Full Disclosure: Andrew Essey and Flint Davidson

17 December 2018

In November 2018, Centuria Property Funds Limited (Centuria), a subsidiary of Centuria Capital Limited finalised the acquisition of the $645 million, four-property Hines office portfolio – Centuria’s biggest deal to date. Centuria’s Head of Transactions Andrew Essey worked closely with CBRE National Director Capital Markets Office, Flint Davidson, throughout the deal.

Andrew Essey

I met Flint when I took on my current role in mid 2017. Before that I was Centuria’s Leasing Manager, then Fund Manager so I knew most of the CBRE team but hadn’t dealt directly with Flint. We do a lot of work with CBRE and earlier this year, Centuria hosted a dinner for their capital markets team to get to know them better.

The property industry is very relationship driven. You need to be able to get on with the people you’re working on deals with as that helps create trust. Flint was working on behalf of Hines and it was his role to find the buyer and deal for his client. Even after the deal kicked off, I didn’t anticipate just how much time we’d be spending together throughout the process.

We knew the Hines portfolio was the right fit for us, particularly Centuria Metropolitan REIT (ASX: CMA). Only a select group of companies were invited to bid and we were one. As soon as we got the details we put all available resources into doing as much preliminary work as we could. We wanted to position ourselves as well as possible so that when the close date came, we were as comfortable with our bid as we could be.

We had a lot of people working on it, including around 15 Centuria staff, external providers such as lawyers, investment bankers, consultants, valuers and leasing agents. Of course, Flint and his team had to dedicate plenty of their own resources to the campaign. They were invaluable in helping us to really understand the value of the portfolio, and we demonstrated to them early on that we were a contender.

After we put in our final bid, we were up against one other group. We weren’t sure what else we could do so Flint suggested we should articulate the amount of work we’d done in a letter and send it to Hines. In the letter we also shortened our due diligence to three weeks – which for this type of deal was very competitive. We were able to do this because we’d done so much work upfront and had had so many discussions with Flint and CBRE.

I believe this is where the tide really turned in our favour. With many of the Hines team in the US, the letter gave us a chance to detail that we really understood what we were buying – and hence we were the lowest risk option. Providing that letter and demonstrating what our team had done was the tipping point for us and was a great suggestion from Flint.

Working with Flint and his team, who included Michael Andrews, Neva Courts and Scott Gray-Spencer among others, was great and our working relationships definitely strengthened as a result. Our teams would speak to each other seemingly 10 times a day, and there were many after-hours calls. One time I was at home trying to put my two-year-old daughter to bed when they phoned. In the end, the call was taking so long my daughter joined in and gave her two cents’ worth. There were many times this happened – and it was the same for the CBRE team too – they all had kids and it was a constant juggle.

The day the campaign result was expected, we were all nervous. I called Flint and asked if it was worth us going through the points we’d made in our letter with them again. He said we should probably sit tight as he’d just received a heads of agreement from Hines with our name on it. After all the work put in to that point, you can imagine how exciting this news was.

Despite this I thought I’d have a bit of fun with our Head of Real Estate and Funds Management, Jason Huljich, and asked Flint to pretend we didn’t get it. When Flint told Jason we were not the successful party, Jason’s face changed colour, only marginally of course, and he just asked, “Why? Why not?” Of course, we quickly told him the truth. It was a very good feeling.

The deal demonstrated to us, and we believe the market as well, that we are serious and can compete with anyone, including the big groups. People know when they deal with us, we do what we say we’re going to do. We operate on a partnership basis because we all want the same thing: the seller wants to close a deal smoothly and without too many speed bumps and so do we.

It was great working with the CBRE team on this deal and it’s definitely strengthened our relationship. I’ve caught up with Flint and some of the others since. There may have been hugs involved.

Flint Davidson

I hadn’t had the opportunity to work much with Andrew before the Hines deal but I’ve worked with Centuria many times over the 21 years I’ve been in the industry – both selling for and to, them. I’ve sold to them on a number of occasions – including the Energex-Nundah deal in 2017 for $106 million, and more recently the Hines portfolio.

We were appointed as selling agents by Hines Global REIT to dispose of their portfolio in one line. Key for Hines was completion certainty and price maximisation. They wanted to sell to one group that they were confident would complete on all four buildings while maximising their price. So we were very specific about the buyers we invited into the process.

We thought Centuria would be a likely buyer because their CMA REIT was slanted towards near-city and metropolitan assets of good quality and we thought the Hines properties and the return metrics would be well suited to that fund.

Andrew took the lead on the negotiations and due diligence completion and everything he said Centuria would deliver, they did. This was refreshing as often in this environment, timeframes can slip or buyers look for ways to renegotiate terms. It’s pretty remarkable when you look at the size of the deal that Centuria were able to execute on it in just three weeks, when typically, a single transaction can take up to six.

Andrew was very focused and his team handled a big workload throughout, including weekends and late-night calls. We both have young kids so often the kids would get involved in the calls. I thought at the time how good it was to have children involved in a $645 million deal! But seriously, these types of transactions can be fairly stressful. However, Andrew always dealt with issues efficiently and with good humour – he’s a bit of a kid himself.

Having strong relationships with players in the industry is important. Property can sometimes be all about the numbers and the assets but there is always a human element to negotiating deals. At the end of the day when completion is so important, the vendor wants to see the whites of the buyers’ eyes and feel comfortable that what they are saying they’ll do they can do.

We arranged a couple of calls directly with the vendor and the buyers prior to the decision being made. There really was nothing in it between Centuria and the other buyer. Price is important but often it comes down to a gut feel and who has done more work in the lead-up to putting forward an offer.

I thought it’d be a good idea for Andrew to put together a letter outlining what his team had done and send it off to the vendor. I think it’s fair to say that letter gave Hines a lot of comfort that Centuria were comfortable they weren’t going to find anything in due diligence that was going to be a surprise to them.

Centuria should be commended for the way they handled the deal. It was one of the smoothest transactions I’ve been involved in and it’s ironic because it’s also one of the most complex I’ve been involved in as well. It is a credit to them that they were able to handle the workload and is reflective of their business culture. Because I didn’t know Andrew that well at the start of the deal I have to admit I had some initial reservations. But he proved himself to be more than capable – so he’s passed the test.

100 Brookes Street Fortitude Valley


Disclaimer
This article 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 Centuria Capital or its subsidiaries. It should be read in conjunction with periodic and continuous disclosure announcements which are available at centuria.com.au.
This media release is provided for general information purposes only. It should not be relied upon by the recipient in considering the merits of Centuria or the acquisition of securities in Centuria subsidiaries.
Centuria Property Funds Limited (ABN 11 086 553 639, AFSL 231149) and Centuria Property Funds No. 2 Limited (ABN 38 133 363 185, AFSL 340304), subsidiaries of the Centuria Capital Group, are Responsible Entities of Centuria’s listed and unlisted property funds. These funds are issued under a disclosure document that is available on Centuria’s website 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.
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 article 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 Centuria 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 media release.