Centuria on the runway as funds double
Centuria Capital expects to lift its distributions by 10 per cent in the coming year after nearly doubling its funds under management to $17.4 billion, following a major merger and a swag of direct property deals.
Led jointly by John McBain and Jason Huljich, Centuria took over fellow ASX-listed fund manager Primewest in a highlight of its 2021 financial year, adding to its assets under management, diversifying its real estate and bringing a fresh group of investors into its network of unlisted funds.
For Mr McBain, the fiscal 2021 result – operating revenues rose 40 per cent to $212.7 million -vindicates Centuria’s pursuit of a funds management model, rather than a traditionally styled real estate investment trust with internalised management.
“A lot of people have been watching us and wondering ‘how big can this get and can they sustain their growth?’ Our performance shows there are a group of external fund managers who have consistently outperformed the [REIT] index,” he told The Australian Financial Review.
“This group of external fund managers has proven that they have got a really important part to play in the real estate sector. I don’t think it’s a flash in the pan. It will keep going.”
Centuria’s operating profit attributable to its property funds management business was $45.9 million, up 40 per cent on a year earlier. Recurring revenue increased to 92 per cent of Centuria’s total revenue.
The company can draw on a pool of about 12,000 retail investors as it raises unlisted funds. The addition of Primewest’s deep client base centred on the west coast complements Centuria’s east coast networks. The merger follows Centuria’s takeover of New Zealand fund manager Augusta Capital earlier last year.
Adding to funds under management was a record $2.5 billion of direct real estate acquisitions, including the $167 million acquisition of a Visy Glass industrial facility in New Zealand and the $224 million acquisition of an office tower in Melbourne’s inner west from the Grollo family.
The rapid expansion in funds under management and recurrent earnings creates a runway for growth, with Centuria forecasting fiscal 2022 operating earnings of 13.2¢ per share and distributions of 11¢, both up 10 per cent. Centuria was added to the S&P/ASX 200 index last month.
Already strong in office, industrial and healthcare, the merger with Primewest will help Centuria extend into large-format and daily needs style retail along with agricultural assets, Mr Huljich said.
“We’ve got more sectors and more vehicles to grow the platform.”
Morgan Stanley analysts said Centuria could be at the “start of a new era” after a series of mergers in recent years that have extended its funds management business.
“Whilst the last 5 years were focused on roll-ups, we believe the platform is now at a stage where management is well-equipped to execute on lifting its inflows, and deploying capital – that is, sweat the platform,” they wrote in a note to clients.
“Whilst we acknowledge that the company’s traditional retail model is very lucrative in terms of fees, we believe winning new mandates from large institutions will be a natural next step for Centuria to aim for.”
