Centuria Metropolitan REIT (ASX:CMA) CEO and General Manager, Nicholas Collishaw Presents at the ASX CEO Sessions in Sydney
Centuria Metropolitan REIT (ASX:CMA)
is a real estate investment trust listed on the Australian Stock Exchange, under the ticker CMA. So you’ll hear me talk about CMA as our entity. It’s an investment vehicle, investing in metropolitan assets, predominantly along the eastern seaboard - offices, business parks in general. And it’s designed to give a solid, predictable income return to our investors.
Our half-year results for December 2015 were really good, really promising. They’ve actually delivered on our IPO forecast and indeed, a little bit more than the forecast. With earnings of $10.9 million and a distribution of 10.1 that meant, or it converted to an annualised return of 8.5 per cent. The gearing has stayed stable at 32 per cent within our vehicle over the last year. And it’s the Trust’s strategy to keep it in that 30 to 35 per cent range. We have certainly taken heed of the past economic situation through the GFC. And conservatively gearing is what REITs should be about, because that then ensures that the income is not under threat.
Our income in CMA is driven by 13 assets, 10 of which are in the office space, with three in the industrial space. That breaks down to about 85 per cent of value is in the office space. Our assets since IPO are performing exactly as we said that they were going to do. So our forecast performance is delivering on the revenue streams, the leasing up has occurred; indeed we’re ahead of target in that regard. 97 per cent occupied across the portfolio and our WALE, which is the weighted average lease expiry, so a measure of the strength of the income streams, has extended to over 4.5 years now. And now we’re in great shape for expansion, in the later part of the year.
Our Trust in its strategy has been to expand the investment base and in December of 2015, the Trust acquired its latest asset at 203 Pacific Highway, St Leonards. This is a straightforward modern A-grade office building, 11 storeys right above the St Leonards railway station. Giving off a property yield of eight per cent and a security of revenue of over five years, with leases to Primary Health Care Limited (ASX:PRY)
as the main tenant.
As part of CMA’s strategy of expansion where we could add value to our existing portfolio and unitholders, we’ve continued to look at both direct markets and the corporate markets, for investment opportunities. In doing so, we’ve come across an opportunity in the GPT Metro Office Fund (ASX:GMF)
, which is a similar fund to ourselves listed at a very similar time. Our fund CMA has now made a takeover bid for that vehicle. Because we are a manager of conviction, we’ve done so on the strength of our own investment. We now own over 16 per cent of GMF and therefore, our takeover proposal, which is being considered by the independent directors of GPT Metro, comes with a great level of substance. And I would expect to hear a response within the next few days.
The reason for looking at GMF as a whole portfolio and coming into our own CMA portfolio, it is to provide greater diversity of assets, geographic diversity which is certainly achieved with the two portfolios blending, less reliance on single tenants. By bringing the two portfolios together, there’s a greater spread of tenants, with no one tenant representing anymore than 10 per cent of total income. And importantly, in the area of REITS where scale is a significant part of institutional investment, this acquisition brings the combined group into the ASX S&P 300. It should as a result, increase liquidity allowing investors to move in and out of the stock as they see fit. And importantly, it will create the most dominant listed metropolitan investor, in the marketplace.
CMA’s focus in the next 12 months will be around securing the GMF acquisition and indeed, ensuring a smooth transition between GPT and ourselves. We do see other investment opportunities in the metropolitan space. And with GMF successfully under our belt, touch wood later in the year; we will be able to make attractive offers on those assets as well. Looking further afield in the next 12 to 18 months, we see interest rates remaining lower than they are now. So maybe another 25 basis point fall and as a result, we see further interest in the real estate markets, more capital, no increase in supply. So back onto the supply demand position, when you have more demand than there is supply, expect prices to increase or values to increase.Ends