Centuria Capital Group (ASX:CNI) FY19 results & outlook


by Jessica Amir

Centuria Capital Group Limited (ASX:CNI) Joint CEO, John McBain talks FY19 and outlook on CNI's investment platform of property funds and investments bonds.

Jessica Amir: Hi, I'm Jessica Amir for the Finance News Network, at the offices of Centuria Capital Group (ASX:CNI), with joint Chief Executive John McBain.

Hi John, great to see you again, and welcome come back to the network.

John McBain: Thank you very much.

Jessica Amir: So first up, John, for those who are unfamiliar, you're a specialist investment manager, but just give us a quick introduction.

John McBain: We have a range of investment products. They include listed and unlisted property funds, specialising in commercial and industrial assets. We've recently entered the healthcare market. In addition, we have an investment bond offering.

Currently we control about $6.2 billion in assets, which has grown quite strongly over FY19 by about 27 per cent.

Jessica Amir: Great. And you've just handed down your full-year results right through to 30 June, with growth across all key metrics. What are the key highlights?

John McBain: We are pleased with our FY19 results. Distributions were on forecast at 9.25 cents per security, and this was up quite strongly from FY18, about 12.7 per cent. As I said previously, our assets grew strongly, 27per cent, to $6.2 billion. And $5.3 billion of that was through real estate alone.

So if you look at our platform now, we have two pure play real estate investment trusts. CMA (ASX:CMA) our office REIT. Within CMA we concentrate solely on rent collecting office investments. So there's no diversity in other asset classes, it's simply office.

And it's very similar with CIP (ASX:CIP), our industrial rent. It has market capitalisation of over $900 million. Once again, it concentrates simply on rent collection. It doesn't embark on development or any extraneous asset classes. So if you look at our REITS in totality, they offer huge point of difference for investors.

In addition to those REITS, we have a very strong unlisted business that we've had for over 20 years. That currently controls about $2 billion of assets over 14 funds, and providing impressive returns for investors.

In addition, in quite an exciting move, we've recently entered the healthcare market with the acquisition of a company to be called CenturiaHeathley. And in May we announced a 63 percentage in that company.

Finally, we continue to operate our investment bond business, that's got $800 million in assets. We've introduced some new products, CenturiaLifeGoals, and they are getting wider acceptance in the financial advisor community all the time.

Jessica Amir: Great. And can you tell us more about the businesses and the segments that each of them operate in?

John McBain: We're quite lucky. I think the markets we're operating in are quite conducive to our business. So if you look at the real estate markets globally, for example, there's still plenty of inbound capital coming into Australia.

Continued low interest rates have made yields from defensive assets like property, whether it's listed or unlisted, extremely popular both domestically and globally. So we're seeing continued demand for our real estate investment funds. It's possible even that investment yields will drop further, and we've never been able to offer our investors such an attractive spread between the fixed interest rates and the yields coming off high quality property investments. So it's really quite an exciting period to be building a property funds manager.

With the other sector I mentioned briefly, was our entry into the healthcare sector. We've studied healthcare real estate globally.Australia's got an aging demographic, and we think investment in healthcare real estate and healthcare funds is in its infancy. So we're very excited to take that interest in the Heathley business. It's going to be renamed CenturiaHealthley, and it's going to be an extremely important part of our business going forward.

We're concentrating further on our investment bond business, and the new product I mentioned, CenturiaLifeGoals, is about to gain further independent ratings, and that's penetrating the financial advisor market and the approved product lists all the time. And once again, whilst that's a business we've held for a while, it's getting a new lease of life, and I think the financial markets are supportive of those long-term tax effective saving markets too.

Also, earlier this year I approached our board to appoint as joint Chief Executive. I was delighted when they supported the appointment. Jason and I worked together for over 20 years very closely, building Centuria from effectively a start-up to where it is today. He's a dedicated professional and I'm pleased for that relationship to be reinforced, and I'm sure it'll be ongoing.

Jessica Amir: And all this positive news is being noted by the market, with your share price up 55 per cent year-on-year. Just take us through that.

John McBain: Look, we're very pleased with our security price appreciation. One of the things that supports it, I believe, is our strong commitment to distributions. Since 2014 distributions have grown steadily every year, and both our board and our management are very committed to steadily growing distributions. We think that's the part of the security holder manager relationship, which is sacrosanct for us.

Also during that time we've transitioned our business so that recurring revenues are now 77 per cent of total revenues in FY19, and I think that's effective. It gives the market confidence that we'll be able to repeat our earnings on a very regular basis. And also we've grown the company in terms of its total size. Market capitalisation's grown considerably.

Jessica Amir: And John, we've spoken previously about your inclusion in the ASX 300, and it looks like that's getting closer. Just give us an update on that.

John McBain: Yes. I think what's happened as we've grown, so our market capitalisation currently is over $750 million. But also more importantly, our liquidity, the amount of stock that's turning over on the exchange, has got to the point now where we're very confident, we've got a very high conviction that we will gain admission to the ASX 300 index this quarter. So that's something we've been waiting for, for quite a while. The inclusion into an index like that, whilst it mightn't sound much by itself, certainly gives the shareholder base a lot of support. Index funds that wouldn't previously have been committed to invest in us, certainly have to. And also I think you'll find that a wider range of global institutions will populate our register, as in fact they've already been doing.

Jessica Amir: And just lastly, John, before we let you go, what's your outlook for FY2020?

John McBain: Well today we've announced FY20 distribution guidance of 9.7 cents per security. That's up 4.9per cent from FY18 actual. So we're pleased with that, and very confident.

The reason that we're so confident in our ability to predict our outcomes is that we believe the markets are extremely supportive of our product line. So all the global conditions that we're seeing at the moment, low interest rates globally and domestically with a high probability of those interest rates going lower further. A very large surplus with delta, between what are our investors are getting over term deposits and fixed interest. This means that we can keep producing high-quality real estate funds with relatively much higher returns over fixed interest than we've had ever in the past. So they're very attractive for investors. There's a lot of investors with cash on the sidelines, waiting for the right investment to come along.

So we'll continue to focus on supporting our key divisions. So both of our listed REITs, our big unlisted property business, our very exciting new CenturiaHeathley healthcare real estate business, and we'll keep supporting our risk bond business, which we think also has quite a few tailwinds in the financial markets.

And finally, with our inclusion into the ASX 300 index, I think we'll see our share register mature more, both in terms of additional global investors, but to promote further liquidity within the stock. So I think these things will all dampen down volatility. And while we continue to grow our earnings and grow our assets under management, I think you'll see the market continue to have confidence in us and our ability to grow our business.

Jessica Amir: Wonderful. Well, congratulations on the results and the share price appreciation. John McBain, thank you so much.

John McBain: Thank you, Jessica.