10 October 2018

CMA to buy $520.9m portfolio from Hines Global REIT

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.