Centuria 175 Castlereagh Street Fund 175 Castlereagh Street Sydney CBD, NSW At a glance • Starting distribution of 9.00% p.a. growing over the life of the Fund • Weighted Average Lease Expiry of 3 years. • Recently refurbished building located in the revitalised Midtown Precinct of the Sydney CBD • Potential for significant rental reversion • Clearly defined exit strategy • Experienced manager with a proven track-record
Centuria Property Funds
Fund Summary
Centuria 175 Castlereagh Street Fund
Centuria 175 Castlereagh Street Fund (C175CSF) is a single asset, closed-end unlisted property fund. C175CSF will invest in 175 Castlereagh Street, Sydney CBD. The property is newly refurbished and is 93% leased with approximately 55% of the building (by Net Lettable Area) leased to Government tenants. It is centrally located within the revitalised Midtown Precinct of Sydney’s CBD. The property is being acquired at a discount to the latest valuation at a strong yield of 10.06%.
Building Facts and Features “Strategic location within the revitalised Midtown Precinct in Sydney CBD”
• Sector: Commercial
• Valuer: M3 Property
• Location: Centrally located on Castlereagh Street between the intersections of Park and Market Streets
• NLA: 11,859 sqm
• Acquisition Price: $54.3 million
• WALE: 3 years as at 1 November 2012* (by income) • Parking: 168 spaces (1 per 71 sqm ratio).
• Valuation: $57 million * Please read the PDS for further detailed information.
Forecast Distributions* “Forecast returns beginning at 9% p.a. and growing over the life of the fund”
Tenants “55% of property is leased to Government tenants”
Year to June
2013*
2014
Forecast Distribution**
9.00%
9.25%
Estimated Tax Deferral***
62.50%
50.50%
Gross Tax Effective Income Return^
13.89%
13.31%
* Annualised for part year to June 2013. ** Forecast distributions are subject to a number of assumptions that are detailed in the PDS. You should read a copy of the PDS before deciding to invest. *** This is based on Centuria’s current estimate and is to be confirmed. Please refer to the PDS, for final figures. ^ Gross tax effective return is the return an investor would need to earn from a competing income generating investment with no taxation benefits (e.g. a bank deposit) as a tax payer on a marginal taxation rate of 46.5% to produce a comparable income return. Please note that tax deferrals will decrease an investor’s cost base for CGT purposes and may result in an increased CGT tax liability when the trust is wound up.
The property has a strong leasing profile, being 93% leased with 55% of the property leased to the NSW State Government. The major occupiers are detailed below: Tenant
% NLA
Expiry Date
Consumer Trader & Tenancy Tribunal
29.70%
31 December 2015
Community Relations Commission
9.40%
31 December 2016
Anti-discrimination Board
7.50%
31 October 2015
Australian Consolidated Press*
-
30 November 2021
* ACP do not occupy office space, rather they lease the carparking in full (168 spaces).
Investment Facts “CBD asset being purchased at a yield of 10.06%. This reverts to 10.33% at 1 January 2013”
Investment Type
Single Asset Unlisted Property Fund
Offer Opens
24 August 2012 (subject to change)
Offer Closes
30 November 2012 (subject to change)
Issue Price
$1.00 per unit
Investment Amounts
Minimum investment of $100,000
Investment Term
The initial term of the Fund will be 5 years
Target Equity Raising
We are seeking to raise $35,850,000
Taxation Benefits
The income from the Fund will be significantly tax deferred
Centuria 175 Castlereagh Street Fund
Investment Rationale (a) Strategic location within the revitalised Midtown Precinct in Sydney CBD 175 Castlereagh Street is situated between the intersections of Park and Market Streets, within the newly energised Midtown Precinct of the Sydney CBD.
January 2013 when the new SPA leases take effect, and a capital rate of $4,579 per sqm. A transaction on these terms is rare in Sydney’s CBD and reflects the Vendor’s motivation to exit the commercial property sector (in line with their corporate strategy) coupled with a lack of demand (capital) for non-core assets.
The location provides for easy access to public transport, situated 150 metres east of Town Hall Railway Station, and the York Street Bus Interchange (adjacent to the QVB). St James and Museum Railway Stations are also located within close proximity.
The counter-cyclical nature of the acquisition is further evidenced by the purchase price being at a 5% discount to the latest external valuation. (d) Strong yield underpinned by Government tenants
The new Westfield Sydney City retail centre is within 150 metres of the Property. The newly constructed 85 Castlereagh Street, a 32,000 sqm premium grade office building which houses JP Morgan, Westfield and Allen and Overy is located on top of the Westfield centre.
The Property is 93% leased with the majority of leases featuring fixed annual rent reviews of 4.00 - 4.25%, providing stable income growth.
Currently under construction immediately north of the property is 161 Castlereagh Street. The building will be a 43-storey, 57,000 sqm premium office tower, with ANZ and Freehills as the anchor tenants. Additionally, the property will provide wide ranging amenity in the form of retail shopping, cafes, restaurants and connectivity through to Pitt Street. 161 Castlereagh Street, complimented by the new Westfield Sydney City Centre, is set to provide significant revitalisation to the Midtown Precinct. (b) Refurbished building with 5 star NABERS rating.
In recent years Stockland has undertaken a significant refurbishment (including services) of 175 Castlereagh Street. The refurbishment works have enabled the building to attain a 5 star NABERS rating. This provides 175 Castlereagh Street with improved cost, operational and environmental efficiencies. Furthermore the 5 star rating is becoming increasingly important in attracting and retaining Government and private sector occupiers. (c) Counter-cyclical acquisition
Wynyard
85 Castlereagh St
175 Castlereagh St
(JP Morgan/Westfield)
(ANZ/Freehills)
Westfield Sydney
Elizabeth Street
Hyde Park
Martin Place
Macquarie Street
Parking income within the building offers a significant opportunity for reversion. Currently the entire car park is subject to a 50 year lease to ACP, expiring in November 2021. On average the parking recovery under the lease is approximately $2,898 per space per annum. The valuation assumes an average market rate of $6,506 per space per annum, representing a premium of 124% on the current rents. Our calculations indicate that at the expiry of the ACP lease in 2021 the parking income reversion uplift alone will be close to $800,000 per annum.
EET
St. James
(ii) Parking
ER S TR
161 Castlereagh St
Park S treet
Museum
By December 2014 BIS Shrapnel predict that the CBD vacancy rate will fall to 5.5%, driving a strong upswing in effective rents. BIS Shrapnel believe that B-grade gross effective rents will almost double and that B-grade property values will more than double between now and a peak in 2019.
HUN T
Pitt St Mall, Pitt St
Martin Place
Galleries Victoria
BIS Shrapnel, in their Market Commentary on the Sydney CBD B-grade office market, identify the Sydney office market as being at an early stage of a long cyclical upswing.
T
George Street
The average office rent in the building is approximately $479 per sqm gross. Based on the latest valuation the building’s market rents should be in the vicinity of $490 - $550 per sqm gross depending on the level of elevation within the building. On this basis we believe the current rents are under market. Given the general revitalisation of the Midtown Precinct, a general uplift in leasing demand may be reasonably expected within the short to medium term.
Wynyard
York St
QVB
Street Barrack
e St Clarenc
(i) Rents
M AR GA RE
Kent St
King Stree t
Pitt Street
Town Hall
reet Market St
World Square
St Sussex Druitt Street
Kent St
Darling Park Bathurst Str ee t Eastbound Cross City Tunnel
Liverp ool Str eet
GOU LB
Sussex St
Western Distributor
(e) Considerable potential for positive income reversion
SOUTH
King St
Monorail n
The headline acquisition price ($54,303,372) represents a strong yield of 10.06% reverting to a yield of 10.33% as of 1
The NSW State Government (under the auspices of the State Property Authority) lease approximately 55% of the Property. Currently the only vacancy in the property is a single whole floor (on level 9). This floor has been fully refurbished to a high standard. The refurbished works include brand new carpet, ceiling grid and tiles, updated lift lobby, amenities and the installation of a disabled bathroom and shower.
D
Centuria 175 Castlereagh Street Fund
While Centuria’s intention is to to sell 175 Castlereagh Street in 2018, the value of the capitalised reversion in present value terms can be expected to be realised at that point in time. Centuria believe the realisable value of this parking reversion alone to be between $6 million - $7 million at sale. (iii) Building Outgoings Savings Centuria believe the current owner’s property management charges to be considerably above market at circa $310,000 per annum. Centuria are confident that savings of $150,000 per annum can be made by bringing the property management services in-house. As the entire building is on gross leases, this saving will contribute directly to the net income from the property.
About Centuria
Centuria Property Funds was formed in 1999 with a specific focus on the purchase of highquality, growth-orientated commercial property assets. Centuria has a “Total Return” philosophy which means there is a commitment to achieving superior returns from a combination of capital growth and quarterly distributions. Our experienced hands-on approach means that we’re able, with every purchase, to identify investments with a strong mix of income revenue, capital growth potential and tax benefits. Centuria has over $1 billion of funds under management across 30 unlisted property funds. Centuria Property Funds is a wholly-owned subsidiary of Centuria Capital Limited, an ASX-listed diversified funds manager with $2 billion in funds under management.
161 Castlereagh Street (ANZ, Freehills) Westfield Sydney City
85 Castlereagh Street (JP Morgan, Allen & Overy)
Hyde Park
175 Castlereagh Street
St. James Train Station
Museum Train Station
For a copy of the Product Disclosure Statement (available from late August 2012) or to discuss this investment opportunity please contact John Taylor at Centuria Property Funds on (02) 8923 8923, or john.taylor@centuria.com.au.
Disclaimer: This document is issued by Centuria Property Funds Limited (Centuria) ABN 11 086 553 639 AFSL 231149. Information in this document is accurate as at 18 July 2012. Centuria will act as the responsible entity of Centuria 19 Corporate Drive Fund and will be the issuer of the Product Disclosure Statement (PDS) and units in the Fund. We recommend that before an investment decision is made prospective investors consult their financial or other professional advisor. The information in this document is general information only and does not take into account the objectives, financial situation or particular needs of any person. You should consider whether this information is appropriate for you in light of your objectives, financial situation and needs. Centuria and its associates will receive fees in relation to an investment in the Fund as disclosed in the PDS. This document is not an offer to invest in the Fund. You should obtain and read a copy of the PDS before making a decision to invest. Investment in the Fund is subject to risk including possible delays in payment or loss of income and principal invested. Centuria does not guarantee the performance of the Fund.