As some things change, the important things stay the same. For Centuria’s Property Funds Management division, active management has always been a central tenet of its corporate strategy, and it remains the key to our ongoing success. Our ability to identify profitable buying (and selling) opportunities, as well as our hands-on management of individual property assets, is the foundation upon which our strong investment returns are built.

2017: A TRANSFORMATIONAL YEAR

Organic growth and strategic acquisitions within the Property Funds Management division saw assets under management grow to $3.7 billion in HY18. This includes $655 million in property acquisitions and $115 million in asset revaluations across the two ASX listed REITs and 17 unlisted property funds.

We also saw significant inflows into Centuria’s Diversified Property Fund – up 110%. This open-ended fund offers investors direct property exposure, in the same way as an unlisted property trust, but with the addition of liquidity. It has daily unit pricing and applications, as well as liquidity through monthly redemptions – and is therefore appealing to financial advisers and their clients who are looking for exposure to quality commercial property, but require liquidity. The Fund is now accessible on the Macquarie, Colonial First State, OneVue, Hub24, Powerwrap and Netwealth platforms.

2018: A YEAR OF CONSOLIDATION

This year, we expect economic conditions to remain largely unchanged from last year. Property markets are tightly correlated to economic conditions, yet despite some weakness in global economies, including Australia, low interest rates mean low cost of capital for investors, encouraging investment in property.

Looking forward, there is a general expectation that rates will start to normalise over the year, albeit at a slow and steady pace. Interest rates will stay low for a while yet, but nonetheless, as they rise, prudent capital management will be key to success in property transactions. For example, locking in rates can offset the possible negative effects of rising rates on returns.

Our focus remains long-term, quality income flow from our property portfolios and, to this end, locked-in leases – which are less affected by interest rate fluctuations – are attractive.

Organic growth, and growth through acquisition, remains our focus. We intend to leverage our stronger balance sheet and increased access to capital markets to maintain the momentum we built up during 2017. At the same time, we will continue to use the strong relationships that we have developed in property markets across Australia to allow the option of off-market purchases where we see value.

In terms of specific markets, over the past years Sydney and Melbourne have been the best performing office markets, but in our view they are now fully priced, so our focus is on other markets where we see more potential.

METRO MARKETS

In line with our view that certain metro markets offer good opportunities, we purchased an office property at 60 Brougham Street, Geelong in Victoria in January 2018. The property is leased to the Victorian government on a long, 10.3 year lease and will form the Centuria Geelong Office Fund, a single-asset, closed-end unlisted fund.

We foresee Geelong continuing to expand and develop, and – as a result – quality office property there producing not only strong income yields, but also the potential for capital growth. Population growth predictions for Geelong are strong at 36.5% between now and 2036, and the local economy is already diverse and robust. Over 17,000 businesses are located there with a workforce of over 100,000. The port is the second largest in Victoria and construction is at a record high. In addition, the Deakin University campus at Geelong is home to over 11,000 students.

At the same time, the twin drivers of affordable housing and a desire for a change are also fueling growth. Median house prices in Geelong are just over half those in Melbourne – making it an attractive alternative.

FOCUS ON QUALITY

We continue to seek acquisition opportunities for our listed vehicles, while we simultaneously work to improve returns from our existing portfolios by focusing on individual property assets.

This year, the Centuria Metropolitan Trust’s (CMA) market capitalisation hit the $500 million mark as a result of an increase in portfolio value. CMA merged with the Centuria Urban REIT (CUA) adding $210 million to the portfolio. CMA is now included in the S&P/ASX 300 Index.

We made a number of strategic acquisitions during the year, including a 50% share in 201 Pacific Highway, St Leonards and 2 Kendall Street in Williams Landing, Victoria. This property is currently under construction and will be leased to Target Australia for 10 years from completion. In line with our view that the Perth market has likely bottomed, we made our first foray into the Western Australian market, with the purchase of two office properties in Stirling and West Perth, via a successful $90 million capital raising.

Centuria Industrial REIT maintained is position as Australia’s largest ASX-listed, income-focused industrial REIT – with the portfolio growing to over $1 billion.

The concept of fit-for-purpose properties guides our strategy when it comes to metro markets. This means identifying properties that perform well in their particular location and niche, and that also complement our existing portfolio – while maintaining a disciplined approach to capital management.

CONCLUSION

We are looking forward to another year of consolidation, growth and identification of value for our shareholders. Our strategy for the year ahead is simple – to seek every opportunity to extract maximum value from our existing portfolio through asset management and repositioning initiatives, while at the same time identifying new opportunities to grow.