Centuria Urban REIT 576 SWAN STREET, RICHMOND VIC PAGE 01 CENTURIA - - PowerPoint PPT Presentation

Centuria Urban REIT

Section 1

Results Overview

Financial Overview

Financial Snapshot 1H17 1H16 Statutory profit/(loss) $m 7.8 4.4 Distributable earnings 1 $m 5.8 7.2 Distributable earnings per security cps 7.9 9.9 Distribution $m 6.2 6.2 Distribution per security cps 8.5 8.5 Balance Sheet Metrics 1H17 1H16 Total assets $m 213.3 200.2 NTA per stapled security $ 2.27 2.11 Gearing % 19.7 2 18.3

Financial Highlights

7 .9

cps

Distributable earnings 2

8.5 cps

Distributions paid

19.7

%

Gearing 1

$2.27

cps

Net Tangible Assets

Earnings generated by quality offjce assets

• Statutory net profjt of $7.8m
• Conservative balance sheet, gearing of 19.7% 1
• 1H17 Distributable earnings 2 of 7.9 cps in line with previous base case guidance

– 1H17 Distributions of 8.5 cps paid in line with previous manager statements

• Market capitalisation increased to $156.8m 3
• NTA increased 2 cps to $2.27 per security

Asset quality and location drive leasing success

Operating Highlights

• Substantial leasing success

– 6,712 sqm across portfolio 1

(new leases and renewals), including;

– Two year lease extension of 3,699 sqm of

expiring space to Queensland Government (QCAA) at 154 Melbourne Street, South Brisbane

– Five year lease renewal of 1,086 sqm to

Frasers Property at at 154 Melbourne Street, South Brisbane

– Surrender of Pradella Developments lease

at 154 Melbourne Street, South Brisbane (534 sqm), allowing for expansion from adjoining tenant QCAA with zero downtime

– Agents appointed to market SMEC

Australia space (expiry Oct 2017). SMEC Australia will continue to pay rent until expiry

– Dominos Pizza Enterprises expansion

into the Devine Developments tenancy

• n level 1 (1,216 sqm) at Kingsford Smith

Drive for a four year term

• Portfolio valuations increased

by 1.2 per cent

• Portfolio WACR fjrmed 26 basis points

99.2%

Portfolio occupancy

4.6 yrs

Portfolio WALE 2

$210.4m

Book valuation

6.86%

Portfolio WACR

Positive investment sentiment for quality metropolitan offjce stock driving NTA uplift

NTA Movement

Movements in NTA

NTA

2cps

Portfolio Overview

Section 2

High quality investment portfolio underpinned by strong rental covenants

Portfolio Metrics

Portfolio Snapshot 1H17 1H16 Number of assets # 3 3 Book value $m 210.4 196.1 WACR % 6.86 7.41 NOI $m 7.6 8.9 Occupancy 1 % 99.2 98.7 FY17 expiries % 0.0 12.8 WALE 1,2 years 4.6 5.3

Geographic Diversification (by value)

Weighted Average Lease Expiry 1,2

Valuations supported by continued investment appetite for quality metropolitan offjce assets

Valuations

Key Valuation Metrics 1H17 FY16 Change 154 Melbourne Street, South Brisbane QLD 77.5 77.5 — 438-517 Kingsford Smith Drive, Brisbane QLD 74.4 74.4 — 576 Swan Street, Richmond VIC 58.5 56.0 2.5 Book value ($m) 210.4 207.9 2.5 Average Capital Value ($psm) 7,267 7,181 87 Portfolio WACR (%) 6.86 7.12 (0.26)

$210.4m

Book value

1.2 %

Increase in Portfolio Valuation

Focus on proactive management strategies to generate predictable income

Leasing Overview

• Material transactions completed

in 1H17 across 6,712 sqm 1 – 3,699 sqm relating to FY17 expiries – 1,086 sqm relating to FY18 expiries – Transactions represent 23.2%

• f property portfolio, signifjcantly

mitigating short term lease expiry risk

• As a result of these transactions CUA’s
• ccupancy and WALE 2 have improved

to 99.2% and 4.6 years, respectively

23.2%

Portfolio NLA leased 1 6,712 sqm Portfolio NLA leased 1

Property Tenant / Transaction Level sqm 154 Melbourne Street Queensland Government (QCAA) / Lease extension 7-9 & Pt 10 3,699 154 Melbourne Street Queensland Government (QCAA) / Pradella Developments surrender Pt 10 534 154 Melbourne Street Frasers Property / New lease 3 1,086 154 Melbourne Street Soccarrat / New lease Retail 177 438-517 Kingsford Smith Drive Dominos / Replacement

• f Devine’s L1 tenancy

1 1,216

A-grade assets attracting quality tenants with strong leasing covenants

Tenancy Profile

• Top 10 tenants account for

92% of gross rental income

• Approximately 93 per cent
• f gross rental revenue

derived from ASX listed, multinational, national and government tenants

• 78% of rental revenue is

subject to fjxed annual reviews averaging 3.8%

Rental Reviews

Tenancy Profile by Size Cohort (by no. tenant)

Tenant Diversification (top 10 tenants by gross income)

Capital Management

Section 3

Conservative gearing position with intention to reinvest

Debt Management

• Advanced negotiations for a multi-bank

syndicated facility, expect to conclude refjnancing

• f debt facilities prior to the April maturity
• Ability to redeploy capital should a quality

investment opportunity arise

• Signifjcant headroom, ICR covenant 2 times,

LTV covenant 50%

• Limited forecast capital expenditure on portfolio assets

Key Debt Metrics 1H17 Facility limit $m 80.0 Drawn amount $m 41.5 Undrawn capacity $m 38.5 Weighted average debt expiry years 0.3 Proportion hedged % 96 Weighted average hedge maturity years 3.1 Cost of Debt 1 % 4.7 Interest cover ratio times 6.8 LVR % 19.7

19.7

%

Gearing

4.7

%

All in cost of debt 1

Transfer of Management Rights from 360 Capital Group Limited to Centuria Capital Group

• On 9 January 2017, Centuria Capital Group (CNI) acquired 360 Capital Investment

Management Limited (CIML), the Responsible Entity of 360 Capital Offjce Fund (TOF) – CIML was subsequently renamed Centuria Property Funds No. 2 Limited (CPF2L); and – 360 Capital Offjce Fund has subsequently been renamed Centuria Urban REIT with ASX identifjcation code changed to CUA

• In addition to acquiring the Responsible Entity of CUA, Centuria Capital Limited and

its associates also acquired 360 Capital Group’s 28.8% investment holding CUA – Continues a strong alignment of interest between Centuria management and investors

• CUA investment strategy remains unchanged

Strategy & Guidance

Section 4

CUA’s strategy and ongoing focus remains unchanged

Strategy

Fund Strategy

• Acquire Australian A grade suburban and B grade

CBD offjce properties with a focus on yield and security of income

• Invest in offjce properties that have limited exposure

to incentive-driven tenants and acquisition prices that refmect sustainable rents

• Create a portfolio diversifjed by geography

and tenant (by number and by industry)

• Maintain a modern fjt for purpose portfolio

within established commercial precincts sourcing complementary assets through direct acquisition

• r corporate activity

Portfolio Strategy

• Where appropriate, respond to demographic

change by rezoning assets to new highest and best use, generating capital appreciation

• Execute initiatives to generate income and

value uplift through active asset management and risk mitigation

• Continue to focus on portfolio leasing to

ensure occupancy and income are maximised

Guidance

• Previous FY17 earnings guidance remains at 16.0 cps

(assumes no acquisitions)

• FY17 distribution will represent 100% payout ratio

expected to be 16.0 cps (assumes no acquisitions)

• Any acquisitions in 2H17 may reasonably be expected

to increase both earnings and distributions

Closing

Centuria Urban REIT’s portfolio is in excellent shape in regard to the quality

• f investment properties and their ability to deliver sustainable earnings for

distribution to investors. The REIT’s ability to either acquire another investment or participate in a corporate transaction has the potential for Centuria Urban REIT to signifjcantly increase near term earnings for the benefjt of all investors.

Appendices

Supply and demand fundamentals for metropolitan offjce markets remain strong

Appendix A – Market Outlook

• Constrained supply side fundamentals

– Continued withdrawal of metropolitan offjce space for residential conversion and major infrastructure projects – No meaningful new supply forecast in metropolitan markets

• Strengthening demand side fundamentals

– Displacement of smaller CBD tenants as cheaper B grade assets are redeveloped – Signifjcant infrastructure investment is leading to greater market accessibility & tenant demand

• Switch back to landlords’ underway in metropolitan markets
• Effective rental growth in metropolitan markets forecast

to outpace CBD’s over the near to medium term

• Incentives have stabilized in metropolitan markets

and are starting to contract

CBD Office vs Metro Office 5 Year Net Effective Rental Growth

Capital market infmows to metropolitan

• ffjce assets continuing to strengthen

Appendix A – Market Outlook

• Investor demand for quality, well leased

• Global low interest rate environment

• Approximately 50c in the dollar invested

• Yield spread between metropolitan and

• There remains repricing/arbitrage opportunities

Brisbane Offjce Outlook 1

Appendix A – Market Outlook

• Ongoing demand for quality investment stock offering secure

income streams suggests that when such assets become available, they will continue to attract interest from both

• nshore and offshore capital
• The wide yield spread to southern capitals (~ 140bps to the

Sydney CBD core and ~ 110bps to the Melbourne CBD for prime stock for example) remains a key consideration for potential purchasers

• Occupier demand is expected to show only modest recovery

in 2016. Adjustment to a broader demand base from recent history, which was driven by resource sector investment and public administration growth, remains slow

• In the short term, the vacancy performance between

the CBD and Near City should contrast. CBD vacancy will remain elevated, well above the historic average, impacted by the 191,000 square metres of gross stock additions and further major tenant relocations to the Near City

• The Near City is benefjtting from such tenant moves

(despite some modest shifts back to the CBD) and its minimal supply pipeline, although opportunities for rental growth are being constrained by competition from the CBD

• A common them across the market, however, is likely to

remain the ongoing fmight-to-quality by tenants, meaning the prime market should continue to outperform the secondary market

Melbourne Offjce Outlook 1

Appendix A – Market Outlook

• Drivers that impact vacancy through tenant demand,

such as business confjdence and funding costs, have continued to improve over the past 12 months

• Recent indicators suggest that tenant demand

will increase through the course of 2017

• Combined with this is an absence of development

activity following the GFC which has led to a market that is evenly balanced but may experience supply constraints in the early parts of a demand upswing

• A number of smaller submarkets have experienced,

and continue to experience strong rental growth as a direct result of undersupply

Equity Markets Outlook

Appendix A – Market Outlook

• World economic and political uncertainty is driving domestic

and international investors towards defensive investments

• Capital infmows into the A-REIT sector remain strong due to generally

low gearing and conservative management delivering reliable earnings

• A-REIT’s remain generally conservatively managed with diverse tenancy

profjles delivering predictable and growing earnings & distributions

Appendix B – Income Statement

Appendix C – Distribution Statement

Appendix D – Balance Sheet

Disclaimer

• f securities in CUA . Nothing in this presentation constitutes investment, legal, tax, accounting or other advice and it is not to be relied upon in substitution for the recipient’s own exercise of independent

• r warrants that such Forward Statements will be achieved or will prove to be correct or gives any warranty, express or implied, as to the accuracy, completeness, likelihood of achievement or reasonableness
• f any Forward Statement contained in this presentation. Except as required by law or regulation, CPF2L assumes no obligation to release updates or revisions to Forward Statements to reflect any changes.