Centuria 175 Castlereagh Street Fund 175 Castlereagh Street Sydney CBD, NSW At a glance • Starting forecast distribution of 9.00% p.a. growing to 9.25% in year 2 • 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 Fund is acquiring the Property for an acquisition price of $56,000,000, representing an acquisition yield of 10.02%.
Building Facts and Features “Strategic location within the revitalised Midtown Precinct in Sydney CBD”
• Sector: Commercial
• NLA: 11,859 sqm
• Location: Centrally located on Castlereagh Street between the intersections of Park and Market Streets
• WALE: 3 years as at 1 November 2012* (by income)
• Acquisition Price: $56 million
• Parking: 168 spaces (1 per 71 sqm ratio).
• Valuer: M3 Property * 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***
50.01%
54.69%
Gross Tax Effective Income Return^
12.91%
13.64%
* 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
7.45%
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 10.02%”
Investment Type
Single Asset Unlisted Property Fund
Offer Opens
21 November 2012 (subject to change)
Offer Closes
15 February 2013 (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 $36,936,931
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. 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 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. 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, Freehills and Boston Consulting Group 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 the Vendor 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 The headline acquisition price ($56,000,000) represents a strong yield of 10.02% as of 1 January 2013 when the new SPA leases take effect, and a capital rate of $4,722 per sqm.
These metrics are attractive when considering the Vendor’s recent comprehensive refurbishment program (resulting in a 5 star NABERS Energy rating) and that the Property has a high car parking ratio. (d) Strong yield underpinned by Government tenants The Property is 93% leased with the majority of leases featuring fixed annual rent reviews of 4.00 - 4.25%, providing stable income growth. The NSW State Government (via 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. (e) Considerable potential for positive income reversion
(i) Rents The average office rent in the Property is approximately $479 per sqm gross. While the standard of office accommodation throughout the building varies, Centuria believes there is potential to capture rents within the range of $490-$550 per square metre gross depending on the level of elevation within the building and the degree of refurbishment. These rents assume a reasonable standard of accommodation and while the majority of floors are of a modern standard (including newly refurbished lift lobbies and toilets), in some instances an opportunity exists to refurbish older style floors as tenants vacate in order to upgrade the asset, attract better tenants and capture higher rents. This would be done on a case-by-case basis and only where financially feasible. 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.
(ii) Parking 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. Currently recoveries under the ACP lease, therefore, are approximately 45% of market rates. Based on these rental levels, at the expiry of the ACP lease in 2021 the parking income reversion uplift alone will be close to $800,000 per annum.
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 there are outgoings savings to be made by bringing the management services in-house and also as a result of recent upgrades to the building which should result in increased operational efficiency. 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 $1.2 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 November 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. New Zealand investors please call toll free on 0800 177 251.
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 5 December 2012. Centuria will act as the responsible entity of Centuria 175 Castlereagh Street 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.