF is an open-ended unlisted property fund with a limited liquidity facility, which offers investors access to a diversified property investment. Its objective is to provide monthly tax- effective income to its investors with the potential for long-term capital growth.

Centuria’s Head of Real Estate and Funds Management, Jason Huljich, said the acquisition was in line with the Fund’s strategy: “We have always intended to acquire direct assets for the Fund, and 381 Macarthur Avenue is a high-quality, well-located asset with financially strong tenants.” said Mr Huljich.

The commercial office building within Brisbane’s BTP Northshore office precinct is a three-level, A-grade office building developed by Alceon Graystone in April 2018. The 2,847 sqm property has a 5.1-year WALE1. It will generate an initial yield of 7.0%.

Strategic location

Northshore is the transformation of 60ha of State-owned industrial port land into a vibrant $5 billion mixed-use destination, and is Queensland’s largest waterfront urban renewal precinct.

BTP Northshore has attracted national and multi-national occupiers seeking high-quality urban accommodation within a near-city, mixed-use precinct. Consequently, high net worth and institutional investors have secured modern, mid-rise suburban, ‘A’ grade commercial office buildings with strong covenants. The next phase of commercial development will feature an additional 16,000 square metres over four office developments, plus plans for an integrated health and medical precinct to be delivered directly across the street from 381 Macarthur Avenue.

“The asset occupies a prominent location in Northshore – a well-known area with many small- to-medium enterprises whose employees prefer to work close to home, while being conveniently located 6km from Brisbane’s CBD, 5km to Brisbane Airport, and 1km to vibrant shopping precincts, cafes and the iconic Eat Street Northshore. This makes it a good fit for Centuria’s active management approach, demonstrated by the fact that Centuria’s Metropolitan REIT (ASX: CMA) owns a nearby property at 483 Kingsford Smith Drive,” said Mr Huljich.

Selling agent Sam Biggins of Colliers said ‘This investment by Centuria is an endorsement of the institutional quality of office assets being delivered in Hamilton BTP and a sign of faith in the rising Brisbane metropolitan office market’.

Brisbane’s appeal

Mr Huljich went on to say that he expected increasing investor demand throughout Southeast Queensland, including Brisbane.

“The Fund’s exposure to QLD follows our view that Brisbane office markets are steadily improving. In the last half we’ve seen yield compression, vacancy rates at five-year-lows, and rising demand for prime office – trends we expect to continue,” he said.2

In conclusion, Mr Huljich said that the deal demonstrated Centuria’s overarching strategy across its direct and listed property divisions.

“We are asset-specific buyers, so we consider all markets where there is opportunity to find value. We rely on our team’s expertise in active asset management to add value to our properties. This means we purchase properties with the aim of unlocking value through our hands-on approach to refurbishment, facility upgrades, and development of spec fit-outs, undertaken by an in-house team of asset managers.

“When it comes to accessibility for advisers and smaller investors, because the Fund is open- ended and offers some liquidity, it sits on a number of platforms and wrap platforms so is easy to access,” said Mr Huljich.


1 As at 1 April 2019. This includes a 12-month rental guarantee on approximately 288 sqm (around 10% by net lettable area) of the property and 35 car bays.
2 Colliers’ ‘CBD Office First Half 2019’ p.12.

Centuria has partnered with Compass Housing and Tetris Capital as part of the Commonwealth Government’s National and Affordable Housing Agreement and the NSW State Government’s Social and Affordable Housing Fund to source, develop and deliver 192 dwellings across four separate properties1 throughout the Hunter and Central Coast regions.

Centuria has agreed to contribute circa $20 million of equity towards the partnership.

Jason Huljich, Centuria Director and Head of Real Estate and Funds Management, said;

“This is a new growth opportunity for Centuria’s real estate division. The projects have an upfront take-out party secured at a pre-agreed take-out price and the new partnership will be the largest provider of social and affordable housing in the Hunter region. We are focused on identifying further opportunities to establish similar models, which can be rolled out across projects in other NSW regions and other states.”

Centuria’s announcement of a $20 million contribution to the newly established Social and Affordable Housing partnership is a deployment of cash proceeds from the recent sale of its stake in Propertylink Group.

John McBain, Group CEO, said; “The Social and Affordable Housing sector is well positioned to benefit from State and Commonwealth Government commitments towards providing affordable living solutions in NSW and other states.

“While Centuria retains a strong focus on its core property funds management and investment bond businesses, our investment in the Social and Affordable Housing sector is an example of a new business initiative with strong underlying fundamentals, good growth opportunities and the potential to be a strong, ongoing revenue contributor.”


1Terms agreed on final two projects, which are subject to final documentation.

Centuria’s Capital Group CEO, John McBain, talks 1H19 results, growth in group assets under management (AUM) to $5.6 billion and the group outlook.

View transcript

Jessica Amir: Hello Jessica Amir for the Finance News Network. Joining me from Centuria Capital Group (ASX:CNI) is Group CEO, John McBain. Hi John and welcome back and thanks for coming in.

John McBain: Thanks Jessica. It’s nice to be here and good to be back on the network.

Jessica Amir: First up. You’ve recently celebrated its 20th anniversary. For those who new to the company, just give us a quick introduction.

John McBain: Centuria Capital Group is an ASX-listed funds manager specialising in listed and unlisted property funds and investment bonds. We have $5.6 billion in assets under management (AUM) and our ASX code is CNI. We have built our business on understanding the needs of our investors, and putting their interests first, and we’ve been doing this for over 20 years.

Jessica Amir: Thanks John. Now to your interim results, take us through the highlights.

John McBain: We’re very pleased to report our interim results. We’ve built on the positive momentum achieved in the last financial year, with a particularly strong performance from our property division. We delivered an operating net profit after tax of $21.7 million and we increased recurring revenues by 30 per cent.
In addition, we grew our assets under management a further 14.3 per cent to $5.6 billion during the half, underpinned by $740 million of strategic property acquisitions and a $160 million revaluation uplift across our property assets. Centuria’s market capitalisation now exceeds $500 million, and we remain focused on S&P/ASX300 index inclusion.

Jessica Amir: And what does your performance mean for shareholders?

John McBain: We delivered operating earnings of 6.5 cents per security and increased distributions to 4.25 cents per security for the half. The increased scale of our funds management platform, now sitting at $5.6 billion means we are well-positioned to take advantage of both organic, as well as corporate growth opportunities.
As a result, full year guidance for 2019 has been reaffirmed at 9.25 cents per security, a 12.5 per cent uplift on FY18.

Jessica Amir: Thanks John, now can you tell us about each of the businesses. What was the story for your listed funds?

John McBain: Both our listed funds have had a transformational half. Centuria Metropolitan REIT (ASX:CMA), or CMA grew to become Australia’s largest pure-play ASX-listed office REIT, with $1.4 billion in assets under management. This growth was supported by a single $645 million real estate transaction, Australia’s third largest transaction in 2018. Centuria Industrial REIT (ASX:CIP), or CIP, expanded its position as Australia’s largest ASX-listed income-focused industrial REIT, with $1.2 billion in assets under management. Centuria Capital Group (ASX:CNI) as a parent, increased its co-investments in both REITs, enhancing alignment with both entities and supporting an uplift in group recurring revenues.

Jessica Amir: And how about the rest of the business?

John McBain: For the eighth quarter in a row we have had six of our unlisted funds in the Top 10 of the Property Council/IPD Australian Unlisted Core Retail Property Funds Index. Our Centuria Diversified Property Fund has grown to $50 million in assets under management. This unlisted fund is always open, has a limited liquidity facility, and is presently in due diligence to acquire its first direct asset. We also re-positioned our investment bonds offering in January with the launch of Centuria LifeGoals product. This is a new product now offering 22 high-quality investment options to investors, with a maximum tax rate of 30 per cent paid within the fund. We are already seeing positive demand for this transparent and flexible product, with more and more people looking for tax-effective ways to build and transfer wealth.

Jessica Amir: Now to your share price. It’s up 9.5 per cent year-to-date (as at 13 March 2019). What can you tell us?

John McBain: We are pleased that we’ve had a bit of a rally during the half. Look I think more people are looking at our stock, more than ever before, as we are approaching potential index inclusion in the ASX300 index. We’ve delivered on our forecasts in distributions and earnings. And a think that’s what people are looking for at the moment.

Jessica Amir: And finally, John before we let you go, what should we expect for the rest of the year?

John McBain: This year will be a time of intense focus on the banking and financial services industries. We’ve always had a strong investor focus but welcome a more industry-wide commitment to meeting community expectations. We believe businesses that stick to their knitting, achieve their forecasts, grow year-on-year, have sound governance and exhibit a really strong investor focus, will continue to be well supported and we want to be part of that peer asset. Crucial to this is a client-centric culture. So, I still personally interview every person that comes into the company and we are trying to ensure we maintain this culture where we are committed to the betterment of our investors.

In the second half our focus will be to aim to deliver high quality, predictable earnings supported by high recurring revenues. As an example, our recent acceptance of the cash offer for PropertyLink Group (ASX:PLG) enables us to deploy the $137 million we will receive into capital management and strategic initiatives, including, supporting our listed and unlisted property fund businesses, through co-investments and acquisitions, rolling out the launch of our new product Centuria LifeGoals product, which has already been well received by financial advisers and self-directed investors alike, as well as supporting new property related business activities which we will announce during the year. As a final reminder, we are providing full year FY19 earnings guidance of 12.7 cents per security.

Jessica Amir: John McBain, thank you so much for your time and congratulations on your first half.

John McBain: Thanks Jessica and thanks for having me on the network.

 

Disclaimer

This video was issued on 21 March 2019 by Centuria Capital Group Limited (ABN 22 095 454 336) and Centuria Property Funds Management No. 2 Limited (ABN 38 133 363 185, AFSL 340 304). The information is of a general nature only and has not been prepared taking into account your particular investment objectives, financial situation and needs. You should read the Product Disclosure Statement and assess whether any advice is appropriate before making any investment decision. You should also consider seeking the assistance of a professional investment adviser. Past performance is not a reliable indicator of future performance. The IPD/PCA Index is the Property Council/IPD Australia Unlisted Core Retail Property Fund Index. CA-CPFL-06/03/19 5:45 PM-00940.

The success Centuria has achieved with The Zenith highlights our strategy of identifying opportunities in strengthening markets where hands-on active management can make a difference, says Stuart Wilton.


Based in Sydney’s Chatswood, The Zenith is one of the city’s most in-demand metro office properties. We bought this A-Grade asset in July 2016 through our unlisted funds business for $279 million as a 50-50 joint venture with a private real estate fund managed by BlackRock. Since then, and following significant leasing success, we placed it on the market in late February via an expressions-of-interest campaign that closed on 4 April 2019.

Our leasing success and the significant increases in value we achieve for properties such as The Zenith stem from our practice of identifying opportunities where we can make a difference. For example, to improve rents or grow capital value we seek out properties where we can make improvements to the asset or capitalise on infrastructure upgrades, such as the Sydney Metro. There may also be various demographic factors that enable us to add value to a building as well.

The Zenith comprises two high-quality towers and sits in our Centuria Zenith Fund. In the two-and-a-half years since its purchase, we have leased approximately 41,000 square metres – out of a total of 44,100 square metres – which corresponds to 57 deals. Occupancy when we first bought the building was 95% but at the end of December 2018, it was 100% – a clear demonstration of our leasing success.

The highest rent achieved at the property of $685 per square metre net is 40% above the average net market rent at purchase while the weighted average lease expiry (WALE) as at the end of December 2018 was approximately 4.5 years, an increase on the 2.5 years it was in July 2016.

We were attracted to this building for several reasons including its proximity to public transport, such as buses and the Sydney Metro, and to the amenities offered through the number of nearby shopping centres and restaurants. The building itself has green spaces and gardens, a café and healthcare centre and new end-of-trip facilities, such as showers, lockers and bike spaces.

Another reason for our interest in The Zenith was that we felt the increasing costs associated with leasing CBD locations would be a deterrent for some organisations, which would look instead to suburban areas in which to relocate.

Our strategy of choosing buildings where we can make improvements was realised with this purchase as we quickly implemented an extensive capital works program and capitalised on the opportunities in the local market around Chatswood. Since its purchase, we have installed state-of-the-art end-of-trip facilities, refreshed the lobby along with 10 floors of bathrooms and there is also a full lift upgrade being carried out. We also constructed a number of speculative fit-outs that have proven to be successful.

Centuria prides itself on its active management approach, which we find leads to attracting and retaining high quality tenants. This approach is evident in the refurbishment and leasing achievements accomplished at The Zenith. The success of this building is testament to our experience and capabilities, as well as to the current strength of Sydney’s metropolitan markets.

 


Disclaimer
This article was issued by Centuria Property Funds Limited (Centuria) (ABN 11 086 553 639, AFSL 231 149), a wholly owned subsidiary of Centuria Capital Group (ASX: CNI), as Responsible Entity for the Centuria Zenith Fund (ARSN 612 163 416). The information in this article is general information only and does not take into account the financial circumstances, needs or objectives of any person. Centuria is the responsible entity of a number of listed and unlisted property funds, each of which are issued under a product disclosure statement (PDS) that is available on Centuria’s website centuria.com.au for all funds open for investment. An investment in any of Centuria’s property funds carries risks associated with an investment in direct property including the loss of income and capital invested. The risks relating to an investment are detailed in each Fund’s PDS and Centuria strongly recommends that the PDS be downloaded and read before any investment decision is made.  Centuria receives fees from investments in its property funds. Past performance is not a reliable indicator of future performance.

 

Ross Lees, Fund Manager for Centuria Industrial REIT, shares his opinion on the link between industrial property and the changing make-up of the retail sector.


The retail sector continues to perform well despite recent gloomy headlines. Data shows to December 2018, retail sales (online and in-store) grew 3.1% year-on-year1. Australia has a growing population (up 1.6% year-on-year)2 and 26 years of uninterrupted economic growth3. So why the negativity?

As we see it, the challenge isn’t with retail per se. Rather, it is with traditional retail that hasn’t adapted to the new “omni channel” environment. Online retail sales are growing by over 25% year-on-year4, but this only represents 5.5% of Australia’s retail spend5, suggesting the majority of retail growth is coming from online retail sales, while in-store retail sales stagnate.

The shift to online retail is creating negative sentiment towards owners of retail assets, with these assets struggling to maintain book values and the stock market discounting owners of retail assets compared with other property asset classes.

What may not be expected is the fillip this is having on industrial property. Goods purchased online are generally shipped via a distribution centre so the global growth in online retailing is increasing demand for industrial real estate.

Retail on the rise – but not for all types

Australian retail transactions reached $8.1 billion in 2018, the third-highest level on record, with A-REITs and private investors active on both sides of the transactions6. However, A-REITs were highly selective in their choices7 – signalling some investors were more cautious about bricks-and-mortar retail fundamentals. There has also been less activity from overseas buyers (although acquisitions remain high by historical standards). Given the challenges facing traditional retailers, it’s likely that only those shopping centre owners with strong expertise will come out on top.

Recent sales by major players illustrate the challenges. In November 2018, Stockland sold two malls in the regional centres of Bathurst and Caloundra for a total 5.3% discount to book value8, which Stockland attributed to a desire to reinvest in its commercial portfolio. And Australia’s second-largest listed mall landlord, Vicinity Centres, devalued its $15.8 billion portfolio by $37 million (0.2%) amid concerns that traditional shopping centres will come under further pressure this year9.

E-commerce strides ahead

In the United States, online sales accounted for around 10% of total retail sales last year10 while in the UK they accounted for 18%11.

Online retail spending is likely to continue to grow in Australia as growth in the use of mobile devices and the overall online shopping experience improves. We see consumers’ expectations around convenience, value and choice continue to drive a higher proportion to shop online. They will also expect faster delivery times, streamlined (and free) returns, and ease of payment.

Online retailing across all categories is also rising, even in areas that traditionally relied on in-person shopping. Many consumers now participate in “show-rooming” where they look in-store and then shop online for cheaper alternatives.

Retailers need to reassess supply chains

Many retailers are recognising the need to reassess their supply chains. Most traditional networks don’t include enough distribution centres to deliver goods cost-effectively and quickly – and this is a challenge as consumers demand ever-shorter delivery times.

Retailers also realise they cannot separate the online from their traditional shop-based business; rather they both need to be viewed as two parts of a whole. Successful retailers now think end-to-end, which means including transport and fulfilment centres in the mix. This is where industrial property, particularly warehouses located close to consumers and transport hubs, is benefitting.

Proximity to the consumer means cheaper transport costs and faster delivery times – both of which play an important role in overall profitability. And as the number of fulfilment centres for online retailing increases, so too does the number of businesses which service these centres, such as packaging companies. And both require industrial property.

Industrial property outlook

Growth in exports, business investment and infrastructure are driving demand for industrial property. There has been a strong flow of capital into the Australian industrial sector from a diverse range of investors – including domestic private and institutional groups, and offshore groups.

Supply is constrained however, and as a result, yields have compressed across the board. In Sydney, yields moved from 5.73% (in H2 2017) to 5.26% (in H2 2018); in Melbourne from 6.27% to 6.06%12.

At the same time, the digital revolution and advances in technology mean that industrial property is changing from the simple, low-tech warehouses of the past. Today’s industrial property is more sophisticated, efficient and flexible – ready to service a diversified range of industries.

As a result, prices have risen across the board – but more significantly in locations close to population hubs, where there is greater density and higher competition from alternative uses.

While online retailing is providing a positive flow-on to industrial property, to regard this as a one-to-one increase in industrial space would be overstating the case. Certain types of industrial space will benefit disproportionately from the rise in online retailing. For online retailers in pursuit of supply chain efficiencies, “strategic proximity” is key: industrial property that is close to transport nodes and consumers will be the winners.

From an investment perspective, the same holds true. Industrial portfolios that align with the changing face of retail by offering “strategically proximate” warehousing for online retailers will be well-positioned to offer strong returns to investors.


1 Australian Bureau of Statistics, 8501.0 – Retail Trade, Australia, Dec 2018  

2 To 30 September 2018, Australian Bureau of Statistics, 3101.0 – Australian Demographic Statistics, Jun 2018

3 Australian Trade and Investment Commission, “Australia holds world record for longest period of growth among developed economies

4 Colliers research – ‘Online Retail Sales’

5 JLL Research Report: Australian Industrial Investment Review & Outlook 2019

6 JLL Research Report: Australian Shopping Centre Investment Review & Outlook 2019

7  Ibid

8 Stockland ASX Media Release. 21 November 2018

9 Vicinity shaves $37 million from malls portfolio amid retails blues

10 For calendar year 2018, https://www.statista.com/statistics/379112/e-commerce-share-of-retail-sales-in-us/

11 For calendar year 2018, https://www.statista.com/statistics/285978/e-commerce-share-of-retail-sales-in-the-united-kingdom-uk/

12 Colliers International Research and Forecast Report: Industrial Second Half 2018

Disclaimer
This article was issued by Centuria Property Funds No 2 Limited (Centuria) (ABN 38 133 363 185, AFSL 340304), a wholly-owned subsidiary of Centuria Capital Group (ASX: CNI), as Responsible Entity for the Centuria Industrial REIT (ASX: CIP). The information in this article is general information only and does not take into account the financial circumstances, needs or objectives of any person. Centuria is the responsible entity of listed and unlisted property funds, each of which are issued under a product disclosure statement (PDS) that is available on Centuria’s website centuria.com.au for all funds open for investment. An investment in any of Centuria’s property funds carries risks associated with an investment in direct property including the loss of income and capital invested. The risks relating to an investment are detailed in each Fund’s PDS and Centuria strongly recommends that the PDS be downloaded and read before any investment decision is made. Centuria receives fees from investments in its property funds. Past performance is not a reliable indicator of future performance.

South East Queensland (SEQ) is the self-proclaimed “liveable gateway” for good reason – and as Centuria Metropolitan REIT’s (CMA) Fund Manager Grant Nichols explains, it’s also a region that offers promising opportunities for commercial property investment.

Why do we believe we’ll see increasing investor interest in this market? Strong population growth, a diversified and growing economy, and substantial investment in infrastructure should combine to boost demand.

We expect that these factors will swell the number of white-collar jobs – increasing demand for office space, which in turn will push down vacancy rates and raise rental incomes. This should be good news for office property investors – especially those like Centuria Metropolitan REIT (CMA) that is already well-positioned in the market.

A significant and growing population

SEQ stretches from the Gold Coast up to the Sunshine Coast and across to Toowoomba in the west. As Australia’s third-largest population zone, the region has been growing significantly, particularly Brisbane and the Gold Coast. Interstate migration figures show a pattern of steady net migration, with Queensland the only Australian state with consistent net inflows of people from other states. In the five years prior to the 2016 Census, over 220,000 people moved to the Sunshine State – mainly to SEQ where nearly 90% of population growth occurred1.

This is important for property investors because of its implications for demand, but the trend is interconnected with other favourable factors.

A diversified economy poised for growth

Queensland’s economy is diversified across a range of industries including agriculture, resources, construction, tourism, manufacturing and services. Over the past two decades, its economic growth has consistently exceeded the national average2 – and in our view this is likely to continue.

The resources sector is gaining momentum, and a significant pipeline of major infrastructure and development projects is helping propel economic and jobs growth, in turn increasing interstate migration and driving demand for both residential and commercial property3.

Investment in infrastructure

A strong infrastructure program delivers more than business and consumer amenity – it generates jobs, drives investment and facilitates population growth. The pipeline of infrastructure and development projects announced in the past few years is likely to have a material impact on the region – substantially improving its accessibility and amenity – most notably, Brisbane’s Queen’s Wharf precinct and the Cross River Rail.

Queen’s Wharf, touted as a “world-class entertainment precinct”, is an integrated resort development costing $3.6 billion and covering over 26 hectares with retail, dining, hotel and entertainment spaces. As Queensland’s biggest ever tourism project it will be a game-changer for Brisbane, attracting overseas as well as local visitors4. Estimated to contribute $1.69 billion annually to the economy, it will employ more than 2000 people during construction and an estimated 10,000 once operational5.

The Queensland Government’s number one infrastructure project, the $5.4 billion Cross River Rail, comprises a new 10.2km rail line between Dutton Park and Bowen Hills, which includes a 5.9km tunnel under the Brisbane River and CBD. It’s the first major rail infrastructure investment in the inner city since 1986 and is set to generate urban renewal, economic development and the revitalisation of inner-city precincts6.

Outlook for commercial office property investment

These factors indicate a region poised for growth – and for growing commercial property demand. CMA’s portfolio has a significant exposure to the area in general (six SEQ assets with a combined book value of over $480 million)7 with many of the individual assets located in those parts of Brisbane set to benefit most from these developments.

Our view is that Brisbane office markets, where five of CMA’s assets sit, are continuing to improve, with vacancies hitting a five-year low – indicating increasing tenant demand – and continued yield compression – demonstrating strong investment demand. Office sales hit the highest level in a decade during 2018 (at $2.35 billion), increasing 60% from 20178.

With the strong outlook for SEQ, we expect the region will continue to attract tenants and investors alike.


1 Australian Bureau of Statistics. Migration, Australia, 2016-17

2 Oxford Economics Feb 19

3 ABS 3101.0

4 Courier Mail, March 1, 2019. Inside the $3.6 billion Queen’s Wharf Construction Site

5 Queens Wharf Brisbane

6  Cross River Rail: Unlocking the bottleneck

7  As at 31 December 2018.

8  Colliers International. CBD Office. First Half 2019

Disclaimer
This article was issued by Centuria Property Funds Limited (Centuria Property Funds) (ABN 11 086 553 639, AFSL 231 149), a wholly-owned subsidiary of Centuria Capital Group (ASX: CNI), as Responsible Entity for the Centuria Metropolitan REIT (ARSN 124 364 718). The information in this article is general information only and does not take into account the financial circumstances, needs or objectives of any person. Centuria Property Funds is the responsible entity of a number of listed and unlisted property funds, each of which are issued under a product disclosure statement (PDS) that is available on CNI’s website centuria.com.au for all funds open for investment. An investment in any of Centuria Property Funds’ fund carries risks associated with an investment in direct property including the loss of income and capital invested. The risks relating to an investment are detailed in each Fund’s PDS and Centuria Property Funds strongly recommends that the PDS be downloaded and read before any investment decision is made. Centuria Property Funds receives fees from investments in its property funds. Past performance is not a reliable indicator of future performance.

Once pushed into the shadows as superannuation became the tax-effective vehicle of choice, now a new generation of investment bonds are taking centre-stage. Michael Blake, Head of Centuria Life, explains what’s changed.

Following changes by successive federal governments, superannuation is no longer as attractive as it previously was, especially if you’re a high-net-worth investor. The restrictions around contribution caps and the balance transfer cap have meant attention has refocused on other tax-effective products, such as investment bonds.

Investment bonds are attractive for a number of reasons but especially for their tax effectiveness and flexibility. Like superannuation, they are tax-paid investments but unlike super, you have access to your funds at any time. The choice of underlying assets has also widened over the years to include access to every asset class, and this makes them an attractive vehicle no matter what stage of life you’re at.

Investment Bonds: the best of two worlds

In January this year, we introduced our new and expanded range of 22 high-quality investment bonds, Centuria LifeGoals. Some of their key attractions include the ability to:

  • Invest tax effectively over the longer term;
  • Access your investment at any time, unlike superannuation and/or pensions;
  • Save for the future needs of children (for example, education, wedding expenses or a gap year);
  • Generate capital growth;
  • Avoid unnecessary tax return complications found in other investments.

Generally, if you hold your Centuria LifeGoals investment for 10 years or more, you pay no additional tax on your investment withdrawals. If you withdraw prior to this, you will normally only pay tax on the difference between 30% and any higher marginal tax rate applicable to you in that financial year on your earnings. In years 9 and 10 this difference is discounted by one-third and two-thirds respectively.

Key advantages of investment bonds such as Centuria LifeGoals include fee transparency, the low minimum investment amount – $500 per option – and that all fund manager rebates and tax benefits are passed through to you as the investor.

Centuria LifeGoals has features that are similar to a managed fund but are combined with a life insurance policy. You can nominate one or more beneficiaries to whom proceeds of the investment are to be paid in the event of the death of the person who is the “Life Insured”.  As this payment doesn’t form part of an estate and is instead paid directly to the nominated beneficiaries, it by-passes the often complicated and time-consuming probate process.

Advice strategy example: supplementing super
1. Superannuation concessional contributions are currently capped at $25,000 for a financial year. The non-concessional contribution cap of $100,000 also applies for each financial year. Superannuation is also subject to a ‘total superannuation balance’ cap (which may limit investors from making additional contributions). Penalty tax rates apply if you exceed either of these caps.
2. If an individual leaves superannuation to non-dependant beneficiaries, they will incur tax on the inheritance.

Like superannuation, the fund pays the tax on your behalf. You do not have to do tax returns on your investment or pay tax on the fund earnings at your marginal tax rate. While the earnings in super funds are taxed at 15 per cent, you can’t access your super until at least age 55. With super there is also a limit on how much you can contribute. Investment bond funds pay a higher rate of tax (30 per cent) however you can access your money whenever you like and contribute what you like in the first year of your initial investment.

Investment bonds have a number of additional advantages over super. Contributions into them aren’t based on your age or employment situation so they provide an alternative if you don’t meet the super work test or if you are aged over 75 and can’t contribute to super.

There are also very low investment limits. For Centuria LifeGoals, the minimum initial amount is $500, while the minimum additional investment is $100. There is also no maximum investment amount on your initial investment. Subsequent contributions however, are limited to 125% of the previous year’s contribution if you wish to receive all growth and earnings on your investment without any personal tax liability after 10 years from the initial start date of your investment.

Like super, investment bonds are generally invested in managed funds. This provides you with a range of options to suit different risk profiles and strategies. With Centuria LifeGoals, there is an attractive range of investments to choose from, which span multiple asset classes and diversified funds. Our investment menu consists of specialist low-cost index funds and high-quality, complementary active investment managers, who are reviewed on an ongoing basis to ensure they are meeting their investment objectives. You can switch between these options at any time free of charge and there are no tax consequences of doing so.

LifeGoals fund managers

Overall, investment bonds such as Centuria LifeGoals are a fresh and appealing alternative if you’re seeking tax-effective wealth building, peace-of-mind estate planning, access to some of the best fund managers in Australia and an attractive alternative to super wrapped up in one simple tax-effective product.

When it comes to investing your money with a manager, it’s not always just the fund’s performance that causes an investor to stay. A trusting relationship is also key, as David Friedlieb – a retired business owner and Centuria investor – and Dylan Tomkins – Centuria’s Distribution Manager for NSW South and ACT – have discovered.

Dylan Tomkins

I’ve always been drawn to people’s stories. Maybe it’s my country upbringing, but I find people fascinating. Everyone has a story and it’s these stories that help form what type of investor you are.

I joined Centuria five years ago after taking a gap year to travel around England and Canada. It was the same time David was first exploring his options regarding investing with us. He was one of my first clients. Initially I was responsible for handling all the requirements and requests from our retail investors but over the past 12-18 months I’ve been looking after our adviser network. But he’s still my client and we keep in regular contact. He’s always keen to hear about any new opportunities that are coming up that may suit him.

Staying engaged and building relationships with our investors is really important to me. David had his own accountancy business in Wagga Wagga. He’s retired now but still has a few clients he does work for. I love going down there to visit him. We’ll usually have lunch and discuss the markets or how life in general is going for him. He’s a big Richmond AFL fan while I support the Sydney Swans so there’s always a bit of friendly rivalry between us during footy season.

Once David and his wife came up to Sydney and I invited him to Centuria’s head office. It was great to show him around and I think he appreciated seeing where all the action and decisions take place. It’s this personal service that I feel separates Centuria from our competitors.

I don’t take David’s loyalty for granted. I really appreciate he recognises the culture that John and Jason have put in place (Founders, Group CEO John McBain and Head of Real Estate and Funds Management Jason Huljich).

Centuria inspires loyalty from their investors through the culture John and Jason implemented when they first started the business 20 years ago. They haven’t forgotten it was the direct investors that were supporting their organisation in the beginning. So rather than forgetting them when they got big enough to go chasing larger clients, John and Jason have always been careful of maintaining and nurturing their relationships with their direct investors. So, for example, you are never going to get a call centre when you call us; it will always be someone that works for Centuria and knows the business inside out.

This was the culture at Centuria when I first applied to work for them. The people were extremely friendly, genuine and so helpful in the way they guided me at a time when I knew very little about the business. Even though the company has grown tremendously since that time, the people and culture has very much stayed the same.

David is a big one for developing strong relationships. As an accountant he understands the importance of trusting the people you deal with. Like me, he was born and bred in the country so he likes dealing with real people; he likes the personal touch. At the end of the day our investors are trusting us with their money and it’s a privilege to be given this responsibility.

David Friedlieb

I first heard about Centuria through a friend of mine. He was investing with them and getting good returns and I became interested in how they could help me as I was investigating several investing options at the time.

Just as I started investing with them, Dylan joined the company. So, you could say we’ve been on our separate Centuria journeys together, just from two different standpoints. He was one of the first Centuria representatives I met and we’ve maintained a strong relationship since.

I had a favourable impression of Dylan from day one. I was new to this type of investing so I was wary. When you’re handing your money over to someone else to manage, trust is critical. As an accountant I’ve heard some horror stories so I wasn’t going to dive blindly in. Initially I only invested small amounts as I wanted to get to know the company and to feel comfortable with them.

I liked their style from the outset. I feel they research their products really well and clearly outline where the risk and benefits are. Their reporting is also very clear and relevant. If there’s anything I don’t understand I know I can call Dylan. He usually knows the answer but if not, he gets back really quickly. When it’s your money you want your manager to be responsive and he is.

Having Dylan come to Wagga Wagga to visit me is a big plus in my view. We can be a bit cynical in the country and I like that he’s genuinely happy to come and see me here although I’m yet to convince him to switch footy teams.

When I was in Sydney recently, Dylan invited me to the office and we had lunch. He didn’t have to do that but it showed he’s interested in me and why I’m a Centuria investor. In fact, he’s always asking questions about what I’m interested in and what I feel I need from an investment point of view at my stage of life. He keeps me informed of any new opportunities that come up as well, which I appreciate.

I’m certainly pleased that I learned about Centuria when I did. The culture within the organisation is one that I feel comfortable with. They treat you like a person, not a number. You could say I’m an enthusiastic Centuria investor and part of that is the relationship I continue to have with Dylan.

David Friedlieb

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