High yield, low risk. Centuria’s latest unlisted property trust three times oversubscribed

3 June 2017

Huge investor demand for the Scarborough House Fund sees it closed early to new investors.

Centuria Capital today announced that its unlisted property trust, the Centuria Scarborough House Fund, (the Fund), is oversubscribed due to unprecedented demand. Centuria received demand for $150 million of equity with only $46 million of equity on offer and it was closed to new investors after 5 days.

The Scarborough House Fund is a single asset unlisted property trust which owns Scarborough House, located in the Canberra suburb of Woden. Woden is the major health precinct in the ACT, and the property is situated one and a half kilometres from Canberra Hospital.  It was significantly re-built in 2005, and is modern and well-appointed, with 16,782 square metres of net lettable area. The purchase price was $72.3 million.

The property is 100% leased, with 98% of the space taken by the Commonwealth Department of Health, on a lease expiring in July 2025. The neighbouring property was recently leased for 15 years to ACT Health, further cementing the importance of Woden as a health precinct, and the strength of Scarborough House’s location.

Commenting on the reasons for the very strong investor demand, Centuria CEO, Unlisted Property Funds, Jason Huljich, said that low interest rates and an uncertain economic climate is making unlisted property funds, and this fund in particular, a very appealing proposition for yield-starved investors.

“The initial distribution yield is 7% p.a for the 2017 financial year, and  is currently forecast to increase to 7.25% in 2018, figures which compare very favourably to other investments with the same low risk profile.

“Scarborough House also has the highest quality of tenant – the Commonwealth Government – and the weighted average lease expiry (WALE) is long, nearly eight and a half years,” he said.

Mr Huljich went on to explain that in addition to the quality tenant profile, long WALE and high distribution yield, the gearing in the trust is low, at just under 40%.

“The low risk profile and stable yield of the Fund mean that investors may well be comparing it to a fixed interest investment. But with 10 year Treasury bonds returning under 3%[1], Scarborough House looks like a very good alternative,” he explained.

Mr Huljich also noted that the success of the Scarborough Fund has prompted Centuria to actively seek other property assets with a similar profile, suitable for an unlisted trust of this nature.

“The profile of this kind of office asset is clearly very appealing in the current economic climate. But of course, the challenge is to identify the right asset at the right price and in the right location.

“Our focus at the moment is the Sydney and Melbourne markets, because we believe they have the strongest fundamentals, but we have always been opportunistic buyers, and are currently looking at opportunities in all markets,” he said.

In conclusion, Mr Huljich said that he was pleased that so many investors share his confidence that the Scarborough House Fund will provide the strong risk-adjusted returns they are looking for.

“It’s a great vote of confidence in our investment process and track record of success,” he said.

[1] https://www.bloomberg.com/markets/rates-bonds/government-bonds/australia