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Centuria Capital Group 1H19 results

Strategic property acquisitions support REIT AUM growth

Centuria Capital Group (ASX: CNI) today announced half-year results for the period to 31st December 2018. Highlights include:

  • Strong 14.3% AUM growth in 1H19 to $5.6 billion, underpinned by 20% increase in real estate AUM to $4.8 billion, from:
    • Property acquisitions, valued at $740 million, including the Hines portfolio, and
    • $160 million1 revaluation uplift, driven by significant leasing and asset repositioning
  • Delivered operating net profit after tax (NPAT)2 of $21.7 million
  • Delivered 1H19 operating earnings per share (EPS) of 6.5cps3
  • 64% increase in co-investment earnings to $15.4 million
  • Recurring revenue growth of $42 million, up 30.8%
  • Expanded investment bonds offering with launch of Centuria LifeGoals
  • Delivered a 3.7% increase in 1H19 distribution of 4.25 cents per share (cps)
  • FY19 distribution guidance reaffirmed at 9.25cps.

Financial results 1H19 and FY19 guidance

1H19 1H18 Variance
Operating NPAT2 $m 21.7 30.2 (28.1%)
Operating EPS3 cps 6.5 12.1 (46.3%)
Statutory NPAT4 $m 21.4 33.6 (36.3%)
Statutory EPS4 cps 6.4 13.4 (52.2%)
Distribution per stapled security cps 4.25 4.1 3.7%

Operational update

CNI continued to scale up its funds management platform in 1H19, with AUM growing 14.3% over the period to a record $5.6 billion. Recurring revenues were also up 30.8% on 1H18, supported by an overall increase in co-investments to $0.5 billion. The period-on-period comparison of 1H19 operating earnings is skewed by the record performance fee generated from the sale of 10 Spring St, Sydney in 1H18.

Additionally, the business undertook growth initiatives to expand and broaden product offerings and product distribution capability, which will further drive platform scale. In recognition of the increased platform scale, Centuria has expanded its compliance and governance capabilities accordingly.

John McBain, Centuria Group Chief Executive Officer explained: “The increased scale of our funds management platform enables us to take advantage of both organic and corporate growth initiatives, thereby delivering more efficient returns for investors.

“The unprecedented momentum that CNI built in FY18 has continued into 1H19, with a record $740 million in property transactions for the half year. These acquisitions were supported by a $100 million equity raise and $80 million debt issuance that expanded the CNI balance sheet, making funds available for increased co-investments and other capital management initiatives.

“Our co-investments further align CNI with Centuria Metropolitan REIT (CMA) and Centuria Industrial REIT (CIP), increasing its holdings to 24.9%4 and 24.2%4 respectively.

“Realising these key strategic initiatives positions us well to deliver on our objective to achieve attractive returns and realise new growth opportunities. At the Group level, the 1H19 result includes an operating NPAT5 of $21.7 million, representing an operating EPS of 6.5 cents per share.”6

Property funds management platform drives strong growth

A key driver of growth in 1H19 came from the property funds management platform, with real estate AUM growth to $4.8 billion, marking a 20% uplift during 1H19.

Mr McBain said: “Centuria is one of the fastest-growing Australian real estate fund managers (in relative terms, in relation to growth of assets under management). In this half alone, the business achieved $740 million in property acquisitions, including Australia’s third-largest real estate transaction in the 2018 calendar year valued at $645 million.7

“Our property management team also achieved substantial leasing activity across the portfolio and delivered several capital works initiatives, contributing to the $160 million in revaluation gains.

“Importantly, these results align with our objective to deliver positive returns for investors. For example, for the seventh quarter in a row, our Unlisted Property team has achieved six funds in the top ten in the Australian unlisted retail property sector’s leading index, the PCA/IPD.”8

Co-investment strategy delivers returns

CNI expanded on its co-investment strategy in 1H19, increasing its investments in both CMA and CIP. Both REITs performed strongly this half, with CMA growing to become Australia’s largest pure-play ASX-listed office REIT, and CIP expanding on its position as Australia’s largest ASX-listed income focused industrial REIT.

Mr McBain said: “The distributions from all of our co-investments have contributed $14.6 million to the group’s recurring revenues, while providing a total annualised return of 14.3%.”9

New product expands platform scalability

In January 2019, Centuria Life significantly repositioned its investment bonds business with the launch of a completely new series of investment bonds called Centuria LifeGoals.

This new, contemporary investment offer features an expanded menu of 22 high-quality investment options across highly rated active, index, and diversified funds.

Mr McBain said: “At a time where successive legislative changes are impacting traditional superannuation structures, it makes sense to give investors greater control over their investment choice. More investors than ever are seeking alternative, stable, tax-effective ways to build wealth for the future and to supplement traditional superannuation vehicles.

Investment bonds account for $0.8 billion (14.3%) of the Group’s AUM.

FY19 outlook

Centuria celebrated its 20th birthday this half and – with more than 10,000 direct investors and the business entering its sixth year of REIT management – it is looking ahead to its next age. Centuria will continue to identify and acquire strategically-aligned assets for both the unlisted and listed funds and work diligently to improve the quality and scale of its portfolios.

“It is clear that FY19 is a period of intense focus on the financial services market, and that all industry participants need to recognise that the privilege of managing clients’ funds carries not only a heavy fiduciary burden, but an obligation to ensure that the manner in which the industry treats its investors meets public expectations of fairness.” said Mr McBain.

“We have invested two decades in our relationships with the investor community, and at Centuria we take great pride in the strong reputation for fairness and transparency we have developed through these long-standing relationships. Accordingly, we would support any ‘whole of industry’ changes which would improve the industry generally.”

Mr McBain continued: “We remain focused on securityholder returns while also expanding our access to new capital sources. We will also continue to assess corporate transaction opportunities that complement the strategic direction of our business – and where these make sense we will execute on them.

“Above all, we believe that the next year or two will be a period where high-quality, predictable earnings – with experienced management teams and sound boards – will be rewarded by the capital markets. Those businesses which stick to their knitting, achieve their forecasts, and grow year-on-year, will be easy to identify in a market that may prove difficult for those with less experience, distribution capacity, or balance sheet strength.”

1 Based on 100% equity ownership.
2 Operating NPAT of the Group comprises of the results of all operating segments and excludes non-operating items such as transaction costs, mark to market movements on property and derivative financial instruments, the results of Benefit Funds and Controlled Property Funds.
3 Operating EPS is calculated based on the Operating NPAT of the Group divided by the weighted average number of securities.
4 Attributable to securityholders.
5  Co-investment ownership percentage includes the ownership by associates of Centuria Capital Group.
6 Operating NPAT of the Group comprises of the results of all operating segments and excludes non-operating items such as transaction costs, mark to market movements on property and derivative financial instruments, the results of Benefit Funds and Controlled Property Funds.
7 Operating EPS is calculated based on the Operating NPAT of the Group divided by the weighted average number of securities.
8 Includes CMA’s 25% interest and the Lederer Group’s 75% interest in 425 Victoria Avenue, Chatswood, NSW.
9 The Property Council/IPD Australia Unlisted Core Retail Property Fund Index total 12 month return performance from the quarter to June 2017 – the quarter to 31 December 2018.
10 Calculated based on total revenue divided by average carrying value of investments for the year ended 31 December 2018. Excludes finance costs.