Centuria Delivers on Strategic Government-tenanted Office Investments26 July 2021
Centuria Capital Group’s investment strategy to secure high quality, Government-tenanted office assets is generating strong traction with investors, resulting in a successful end of term divestment as well as its latest offering, involving Australia’s largest single-asset retail capital raise for an unlisted fund, closing early due to high demand.
Centuria’s single asset, closed-ended unlisted property trust, Centuria Scarborough House Fund (CSHF), has divested its 14-storey A-Grade building for $83million, delivering an average income yield of approximately 8% per annum to investors.
The property was acquired by Brisbane’s Sentinel Group who secured the building on a yield of 7.7%.
Sentinel executive chairman Warren Ebert said Scarborough House represented a highly desirable investment opportunity.
“Nationally, there continues to be strong investor demand for quality office assets, which has been driven by low interest rates and pent-up investor demand,” he said.
“The Canberra office market has seen robust positive net absorption tightening the vacancy rate to 7.6 per cent which is down from 8.2 per cent last quarter. This is the lowest headline vacancy figure in almost 12 years.”
The 8 Atlantic Avenue, Woden, Canberra, property was purchased by Centuria in November 2016 for $72.3million and is 99% leased to the Australian Government’s Department of Health (DOH). The property has a current 4.1-year WALE. During the 2021 Financial Year, Centuria paid a robust 8.35% distribution to CSHF investors, increasing to 8.50% during FY22 until settlement of Scarborough House.
The Centuria Government Income Property Fund (CGIPF), which launched on 1 July 2021, has now closed its $133 million capital raise for the acquisition of a $224million A-Grade office building in Footscray, Victoria. More than 90% of the building is leased to Victorian Government departments and agencies including City West Water (33%), State Trustees Limited (31%) and the Victorian Government’s Treasury and Finance Department (28%).
Jason Huljich, Centuria Joint CEO, said “Quality assets backed by resilient Government tenants form a key acquisition strategy across the Centuria Group, which includes our listed and unlisted funds in both Australia and New Zealand. Across our group platform, we have $6.7billion of office assets under management. Of these 28.5% by income are leased to local, state or federal governments.
“Our strong conviction in this acquisition strategy is also illustrative with our newly launched Centuria Government Income Property Fund (CGIPF), closing early due to significant investor demand.”
Ross Less, Centuria’s Head of Funds Management, added “The CSHF investment rationale was to provide investors with stable, high yielding income returns from a quality commercial office property situated in Canberra’s health precinct. The Fund has achieved this investment mandate providing a highly competitive 9% p.a. Internal Rate of Return (IRR) since inception.
“Canberra benefits from a high proportion of public sector employment. Other markets, such as Victoria, are increasing their public sector workforce, which has a knock-on effect for the office market and reinforces our investment strategy for our Footscray office acquisition, which is CGIPF’s single asset.”
The A-Grade office building, located at 1 McNab Avenue, Footscray, was secured with 100% occupancy on a 11.8-year Weighted Average Lease Expiry (WALE) at an equivalent yield of 4.7%. The Fund has a forecast starting distribution yield of 5.25% in FY22 and an initial five-year term.
The Victorian Government has identified Footscray for a new government work precinct. It is creating five government work hubs for Victorian Public Service (VPS) in metropolitan Melbourne areas to allow workers to be in close proximity to their homes. The hubs will accommodate up to 2,380 public servants each week. CGIPF’s 1 McNab Avenue, Footscray, is the first government work hub in operation.
JLL’s Tim Mutton and Luke Billiau and Colliers’ Paul Powderly, Matthew Winter and their Sydney Capital Markets Team managed the sale of Scarborough House on Centuria’s behalf. Knight Frank’s Paul Kempton brokered the off-market 1 McNab Avenue sale.