Centuria has recently secured a $62.75million, A-Grade modern office building in the heart of Port Adelaide’s urban regeneration precinct, and has now launched a single-asset close-ended, unlisted real estate fund, Centuria Government Income Property Fund No. 2.
The Fund is seeking to raise $34.7m from retail and wholesale investors with the capital used to part fund the acquisition of 25 Nile Street Adelaide.
The Property is a modern A-grade office which was purpose built in 2018 for the SA government. The office building provides 6,393 sqm of net lettable area (NLA) spread across six levels, with four commercial office floors, two levels of car parking, ground floor retail and end of trip facilities.
The Property has a 6.0-star NABERs energy rating and 6-star Green Star rating.
The building is fully leased to the SA Government with an average lease expiry of 11 years and contracted average
rent increases of 3.0% p.a.
Centuria has indicative terms for a five-year debt facility of $31.3M with an initial draw down of $30.8M, leaving the remaining $0.5M for future capital expenditure. The average all-in interest cost is estimated at 2.28% over five years, with the Manager intending for 75% of the debt to be hedged in the first three years and 50% hedged in years four and five.
The Fund has an initial term of five years with the ability to extend by a further two-years subject to Ordinary Resolution, (50% votes in favour) and a further two-years where a unanimous Resolution.
Centuria are targeting a 5.25% pa income distribution.
Further Information
| Responsible Entity | Centuria Investment Management (Property) No.4 Pty Limited |
| Fund Manager | Centuria Property Funds No.2 Limited |
| Fund Size Target | $34.7M |
| Fund Open | 25 October 2021 |
| Fund Raising Close | 19 November 2021 |
| Fund Term | 5 years to Nov 2026 |
| Distributions | 5.25 cpu (FY22 annualised) 5.35 cpu (FY23) |
| Target Return | 5.9% – 9.4% p.a IRR* |
| Liquidity | Illiquid |
| Investor Type | Wholesale & Retail |
| Target Assets | 25 Nile Street, Port Adelaide |
Investment Strategy
The Fund intends to provide investors with secure monthly and tax effective distributions off the back of the recently completed state government occupied building.
The Manager also considers the $28.6M Port Adelaide rejuvenation project and other significant government investments in Greater Adelaide to provide a material uplift to the office market surrounding the Property.
Key sectors such as defence, resources, health, education, and innovation are emerging as economic drivers of South Australia, benefitting from the states investment into infrastructure and federal government contracts. These sectors are expected to continue to contribute to new jobs and improve the desirability to live in Adelaide, which has been ranked the third most liveable city by the Economist Intelligence Unit’s Global Liveability Index for 2021
Fund Fees
Centuria are entitled to receive fees in consideration for establishment and management of the Fund including;
- Establishment & Placement Fee equal to of 2.00% of the Acquisition Price
- Management Fees based on 0.8% of the Gross Asset Value (GAV) of the Fund
- Custodian Fee based on the greater of 0.015% p.a. of GAV or $15,000 p.a
- Sale Fee equal to 1% of the sale proceeds (in place of an agents selling fee)
- A Performance Fee of 20% of the Fund’s performance above an IRR of 8%.
Where Centuria provide an property management, facility management, leasing or other fees, they are also entitled to market based fees for such services.
The above fees generally align with market practice.
Recommendation
The Fund is recommended for further consideration by investors seeking an above distribution yield from a lease to the SA Government with opportunity for further rental growth during the term. The prospects of capital growth from cap rate compression are less certain in the current cycle.
Disclaimer: The information contained on this web site is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.
Related Articles
