Centuria’s Head of Real Estate and Funds Management, Jason Huljich, shares his view on current key property themes and the outlook for commercial and industrial property.

What is your role at Centuria Capital?

My role at Centuria Capital is Head of Real Estate and Funds Management. So I mainly oversee the $4.6 billion dollars of assets we have in both our listed and our unlisted property funds, and I work closely with our transactions team to analyse and acquire assets, and with our distribution and funds management teams working with our investor clients.

What are some of the current key property themes?

Some of the key property themes we are seeing at the moment is continued strength in the commercial and industrial markets, particularly in Sydney and Melbourne.

Sydney is being driven by infrastructure throughout the state, so the WestConnex and the Metro Rail, and Melbourne is being driven by high population growth.

Brisbane and Perth are a little bit different. They have a strong tenant base dedicated to the mining industry. When the mining downturn occurred a few years ago we have seen demand come off, but in the last six to 12 months we’ve seen their vacancy rates decline and all of the big mining users actually take sub-lease space off the market as they gear up for improved conditions.

Canberra and Adelaide have high headline vacancy rates but when you break it down it is actually a lot more positive. The high-quality assets have very low vacancy but the more older assets, obsolete assets have high vacancy, so they distort the overall measure.

We are also seeing a lot of demand from investors in this space, looking for high quality commercial and industrial assets. We have all the onshore groups – so the REITS, the high net worths, the family offices and the wholesale funds. But then offshore, where the Chinese mainland were big buyers three, four, five years ago – they have dropped away and buyers from Hong Kong, Japan and Singapore have really taken up their space.

As we close out 2018 calendar year, what is your outlook for commercial and industrial property?

Our outlook for industrial and commercial property going forward is for another very strong year. All the major banks forecasters have interest rates staying low throughout the year which definitely helps the real estate sector.

Commercial leasing in Sydney and Melbourne has been extremely strong, probably the strongest I have seen it in 20 years, which bodes well for continued rental growth going forward.

The industrial sector has been a standout. There has been a lot of strength there. We’ve had huge demand by offshore and onshore investors.

A new group that’s come into that space is the private equity industry. Blackstone has been one of the largest buyers of industrial assets in the market for the last two or three years and this has driven down cap rates to historical lows in the industrial market. Overall, we expect a very strong 2019.

How are your funds performing?

The IPD PCA index rates all the unlisted funds in this sector, and we have had six out of the top 10 for the last six quarters and, in the last two quarters, we have had one to five as well. You don’t get much better performance on the unlisted side.

On the listed side we’ve got the two REITs.

CMA has had some really strong NTA growth and we’ve really been transforming that portfolio – so we have been selling off the two industrial assets we have got in the portfolio and also selling down some of the smaller assets.

Very recently we just bought the Hine’s portfolio which was a $520 million portfolio of very high quality office assets, and that has just transformed that portfolio into a very high quality office sector specific REIT. At the moment we are the largest metropolitan office REIT on the ASX and once Investor Office Funds gets taken off the boards, as it’s going through a buyout, we will be the largest office REIT on the index as well.

CIP, which is our industrial REIT, has had great share price growth. It’s returning about a 6.5% income yield and that’s 1.1 billion high quality industrial assets.

What is Centuria’s Investment philosophy?

Centuria’s main investment philosophy is that we are asset specific buyers.

If we identify an asset we think we can make money for our investors, then we are a buyer of that asset.

We also like buying assets that might have issues so that we can get a discount on the purchase price of that asset if there is something there we think we can fix. So something like vacancy, we really back ourselves to lease up vacancy in assets and its definitely one of Centuria’s key strengths.

One of the other things that diversifies us from others is we also like to manage our assets internally. Where a lot of our competitors would outsource the facilities management, property management and maybe the asset management, we have all that in-house and we believe we get better results from that.

Disclaimer

This video was issued on 3 December 2018 by Centuria Property Funds Limited (ABN 11 086 553 639, AFSL 231 149) 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-29/11/18-00886.

Centuria Property Funds Limited (CPFL) is pleased to announce the appointment of Mr Grant Nichols as Fund Manager of Centuria Metropolitan REIT (CMA).

Mr Nichols brings over 16 years of experience across real estate and funds management with a deep track record particularly focused on commercial real estate. Most recently, Mr Nichols was Fund Manager of the ASX listed Australian Unity Office Fund. Mr Nichols has held roles across property management at AMP Capital Investors and asset management at Investa Property Group before holding senior roles as Fund Manager of Investa Diversified Fund and Investa Second Industrial Trust.

Jason Huljich, Head of Real Estate and Funds Management, said: “Following an extensive search, we are delighted that Grant Nichols has agreed to join us as Fund Manager of CMA. Grant’s experience is highly aligned with the operating and strategic initiatives being executed to create value for CMA unitholders and we look forward to welcoming him on-board in January 2019.”

“We would also like to extend sincere thanks to Doug Hoskins, Acting Fund Manager of CMA, for his strong contribution during this time, which has seen the significant evolution of the portfolio’s size, scale and quality as CMA continues to transition towards a pure play metropolitan office REIT. Doug will resume a full time focus as Fund Manager in our unlisted real estate division following Grant’s commencement with CMA.”

Centuria Capital Group has grown from $4.6 billion AUM to $5.5 billion1 since 31 December 2017

Centuria Capital Group (Centuria) today announced that Centuria Industrial REIT (CIP) has added two industrial properties to its portfolio. The properties were purchased for a combined total of $54.4 million (excluding costs), with $51 million of the purchase price raised via an underwritten entitlement offer.

Details of the properties are as follows:

  • 149 Kerry Road, Archerfield in Queensland, acquired for $30.6 million; and
  • 155 Lakes Road and 103 Stirling Crescent, Hazelmere in Western Australia, acquired for $23.8 million.

The two acquisitions will add to the recent acquisition of Cargo Park in Tullamarine, VIC combining to grow CIP’s portfolio by around $100 million since September 2018.

These acquisitions round out another active year for Centuria, where the company was able to successfully grow its platform of listed and unlisted trusts via strategic acquisitions, while at the same time maintaining strong operating performance and returns to investors2.

In October 2018, Centuria Metropolitan REIT (CMA) acquired three metro office assets and a 25% stake in a fourth, valued at $520.9 million in total. Partially funded by a $276 million equity raising, at $645 million the total acquisition and capital raising together represented Centuria’s largest single direct transaction ever, and the second largest commercial transaction in Australia this year. CMA’s portfolio grew to approximately $1.5 billion as a result, and CNI’s market capitalisation rose to $500 million

This month, CMA will settle and begin receiving rental income from 2 Kendall Street, Williams Landing in Victoria – a property which is leased to Target for 10 years, with fixed rent reviews.

In other significant transactions this year, Centuria purchased an office property in Geelong for $115.25 million, as well as a 50% share in the Bendigo & Adelaide Bank headquarters in Adelaide for $92.3 million, both of which are held in single asset unlisted funds.

Commenting on the most recent additions to CIP’s portfolio of high-quality industrial assets, Centuria’s Head of Real Estate and Funds Management, Jason Huljich, said that this recent deal takes CIP’s acquisitions to almost $100 million since September 2018.

“Both properties fit with CIP’s strategy to invest in fit-for-purpose, quality assets, well-positioned in established industrial markets and close to major transport infrastructure.

“They are both 100% leased to high-quality ASX-listed tenants, with strong potential for renewals, and were purchased with an attractive weighted average initial yield of 7.0% p.a.

Centuria Capital Group CEO, John McBain said that 2018 had been a year of growth and consolidation for Centuria and that he anticipates further activity in 2019.

“Our assets under management were $4.6 billion at the end of 2017, and over the year this figure has grown to $5.5 billion as a result of strategic acquisitions and the expert active management of our existing portfolio.

“We have a track record of providing funds management and active property management – and we are pleased we have been able to maintain and improve our results in a year characterised by significant growth,” he said.



1 As at 4 December 2018

2 Past performance is not indicative of future performance.

Centuria Industrial REIT (CIP), has acquired a $42.0m1 property at Cargo Park, 1 International Drive, Westmeadows, VIC. The property is strategically located in immediate proximity to Melbourne Airport and is considered the pre-eminent unit estate servicing the precinct.

The property is a 25,866sqm multi-tenanted industrial estate located on a prominent 5.6ha freehold site with significant exposure to the Tullamarine Freeway. The estate has recently benefited from a $7.1m refurbishment program, is 87% occupied2 with a WALE of 2.3 years and has been acquired on a capitalisation rate of 7.0%3.

CIP Fund Manager, Mr Ross Lees commented “The acquisition of Cargo Park is consistent with our strategy to invest in fit-for-purpose, quality assets in established strategic locations. Cargo Park will add to our existing scale in the Victorian industrial sector, providing the opportunity to actively add value through our hands on, relationship-based leasing approach, which has resulted in over 90,000sqm of new leases and renewals in CIP’s Victorian portfolio over the past 18 months.

“This transaction is testament to Centuria’s capability to identify and deliver quality properties in a competitive market.”

The transaction will increase CIP’s portfolio to 39 assets with a value of $1.06bn4. Settlement is expected to occur in November 2018 and will be funded through existing debt facilities.


1 Purchase Price includes a rental guarantee of up to $0.45m that may be applied to current vacancies. The Purchase price also includes an amount of $0.5m that is held in retention and will be returned to the Purchaser if certain conditions are not satisfied post settlement.
2 Before application of rental guarantee proceeds
3 Capitalisation rate is based on independent valuation undertaken by JLL.
4 As at 30 June 2018 with pro forma adjustments to reflect the sale of 39-45 Wedgewood Drive, Hallam, VIC, the acquisition of 616 Boundary Road, Richlands, QLD and Cargo Park, VIC

 

Centuria Metropolitan REIT (CMA) and the Lederer Group have entered into agreements to acquire $645 million of four high quality office assets from a subsidiary of Hines Global REIT, Inc.

CMA will acquire three assets (818 Bourke Street, Melbourne, 825 Ann Street and 100 Brookes Street, Fortitude Valley, Brisbane) and a 25% interest in 465 Victoria Avenue, Chatswood, Sydney for $501 million.

The Lederer Group will acquire the 75% balance of the Chatswood asset for approximately $125 million via a co-ownership agreement.

This is the third successful direct asset partnership with the Lederer Group this calendar year, following the acquisition of 201 Pacific Highway, St Leonards and 80 Grenfell Street, Adelaide. Centuria now manages over $300 million of direct real estate assets on behalf of the Lederer Group.

John McBain, CEO of CNI, said:

“This transaction represents another step change for the Centuria platform. The significant increase in high quality assets under management and the major co-investment in CMA (circa $78 million) is testimony to CNI’s strong, ongoing commitment to its funds management vehicles.”

“Post equity raising, CNI’s market capitalisation will increase to over $500 million, making CNI the 247th largest ASX company and further enhancing potential inclusion in the ASX300.”

“We are also delighted to invest alongside the Lederer Group for the third time this calendar year, they are a substantial and important investor in the Centuria platform and we welcome their continued interest”.

For more information:

Australia’s largest ASX-listed metropolitan office REIT set to buy four major properties in Australia’s second largest commercial property transaction of the year

Centuria Property Funds Limited (CPFL) as Responsible Entity of Centuria Metropolitan REIT (ASX: CMA) today announced that CMA has entered into unconditional agreements to acquire three office properties, and a 25% interest in a fourth, for a total of $520.9 million.

The properties are located in key inner metro locations in Melbourne, Brisbane and Sydney, and are being sold by a subsidiary of Hines Global REIT, Inc.

Details of the transaction:

  • CMA is acquiring:
    • 818 Bourke Street, Docklands
    • 825 Ann Street, Fortitude Valley
    • 100 Brookes Street, Fortitude Valley

    and a 25% interest in 465 Victoria Street, Chatswood. The remaining 75% of 465 Victoria Street will be purchased by the Lederer Group. This is the third successful direct asset partnership (201 Pacific Highway, St Leonards and 80 Grenfell Street, Adelaide) with the Lederer Group in 2018, and Centuria now manages over $300 million of direct real estate assets on behalf of the Lederer Group.

  • Centuria Capital Limited (CNI) will contribute $20 million to the purchase price. CMA will pay a total net price of $500.9 million, reflecting a 3.8% discount to the total independent valuations of $520.9 million, and an initial yield of 6.3%.
  • The acquisition will be partially funded by a fully underwritten equity raising of $276 million at an issue price of $2.43 cents per CMA security.

Portfolio benefits of the acquisition

According to Jason Huljich, Centuria’s Head of Real Estate and Funds Management, the properties are complementary to CMA’s existing portfolio and in line with its strategy of acquiring fit-for-purpose, quality metropolitan assets.

“Once this transaction is complete, CMA will be more than 84% exposed to key East Coast markets by portfolio value.

“This means a better growth profile for the fund going forward, particularly when you consider that 93% of leases are subject to fixed rental reviews of an average of 3.7% p.a.”,[1] he said.

Second largest Australian property transaction this year

Commenting on the total acquisition and capital raising – which at $645.75 million cumulatively represents Centuria Capital Group’s largest single direct transaction and the second largest commercial transaction in Australia this year – Mr Huljich said the activity is evidence of the Fund’s repositioning strategy in action.

“Our aim has been to create a high-quality, pure-play A-REIT, with the kind of strong property metrics that can deliver returns for our investors in the form of consistent, attractive distributions. Over the four years since its inception, CMA has grown into the country’s second largest pure-play office fund, and this transaction will increase its portfolio by 56% to approximately $1.5 billion across 23 properties.

“This transaction is further evidence of our team’s ability to identify and deliver quality properties in a competitive market.

“We are pleased to announce this major transaction for CMA – not only because it improves the overall quality of the portfolio, but because it ultimately repositions CMA as a major office A-REIT, poised to deliver strong returns to investors.” Mr Huljich said.

Acting Fund Manager for CMA, Doug Hoskins, went on to talk about the effect of the transaction on CMA’s portfolio.

“The addition of these four quality office properties will dramatically improve the quality and scale of CMA’s portfolio, increasing its overall WALE, smoothing our lease-expiry profile and adding stability to the return profile. The assets are located in areas of strategic interest to us, where we have a track record of leasing success and are confident we can add value.

“They also further strengthen and diversify our tenant portfolio, so that it is now 79% leased to government, ASX-listed, national and multi-national businesses, in-keeping with our strategy for investors to lease to a mix of high-quality tenants.

“We have successfully sold our smaller non-core office properties at a premium to book value and have started the sale process for our remaining industrial properties – as we continue to transform CMA into a leading pure-play office A-REIT,” Mr Hoskins said.

Mr Huljich concluded by saying that the properties will be a positive addition to CMA’s portfolio in terms of scale and liquidity, paving the way for its inclusion in the S&P/ASX 200 Index in the near future.

[1] By income as at 30 September 2018.

Acquisition, leasing success drives 95% profit growth, 17% ROE1

Positive portfolio revaluation and strategic acquisitions result in transformational year as demand for Australian industrial property increases

Centuria Property Funds No. 2 Limited (CPF2L) as Responsible Entity of Centuria Industrial REIT (ASX: CIP) today announced full-year financial results to 30 June 2018, topping off a year with a significant uplift in portfolio valuation and a 17% return on equity (ROE) for investors.

FY18 highlights include:

  • Distributable earnings2 (EPU) of 19.5 cents per unit (cpu) and distribution (DPU) of 19.4cpu,
    in line with guidance
  • Statutory profit up 95% year on year from $50.8 million to $98.9 million
  • 2% return on equity1
  • Total assets increased by 19%, from $921 million to $1.1 billion3
  • Record leasing volumes, with more than 238,000sqm leased

Ross Lees, CIP Fund Manager commented on the Fund’s FY18 results, saying “We delivered strong results for investors, including a 17.2% return on equity1 and a distribution of 19.4 cents per unit, while transforming and significantly growing our portfolio.”

Overview of operations

According to Mr Lees, growth in the portfolio was driven by two things – a positive revaluation of existing assets, and leasing activity.

“The positive revaluation of existing assets can be attributed to the leasing successes of our asset management team, combined with some capitalisation rate compression.

“Our active asset management also led to record leasing volumes, with more than 32% of the portfolio leased during FY18, and occupancy rising to 94.5%4. Tenant retention was high at 78%5 and portfolio arrears of less than 0.3% of billings are evidence of the success of our proactive engagement with tenants.

“On the transaction front, we acquired four properties in off-market transactions, for a total of $78.4 million, and sold two non-core assets for a total of $40.1 million.

“The properties we purchased are complementary and accretive to the portfolio – overall they deliver an average initial yield of 8.2% and a long average weighted average leasing expiry (WALE)6 of over seven years. Three of the four properties acquired also adjoin existing assets,” Mr Lees said.

“The sale of two properties was based on their relatively short WALE of 1.8 years, which heightened the leasing risk of the portfolio. Nonetheless, they were sold at an average of 10% premium to book value and contributed an internal rate of return of 17% over the period of our ownership,” Mr Lees said.

Outlook

In conclusion, Mr Lees highlighted that CIP’s asset management team achieved record leasing volumes in FY18, while at the same time reducing gearing,7 and increasing net tangible asset backing and return on equity.

“Looking forward, we expect the economic tailwinds provided by e-Commerce and last mile logistics to support our portfolio, which is well-suited to the needs of these businesses, because we own many high quality and infill properties located close to transport and logistics hubs.

“CIP remains Australia’s largest ASX-listed income-focused industrial REIT, and our balance sheet strength and flexible capital structure means we are well-positioned to continue our strategy of active property management and strategic growth,” he said.



1 Return on Equity is calculated as (closing NTA minus opening NTA plus distributions) divided by opening NTA.
2 Distributable earnings is a financial measure which is not prescribed by Australian Accounting Standards (AAS) represents the profit under AAS adjusted for specific non-cash and significant items. The Directors consider that distributable earnings reflect the core earnings of CIP.
3 Since 30 June 2017.
4 By income.
5 By area.
6 By income.
7 Gearing is defined as total borrowings less cash divided by total assets minus cash and goodwill.

Active management supports 15% ROE1, total assets up to $1.0b

Inclusion in S&P/ASX 300 Index, strategic acquisitions and portfolio revaluation cement position as Australia’s largest listed metro office trust


Centuria Property Funds Limited (CPFL) as Responsible Entity of Centuria Metropolitan REIT (ASX: CMA) today announced full-year financial results to 30 June 2018, revealing strong returns on the back of growth and operational performance.

FY18 highlights include:

  • Guidance achieved: distributable earnings2 (epu) of 18.6 cents per unit (cpu), distributions per unit (DPU) of 18.1 cpu
  • Statutory profit up 126% on FY17, from $37.7 million to $85.1 million
  • Gross assets reached $1.0 billion3 for the first time, up 52% year on year
  • Inclusion in the S&P/ASX 300 Index
  • Highest portfolio occupancy rate achieved since inception, at 99%4
  • Generated 14.9% return on equity1, with net tangible assets growing 7.3%5.

Doug Hoskins, CMA Acting Trust Manager described FY18 as a milestone year for CMA, where it delivered positive returns for investors and achieved significant goals including inclusion in the S&P/ASX 300 Index for the first time, as well as growth in total assets under management to $1.0 billion2.

“CMA has continued its track record of delivering positive investment returns, delivering distributable earnings1 of 18.6 cents per unit and distributions of 18.1 cents per unit, in line with guidance. Total return on equity for FY19 was 14.9%4, an excellent result for investors.

“The Fund’s distributable earnings increased 86% from $22.8 million to $42.4 million, while distributions per security rose from 17.5 cents to 18.1 cents,” Mr Hoskins said.

The fund also enjoyed excellent access to both equity and debt markets, with gearing currently at 28.3%6, within its guidance range.

“The flexibility offered by our balance sheet and prudent capital management means we are well-positioned to act when we identify value opportunities in the market,” Mr Hoskins said.

Operational overview

A key highlight was growth in the value of CMA’s portfolio, which increased to $930.5 million[7]. Mr Hoskins explained this was a result of key revaluation gains across the portfolio and a continued investment appetite for quality metropolitan office assets.

“We leased 17,970 sqm, or 9.75% of the portfolio’s net lettable area, and increased average portfolio WALE to 4.0 years8. Forty-seven per cent of the portfolio’s expiry profile is now out to FY23 or beyond. Occupancy across the portfolio is at its highest since inception at 99%9.

“The ten-year, 3,503 sqm lease we executed at 203 Pacific Highway, St Leonards is a record rent for the property, and contributed strongly to the positive revaluation of this key asset.

“On the transaction side, our portfolio continued to improve this financial year, with more than $256 million in high-quality transactions achieved. Acquisitions over the period were accretive in comparison to the portfolio’s like-for-like average capitalisation rate,” Mr Hoskins said.

“We divested two assets in NSW: 3 Carlingford Road, showing a 27.2% premium to book value, and 44 Hampden Road, which reflected an internal rate of return to unitholders of 18% over the period of CMA’s ownership. The sale of 3 Carlingford Road represents the fulfilment of a strategy to deliver and unlock capital value to CMA unitholders.”

Mr Hoskins went on to say that CMA’s agreement to acquire retailer Target’s new headquarters at 2 Kendall Street, Williams Landing in Victoria is on track and that, with recent transactional activity in the area, the signs are positive for further rental and capital value uplift.

Outlook

In conclusion, Mr Hoskins said that moving into FY19, CMA’s focus will be continuing to build Australia’s pre-eminent, metropolitan office REIT.

“The coming year will see us complete the acquisition of our Williams Landing property and settlement of 3 Carlingford Road, Epping.

“The trust also anticipates divestment of the portfolio’s industrial assets if market conditions are favourable, which would subsequently provide investors with a pure-play, high quality metropolitan office portfolio.

“We expect returns will continue to be underpinned by a broad income stream from quality tenants. At the same time, we are seeing demand for metro office property increasing and, as Australia’s largest metro office trust, we are well positioned to find value and deliver returns to investors from these markets,” he said.


1 Return on Equity is calculated as (closing NTA minus opening NTA) plus distributions divided by opening NTA.
2 Distributable earnings is a financial measure which is not prescribed by Australian Accounting Standards (AAS) represents the profit under AAS adjusted for specific non-cash and significant items. The Directors consider that distributable earnings reflect the core earnings of CMA.
3 Including the forecast settlement of 2 Kendall Street, Williams Landing VIC, total AUM of $958.1 million.
4 By area.
5 NTA per unit is calculated as net assets less goodwill divided by closing units on issue.
6 Gearing is defined as total assets borrowings less cash divided by total assets minus cash and goodwill. 30 June 2018 pro-forma gearing of 30.0% adjusted for 2 Kendall Street, Williams Landing, VIC and sale of 3 Carlingford Road, Epping, NSW.
7 Includes 2 Kendall Street, Williams Landing VIC as if complete.
8 By gross income.
9 By area.

Centuria Industrial boss Ross Lees maintains Australia’s grass-roots economic strength and diverse industrial activity will continue to support demand for mid-range space.

Amid heightened nervousness about toppish valuations reflected in record low yields, Mr Lees said of the sector: “It’s not one size fits all.”

“What happens inside an office building is all the same. With industrial it’s like a day on Discovery Channel, there’s always something interesting happening.”

Animal instincts are certainly alight within the drab and anonymous walls of the warehouses that dot locations such as Truganina in Melbourne and Chullora in Sydney.

The ‘shop to shed’ trend of e-commerce suppliers deposing physical retailers is influencing demand. But so too is the revival of smaller traditional manufacturers, spurred by the Australian dollar drifting back to less punitive levels and the declining relative cost of labour flowing from automation.
The biggest pure-play real estate investment trust (REIT) with $1.1 billion of assets, the ASX-listed Centuria has also battening down for tougher times by reducing gearing and improving the leasing tenor across its portfolio.

But if Lees is concerned about the cooling residential market flowing through to an industrial sector shakeout, he’s not letting on. On balance, Centuria is interested in buying assets “in a measured fashion”, having purchased $120 million of property and divested $40m in the last 12 months.

“In Sydney, yields are moving to unprecedented lows of 6 per cent and are moving to 5 per cent,” Mr Lees said.

“With yields at historical level we haven’t seen before, the natural inclination is for people to be uncomfortable. While no-one has a crystal ball, we think (the sector) is pretty well supported.”

He said the Sydney market was seriously land constrained, with the squeeze apparent in areas such as Homebush, Lidcombe, Moorebank and Chullora.

“While councils are cognisant of retaining employment bases, buildings are likely to be inefficient because they can’t operate around the clock, or truck access is limited.”

Mr Lees said the Melbourne market was more resilient, especially given the angst leading up to Ford, Toyota and General Motors Holden ceasing local manufacturing.

Overall, he said, the sector was likely to remain well supported because of the more diverse profile of buyers. “We are seeing a gradual introduction of REITs coming back into the industrial market after pulling back in 2009,” he said.

“Singapore-based buyers (such as Maple Tree) are out in force, a trend that’s been strengthening since 2014-15.”

Private equity buyers are also dusting off their wallets, as are wealthy individuals.

Centuria’s warehouse assets are underpinned by prime tenants such as Woolworths, Australian Wheat Handlers, Greens Foods and packager Orora.

But while these may be big-name lessees, Centuria is not interested in the mega-warehouse developments linked to automation, such as Charter Hall’s 16 hectare state-of-the-art project in Dandenong South on behalf of Woolworths.

“Those assets don’t excite us,” Mr Lees said. “They are interesting but we prefer buildings on average 20,000 square metres, because they are the buildings we know we can keep leasing.

“There aren’t that many suitable tenants for an 80,000 sq m plus facility, but with 10,000-15,000 sq m (properties) there’ll always be turnover.”

Mr Lees said that unlike a few years ago, tenants were requesting longer-lease terms, rather than having to be offered incentive as in the past.

This change of attitude – driven in part by investment in automation – has helped Centuria increase its weighted average lease expiry (WALE) to 5.2 years from 4.4 years 12 months ago (or 3.4 years taking into account the natural WALE reduction over the period).

The flurry of activity means Centuria will have re-leased 33 per cent of its portfolio in the 2017-18 year. A further 17 per cent was leased in 2016-17, meaning half the portfolio has turned over since Centuria obtained the management rights to the trust from 360 Capital in late 2016.

Leasing rates will start reflecting current land values, which have doubled in Sydney and Melbourne. In both cities, pre-lease incentives have tapered over the last two years.

“There’s not much stock, so the next developments will reflect the higher land cost and required rates of return,” he said. “The days of the pre-lease market undercutting existing buildings are behind us.”


By Tim Boreham
Sydney Morning Herald

Investor appetite for suburban metro properties demonstrated by high yield

Centuria Metropolitan REIT (CMA) today announced the sale of 3 Carlingford Road, Epping, for $36 million to a private buyer. The sale price represented a 118% increase on the purchase price of $16.5 million in December 2014.

The fully-leased office building sold with a tight passing yield of 5.4%, demonstrating the strength of suburban markets. The property gained a 27.2% premium between its last independent valuation in November 2017 and the sale.

CMA Trust Manager Nicholas Blake explained “With more than a dozen bidders competing for the asset, we are clearly continuing to see a strong demand for metropolitan property – and in particular for high quality properties with development potential.

“We usually look for and manage properties with an eye to leaving their purpose and use open-ended. Such flexibility is the best strategy to future-proof assets for investors, as well as addressing the need for high quality suburban stock.”

It’s clear that investors have sustaining appetite for such stock, against a limited supply of the same.

The sale campaign was run by Guillaume Volz and Henry Burke of Colliers International, and Tim Grosmann and Graeme Russell from Savills.

Grosmann, Director, Capital Transactions at Savills, said “The excellent result on Epping is a direct result of prime property fundamentals; a corner block, close proximity to a train station and strong rental reversion in a market that is starved of commercial suburban stock.”

Guillame Volz, National Director, Development Sites – Residential for Colliers, affirmed that “The sale demonstrates that strong buyer interest still exists from both local and offshore buyers for well-located suburban properties, with passing income and good development potential.”

Blake went on to say that “Applying a forward-looking lens is key to our acquisition strategy, and it pays dividends when done well. On this occasion, we have been able to realise a premium on the asset, and achieve a tight passing yield of 5.4% which compares positively against typical yields we see in key NSW metro markets of around 6% to 7%.”

For investors in this REIT, the success is testament to the importance of fund managers with deep market knowledge and the skill of identifying good opportunities with the potential for capital gain, and of actively managing assets to capitalise for significant upside. With this arsenal, CMA continues to deliver value to its investors with significant return on investment.

Contracts have been exchanged and settlement is expected in September 2018. The proceeds will be used to unlock select, accretive acquisition targets and further capital management initiatives.

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