Centuria Property Trust, which is seeking A$215.3 million ($197.5 million) for an initial public offering in September, wants to double in size in a year by acquiring offices and warehouses in Australia.
The trust has so far raised more than A$100 million from investors, in addition to A$42.8 million from Tower Holdings Pty, said Nicholas Collishaw, who will oversee the new vehicle and was managing director of Mirvac Group until October. Centuria, which owns an office tower in North Sydney, will begin a book-building process for the remainder of the funds on Aug. 26, and is seeing strong interest from Asia, he said.
While similar IPOs, such as Pacific Retail REIT and Domus U.S. Multifamily Real Estate Fund, failed to raise sufficient capital in recent weeks, Centuria is betting on investor appetite for stable returns that are relatively high in a low-yield environment. Average yields in the office market in North Sydney, a secondary office hub in the city, are as high as 9.5 percent, compared with 8.75 percent in Sydney’s center, according to broker Knight Frank LLP.
“We’re in a very fickle marketplace,” Collishaw said in a telephone interview yesterday. “But we’ve been pleasantly surprised with the amount of interest from Asian markets,” driven by the trust’s 7.8 percent dividend yield and its moderate debt levels. The average dividend yield on the S&P/ASX 200 share index is 4.23 percent.
The average dividend yield for the S&P/ASX 200 Australian REIT index is 5.5 percent, according to data compiled by Bloomberg. The trust’s gearing, a ratio of debt to assets, will be at 33.1 percent at the IPO, and is unlikely to exceed 40 percent, it said in investor documents.
The ultimate goal is to increase assets to A$1 billion and seek inclusion into the benchmark share index over the next three years, Collishaw said. Centuria, based in Sydney, would then consider seeking a debt rating, he said.
Centuria plans to refurbish the North Sydney office block, Northpoint Tower, upgrading it to an A-grade property from its current B-grade status, Collishaw said. Tower Holdings, a private investment group, previously owned the building.
Centuria will then seek higher-quality buildings with a focus on security of income, and undertake redevelopments only when necessary, he said. The trust will focus on acquisitions in Australia’s 10-largest markets, which include most of the nation’s state and territory capitals, he said.
The fund will limit its industrial property weighting to about 20 percent of assets, preferring buildings suited for general warehousing and manufacturing over modern logistics facilities, he said. This will allow it to avoid competing against bigger rivals Stockland, GPT Group and Mirvac, which are seeking to add to their industrial property holdings, he said.
“There has been a lot of focus on industrial, after many years of being the ugly ducking of the industry,” Collishaw said. “But the investor demand is very tightly focused on the big logistics facilities rather than the mainstream assets.”
The trust’s book build will conclude on Aug. 29 and the shares are expected to begin trading on Sept. 4, according to the IPO prospectus. It expects to pay a dividend of 6.48 Australian cents a share for the 10 months to June 30, the document said.