10 Moore Street, Canberra.

Centuria Capital Group (Centuria) has announced the acquisition of 10 Moore Street, Canberra. The property known as the ‘Optus Centre’ will be directly purchased by Centuria Diversified Property Fund (CDPF) for $35 million from commercial property group Quintessential after contracts were exchanged last week.

Commenting on the acquisition, Centuria’s Head of Real Estate and Funds Management, Jason Huljich, said “Strong support from investors and financial advisers in the CDPF has seen the fund’s inflows increase significantly this financial year, allowing the fund to make strategic purchases. 10 Moore Street is a centrally-located property – ideally positioned in Civic, the heart of Canberra’s CBD precinct. Public transport to the area is excellent and Stage 1 of the light rail, currently under construction, will improve links further with a terminus only 100 metres from the building.”

“Canberra is Australia’s second fastest-growing city (after Melbourne)^[1] and this – combined with 10 Moore Street’s central location – was a key factor in our decision to buy. And we believe Moore Street will also quickly benefit from significant public and private investments nearby. The building has been fully regenerated to a very high standard by Quintessential Equity – all the work done over the years has been of a high quality, and the actions undertaken to improve the environmental footprint of the building has resulted in a 5-star NABERS energy rating, further enhancing the quality of this acquisition.”

10 Moore Street’s metrics are also solid. It has a 4.3 year WALE (as at 1 June 2019), and is currently 98% leased to a mix of high-quality tenants, with a 12-month rental guarantee on approximately 2% (123 sqm) of vacant space, which Mr Huljich is confident about leasing.

“One of Centuria’s A-REITs, the Centuria Metropolitan REIT (CMA), owns two properties nearby – at 54 and 60 Marcus Clarke Street, about 100 metres from 10 Moore Street – so we are familiar with the area, and have had very good leasing success there: we understand what appeals to tenants,” he said.

Russell Bullen, Quintessential Equity’s Chief Executive Officer, said the group is very pleased with the sale of the 6,709sqm building, which he calls a “top-tier office investment”.

“Since we acquired the building in 2014, we’ve completed a full regeneration and successful re- leasing campaign at the property, future-proofing it for years to come. There are diverse, high- quality, long-term tenants, strong environmental credentials and an ideal location in an area that will benefit from further investment and significant infrastructure projects.”

Mr Bullen said Quintessential Equity is committed to delivering quality projects that provide secure, long-term cash flow and risk-mitigated returns to investors. Quintessential Equity has a solid property investment track record in the nation’s capital, experiencing success in the past, delivering consistent high returns to its investors.

Growth in the CDPF, particularly via direct acquisitions of quality property, is a key part of the fund’s strategy and this acquisition – combined with the recent purchase of an office property in Hamilton, Queensland – will see CDPF’s assets under management (AUM) increase to over $100 million^[2]. Mr Huljich explains “CDPF is likely to continue to invest in Centuria’s unlisted property trusts, due to their high quality income streams, however, we also intend to make more direct acquisitions, because it gives us more control over the geographical diversity of the trust, and the ability to tilt our portfolio to where we see the most potential.”

“It also means direct property exposure for our investors – with the added benefit that directly- held property improves liquidity and we believe this to be in the best interests of our investors.”

Mr Huljich concluded by saying that he is always on the lookout for quality properties to add to CDPF’s portfolio, and that while he considers commercial offices the most appealing sector at present, he is not ruling out other sectors.

“We are asset-specific buyers, so we are happy to consider all markets if we believe we can identify value – and our asset management team are experts when it comes to leasing, managing, and improving our property assets with the aim of achieving strong returns for our investors.”

About the property

10 Moore Street is a 6-level office building with 6,709 sqm of net lettable area on a 1,554 sqm site, fronting Moore and Rudd Street in Canberra’s Civic precinct. Its current 14 tenants are a diverse group of high- quality occupants, some of which have been in the building for over 25 years. The building has recently been refurbished, not only to become one of the few Civic buildings with a 5.0-star NABERS energy rating, but also to provide modern end-of-trip facilities (including showers, lockers and bike storage) and upgraded lobbies, lifts, bathrooms, and exterior.

[1] https://www.abs.gov.au/ausstats/abs@.nsf/latestProducts/3218.0Media%20Release12017-18
[2] Forecast AUM is based on the settlement of 381 Macarthur Ave, Hamilton (contracts exchanged) and the settlement of 10 Moore Street, Canberra. Various reasonable assumptions have been made in respect to equity inflows and does not consider potential redemptions.

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Jason Huljich

Recent leasing deals negotiated in metro office markets around Australia are evidence of a rising tide of positive sentiment and improving fundamentals, according to commercial property investment specialist Centuria Capital Limited (Centuria).

Commenting on Centuria’s most recent transactions, Jason Huljich, Centuria’s Head of Real Estate and Funds Management, pointed to strong rents and attractive lease terms, and gave details of deals struck in Perth, St Leonards and Wollongong as follows:

• 42-46 Colin Street, West Perth – 400 sqm for 5 years to Tungsten Mining at a rate of $415 net per sqm.
• 201 Pacific Highway, St Leonards, Sydney – 7,000 sqm over 5 floors for 5 years to CISCO at a rate of $620 net per sqm. This represents an extension of 5 years.
• 77 Market Street, Wollongong – 800 sqm for 5 years to Illawarra Newspapers at a rate of $470 net per sqm, and 2,200 sqm for 8 years to Illawarra Retirement for $470 net per sqm.

Mr Huljich said that the Perth market is beginning to benefit from an uptick in demand from mining tenants, which make up the majority of the office tenants.

“We are seeing mining tenants starting to take sub-lease space off the market, which is evidence that the green shoots of a commodity cycle on the rise are starting to show,” he said.

In contrast, Mr Huljich said that south of Sydney, Wollongong has been tracking well for some time.

“We expect the positive market fundamentals to continue, as there is no real supply on the horizon and space is already tight and demand strong.

“In our most recent leasing deals we actually re-set rents when we agreed leases at record levels to two anchor tenants – Illawarra Newspapers and Illawarra Retirement.

“This is great news for our investors, because strong and stable rental income underpins distributions,” he said.

Mr Huljich went on to say that Centuria also has a positive view on St Leonards, on Sydney’s lower north shore, as it transforms itself into a health hub around Royal North Shore Hospital.

“NSW Health has already taken space in the area, and other health-based businesses are following suit, which has pushed up demand for office space in the area.

“At the same time, Sydney’s CBD market is becoming increasingly expensive, so with excellent transport links and proximity to the city, St Leonards is looking like a pretty good value proposition to a lot of tenants,” he said.

Centuria manages a portfolio of office and industrial properties currently valued at approximately $4.6 billion held in both listed and unlisted Centuria property funds. Properties are located in CBD and metro markets around Australia, including Sydney, Melbourne, Brisbane, Canberra, Adelaide and Perth.

According to Mr Huljich, Centuria’s objective is always to identify quality, fit-for-purpose assets which the team believes will deliver stable and predictable rental income, as well as the opportunity for capital growth over time.

“Our strategy across our listed and unlisted funds is to buy, actively manage, and strategically sell commercial and industrial property – and our 20 years of experience allow us to identify opportunities that others may miss.

“These recent lease transactions are evidence of our strategy in action – we expect them to be accretive to the value of our portfolio,” Mr Huljich said.

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Jason Huljich

Centuria Capital Group has grown from $4.6 billion AUM to $5.5 billion^[1] since 31 December 2017.

Centuria Capital Group (Centuria) has announced that Centuria Industrial REIT (CIP) has added two industrial properties to its portfolio. The properties were purchased for a combined total of $54.4 million (excluding costs), with $51 million of the purchase price raised via an underwritten entitlement offer.

Details of the properties are as follows:

• 149 Kerry Road, Archerfield in Queensland, acquired for $30.6 million; and
• 155 Lakes Road and 103 Stirling Crescent, Hazelmere in Western Australia, acquired for $23.8 million.

The two acquisitions will add to the recent acquisition of Cargo Park in Tullamarine, VIC combining to grow CIP’s portfolio by around $100 million since September 2018.

These acquisitions round out another active year for Centuria, where the company was able to successfully grow its platform of listed and unlisted trusts via strategic acquisitions, while at the same time maintaining strong operating performance and returns to investors.^[2]

In October 2018, Centuria Metropolitan REIT (CMA) acquired three metro office assets and a 25% stake in a fourth, valued at $520.9 million in total. Partially funded by a $276 million equity raising, at $645 million the total acquisition and capital raising together represented Centuria’s largest single direct transaction ever, and the second largest commercial transaction in Australia this year. CMA’s portfolio grew to approximately $1.5 billion as a result, and CNI’s market capitalisation rose to $500 million

This month, CMA will settle and begin receiving rental income from 2 Kendall Street, Williams Landing in Victoria – a property which is leased to Target for 10 years, with fixed rent reviews.

In other significant transactions this year, Centuria purchased an office property in Geelong for $115.25 million, as well as a 50% share in the Bendigo & Adelaide Bank headquarters in Adelaide for $92.3 million, both of which are held in single asset unlisted funds.

Commenting on the most recent additions to CIP’s portfolio of high-quality industrial assets, Centuria’s Head of Real Estate and Funds Management, Jason Huljich, said that this recent deal takes CIP’s acquisitions to almost $100 million since September 2018.

“Both properties fit with CIP’s strategy to invest in fit-for-purpose, quality assets, well-positioned in established industrial markets and close to major transport infrastructure.

“They are both 100% leased to high-quality ASX-listed tenants, with strong potential for renewals, and were purchased with an attractive weighted average initial yield of 7.0% p.a.

Centuria Capital Group CEO, John McBain said that 2018 had been a year of growth and consolidation for Centuria and that he anticipates further activity in 2019.

“Our assets under management were $4.6 billion at the end of 2017, and over the year this figure has grown to $5.5 billion as a result of strategic acquisitions and the expert active management of our existing portfolio.

“We have a track record of providing funds management and active property management – and we are pleased we have been able to maintain and improve our results in a year characterised by significant growth,” he said.

———-

[1.] As at 4 December 2018
[2.] Past performance is not indicative of future performance.

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Jason Huljich

Centuria Capital Group (CNI) has announced that the Lederer Group will partner with Centuria Metropolitan REIT (CMA) and acquire the remaining 50% interest in 201 Pacific Highway, St Leonards in Sydney, NSW.

CMA acquired its 50% interest in the $172 million property in December 2017.

The Lederer Group was founded by Paul Lederer and comprises of a conglomerate of entities including property, manufacturers, financial investments and community based developments.

The transaction is scheduled to settle by 10 May 2018.

Further diversifying funding sources

The deal brings Centuria’s unlisted wholesale assets under management (AUM) to $407 million of a total $4.6 billion AUM, delivering on its strategy to actively broaden capital sources beyond the existing investor base.

As Centuria’s Head of Real Estate and Funds Management Jason Huljich explains, the business is delighted to be able to build on its strong relationship with the Lederer Group.

“Since first partnering with us in 2014 with a significant interest in CMA, the Lederer Group has grown into one of our largest supporters. It has investments in excess of $195 million across CMA, Centuria Industrial REIT (CIP), CNI and now our wholesale funds business.

“As a highly respected, prominent real estate investor, the Lederer Group shares our passion for property and appetite for growth. This support, along with that of our strong existing investor base, puts us in a great position to do what we do best – leverage our solid real estate credentials to isolate pockets of value and generate positive returns for our investors.”

Paul Lederer, Chairman of the Lederer Group said: “We are pleased to expand on our strong relationship with Centuria through our wholesale investment in this high-quality metropolitan office asset.”

“Our continued investment in Centuria over the past four years is testament to our confidence in its property funds management platform, and we look forward to further building this relationship in the future.”

Growing our high-quality property portfolio in key locations

The acquisition consolidates Centuria’s footprint in the strongly performing NSW metropolitan office market, with 201 Pacific Highway adjacent to the group’s existing asset at 203 Pacific Highway, St Leonards.

Both buildings are A Grade, quality assets and well located above the St Leonards rail station with significant in-place amenity.

Mr Huljich said: “We believe St Leonards has significant potential as a metropolitan office market, with Sydney’s north shore experiencing tightening vacancy rates, limited supply and strengthening rentals.

“This is reflected in recent leasing deals, which have seen a solid uplift in rents in the area. This includes Cardno’s recent 10-year lease renewal at Centuria’s adjoining asset 203 Pacific Highway across 3,503sqm, or 30% of the building, for a record $620 psm net.”

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Jason Huljich

Centuria Capital has significantly expanded financial adviser access to the Centuria Diversified Property Fund (CDPF, the Fund), which has been added to the investment menus for HUB24, Netwealth, FUND.eXchange, Powerwrap, Colonial First State FirstWrap and Macquarie Wrap platforms.

The Fund offers investors on the platform direct property exposure, combined with daily unit pricing and access to a monthly liquidity facility.

Commenting on the announcement, Centuria’s Head of Real Estate and Funds Management, Jason Huljich, said he is delighted to have the Fund on these rapidly growing platforms.

“Inclusion on platforms provides greater access for financial advisers, and their clients, to this strong-performing fund.”

“We have seen a substantial increase in fund inflows in the last quarter as the fund is now available for use with the vast majority of non-aligned financial advisers.”

CDPF has also received “Recommended” ratings from both Core Property^[1] and Lonsec^[2] and, since inception in June last year, it has significantly outperformed the benchmark return.^[3]

The Fund offers investors access to tax-effective monthly income and the potential for long-term capital growth via investment in a diversified, open-ended portfolio of high-grade commercial property assets. It comprises 80% direct property, 15% A-REITs and cash of 5%.

The direct property component is via investments in 11 of Centuria’s unlisted funds, which own 13 properties in Sydney, Geelong, Brisbane, Canberra and Perth, including the recently over-subscribed Centuria Geelong Office Fund.

Mr Huljich said that the Fund had been well received by financial advisers and their clients since launching and that he is expecting increased inflows as further platforms offer the investment option.

“The CDPF has been recognised for its diversified portfolio of properties and for Centuria’s successful track-record in managing listed and unlisted property funds. Last calendar year we were able to improve the Fund’s portfolio metrics to a 98% occupancy rate and weighted average lease expiry (WALE) profile of 7.11 years^[4].

“As the Fund continues to grow, we will be looking to acquire direct assets for the fund. These will be high-quality, well located assets with financially strong tenants – ensuring stable and reliable returns for investors,” said Mr Huljich.

——–

[1] This rating is not and should not be construed as personal financial product advice, an offer to sell or the solicitation of an offer to purchase or subscribe for any investment, from Core Property. Any opinion by Core Property is unsolicited general information (general financial product advice) only. Neither Core Property nor the participant is aware that any recipient intends to rely on this rating or of the manner in which a recipient intends to use it. In preparing the information, it is not possible for Core Property to take into consideration the investment objectives, financial situation or particular needs of any individual recipient. Investors should obtain individual financial advice from their investment advisor to determine whether opinions or recommendations (if any) contained in this publication are appropriate to their investment objectives. Investors should obtain a copy of, and consider the PDS, which can be obtained by contacting Centuria.
[2] The Lonsec Rating (assigned July 2017) presented in this media release is published by Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445. The Rating is limited to “General Advice” (as defined in the Corporations Act 2001 (Cth)) and based solely on consideration of the investment merits of the financial product. Past performance information is for illustrative purposes only and is not indicative of future performance. It is not a recommendation to purchase, sell or hold Centuria Property Fund Limited’s product(s), and you should seek independent financial advice before investing in this product. The Rating is subject to change without notice and Lonsec assumes no obligation to update the relevant document(s) following publication. Lonsec receives a fee from the Fund Manager for researching the product(s) using comprehensive and objective criteria. For further information regarding Lonsec’s Ratings methodology, please refer to Lonsec’s website at http://www.lonsecresearch.com.au/research-solutions/our-ratings.
[3] Past performance is not indicative of future performance.
[4] As at 31 December 2017

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How can investment bonds can help to mitigate risk?

Investment risk can be defined as the probability that an investment’s actual return will differ from its expected return; however, there are other risks that can impact investors, particularly those close to, or in, retirement.

In this article, Centuria Capital examines those risk and discusses ways that investment bonds can help to mitigate them.

There is a Wall Street saying that the market is driven by two emotions – fear and greed. So entrenched is this view that CNN Money created the ‘fear and greed’ index, which measures seven indicators to see which emotion is currently driving the market. While the index currently suggests that ‘extreme greed’ is driving US markets, many investors remain fearful about a market correction and capital loss.

Whether in the accumulation phase, pre-or-post retirement, fear can drive investors to make poor decisions; fear of a making a poor investment choice, fear of holding an investment too long, fear of low returns or a market crash. Each of these fears can lead to behaviour that can undermine the long-term returns of an investment portfolio.

US-based research company Dalbar^[1] has been studying investor behaviour since 1994. According to Dalbar’s research, negative behaviours exhibited by investors have a common outcome – they lead investors to deviate from their investment strategy, even those tailored to their financial objectives, risk tolerance and time horizon. This often results in a knee jerk response to short term market conditions. For example, in its most recent report (for periods ending 31 December 2016), Dalbar’s research found that:

• Over 2016, the average US-based equity managed fund investor underperformed the S&P500 by a margin of 4.7%; much of this underperformance can be attributed to investors missing the ‘Trump rally’ in November (1.13%) and December (1.34%) 2016
• Over a 20-year investment period, the average equity fund investor underperformed the market by 2.89% per annum
• Equity fund retention rates decreased in 2016, from 4.10 years to 3.80 years
• Fixed income fund investors also experienced below market returns in 2016, with the average investor underperforming the Bloomberg Barclays Aggregate Bond Index by 1.42%.

According to Dalbar, the data emphasises two key points:

1. The average fund investor does not stay invested for a long enough period to reap the rewards that markets can offer long term investors
2. When investors react to short term market conditions, they generally make the wrong decision.

Investors need growth assets

Growth assets are important to all investors, both accumulators and retirees, because they provide longer-term capital growth as well as an income stream from dividends, distributions or rental income. While it is generally well accepted that investors in the accumulation phase should invest in growth assets to build their retirement nest egg, it’s just as important pre-and post-retirement. The average life expectancy is increasing and many retirees face the real prospect of outliving their retirement savings, especially if fear of loss drives them toward low risk investments that have little potential for capital growth or keeping pace with inflation. In fact, while investors may respond to fear of the risk of a market downturn, they might make themselves vulnerable to other risks.

Longevity risk

Put simply, longevity risk is the risk of a client outliving their retirement savings; Australian retirees face the very real prospect of a shortfall in their retirement savings as life expectancy continues to increase thanks to improvements in living conditions, health and medical advances. Figure one outlines today’s life expectancy for a range of ages.

While many Australians risk of outliving their savings if they invest too conservatively both before and during retirement, fear of capital loss from a downturn in markets restricts their exposure to growth assets.

Inflation risk

Inflation risk is the risk that investments and income lose purchasing power over time as the cost of goods and services increase. Purchasing power is the value of money, expressed in terms of the amount of goods or services that one unit of money can buy. Higher inflation means lower purchasing power.

Although Australia’s inflation rate at 30 September was a relatively low 1.3% (source: RBA), some essentials – such as gas and electricity, health insurance, and meat and dairy – have experienced price increases well above the headline inflation rate. As with investment returns, inflation has a compounding effect over time and can erode the value of a capital pool that remains static.

According to the Reserve Bank of Australia’s Inflation Calculator^[2], a basket of goods and services worth $100 in 1996 would have cost $163.49 in 2016 – an increase of 63.5% over the 20-year period. So, while money in the bank may have preserved capital, its value diminishes over time.

Growth assets and fear

No-one likes to see the value of their assets diminish. Sequencing risk is the risk that the order and timing of investments and returns are unfavourable. The wrong sequence of returns can have a particularly significant impact on a retirement portfolio where investors have less time to recoup losses, and will be withdrawing funds from a diminishing pool of capital. As illustrated in figure two, investment losses, or drawdowns, require a significant uplift to get back to the same point, let alone grow.

If investors experience positive investment returns in the first few years of retirement, they will be better placed to ride out market downturns. However, if returns early in retirement are negative, then proportionately more capital is required to fund ongoing living expenses.

How can investment bonds help mitigate risk?

An investment bond is an insurance policy, with a life insured and a beneficiary, but works like a tax-paid managed fund. And as with a managed fund, you can make recommendations to your clients from a broad range of underlying investment portfolios. These typically range from growth oriented assets, such as equities, to defensive assets such as fixed interest. They can also include other asset classes and combinations of assets.

A key feature of investment bonds is the ability to switch between investment options without triggering a personal capital gains tax liability. For an investor fearful of an imminent collapse in equity or bond markets, they can simply switch all or part of their bond into another investment option.

While market timing has well documented risks of its own, the comfort of knowing an investment can be simply and easily transferred from one asset class to another may be enough to assuage the fear of loss; and if not, an investor that moves from a growth option to a more conservative option for a period of time can do so without giving up precious capital gains. It is, of course, a simple task to switch back – or take a diversified option – in due course.

Investment bonds provide a range of other benefits that make them ideal vehicles for both accumulators and retirees:

Tax effective structure

An investment bond is a tax effective structure; tax is paid within the investment bond rather than personally by the investor. The maximum tax paid on the earnings and capital gains within an investment bond is 30%, although franking credits and tax deductions can reduce this effective tax rate. This makes investment bonds a particularly attractive savings vehicle, pre-and post-retirement, for high income earners.

No annual tax reporting

As long as a client’s money remains invested, the manager of the investment bond will pay tax on investment earnings; there is no requirement for your client to declare those earnings in their annual tax reporting.

No limit on investment amount

There is no limit on the amount that can be invested to establish an investment bond. Investors can make subsequent investments up to maximum of 125% of the previous year’s contribution without restarting the ten-year period.

Additional investments can be made annually or as a regular contribution. For those concerned about market risk, the benefits of dollar cost averaging can provide a compelling rationale for a regular contribution.

Importantly, investment bonds can help you address the two behaviours that, according to Dalbar, result in below average returns for many investors:

i) The average fund investor does not stay invested for a long enough period to reap the rewards that markets can offer long term investors.
While an investor can withdraw capital from an investment bond at any time, the tax benefits of maintaining the investment for 10 years may encourage clients to take a longer-term view.

ii) When investors react to short term market conditions, they generally make the wrong decision.
While not advocating an attempt to time the market, for those clients fearful of a market correction and the impact of sequencing risk on their portfolio, investment bonds provide an easy way to switch between asset classes without incurring capital gains liabilities.

While there is no magic bullet to mitigate the risks associated with investment, the tax benefits of investment bonds can provide a means for you to help your clients manage their fears and avoid rash decisions. No other investment provides exposure to a range of underlying investment options with no tax liability on maturation after 10 years, and no capital gains tax liability when switching between investment options.

———-

[1] DALBAR’s Quantitative Analysis of Investor Behaviour, 2016
[2] https://www.rba.gov.au/calculator/annualDecimal.html

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Up there with the great Australian dream of home ownership is the dream of early retirement – why wait until you’re too old to enjoy it, right? Whether it’s world travel, undertaking voluntary work, or buying a caravan and seeing Australia grey nomad style, most of us have a plan, a dream, for those post-work years. Why then does early retirement seem to be out of reach for the majority?

Retirement age and intention

The 2014–15 Multipurpose Household Survey (MPHS) undertaken by the Australian Bureau of Statistics (ABS) found that the average age at retirement for people aged 45 years and over in 2014–15 was 54.4 years (58.2 years for men and 51.5 years for women); as illustrated in figure one, women generally retire at an earlier age than men.

The average retirement age those who have retired in the last five years was 61.5 years; 62.6 years for men and 60.4 years for women.

Of the 3.8 million people over 45 years that are currently employed, 1.3 million (35%) could not say at what age they would likely retire. Figure 2 indicates the responses from the remaining 65% of this cohort.

The survey included retirement funding; 53% of those aged 45 years and over expect their main source of retirement income to be superannuation, annuity or allocated pension, and 27% cited government pension or allowance to be the main source of expected income. Early retirement is not the in the sights of many.

Access to superannuation and aged pension

Two factors trigger access to superannuation savings – reaching the preservation age and retirement. Tax may be payable on any super benefits withdrawn before the age of 60 (subject to certain exceptions).

Since 1 July 2017, the age at which retirees can apply for the Age Pension has increased to 65.5 years and, as illustrated in figure four, will increase to 67 years of age in coming years. When he was treasurer, Joe Hockey caused a lot of angst with a proposed increase in this age to 70 years; while this did not pass, there remains the spectre of further increases in age before eligibility in the future.

As well as speculation around a changing age at which the Aged Pension may come into play, there has been chatter about increasing the preservation age for access to retirement savings. For clients making medium to long-term retirement plans, the potential for such changes needs to be considered. Many of those solely reliant on superannuation savings will have little choice about the timing of their retirement.

Getting older, living longer

Australia’s population is ageing and, at the same time, life expectancy is increasing thanks to better healthcare and a higher standard of living.

Retirement savings will have to last longer in the future. A person who retires at age 55 will have, on average, a further thirty years of life to fund. With the limits on superannuation savings that came into effect on 1 July this year, can superannuation be relied on as the only form of retirement savings?

Although the ABS retirement intentions data suggests only a small number of Australians wish to retire early (i.e. between ages 49 and 59), this is likely tied in with the planned reliance on superannuation to fund retirement. With super off the table until at least age 60 – with the prospect of further changes pushing out preservation age – what investment strategies can be engaged to fund an early retirement?

Investment strategies to fund an early retirement

Many Australians invest outside the superannuation system. Whether it’s an investment property, a share portfolio, ETFs or a term deposit, investors adopt a range of strategies to meet short, medium or long-term financial goals. Let’s consider the pros and cons of several common investment strategies that could be used to fund an early retirement.

Residential investment property

Low interest rates coupled with increased demand for housing stock has created a boon for property investors. The opportunity to use negative gearing can provide some tax benefits to property investors.

Australian share portfolio

Australia’s unique dividend imputation system allows many listed companies to pay dividends that are partly or fully franked – in other words, are partly or fully tax paid, at the prevailing corporate tax rate. If an investor holds a portfolio of stocks that each pays a fully franked dividend, the investor would pay:

• No income tax if their marginal tax rate is equal to or less than the corporate tax rate, or
• The difference between their marginal tax rate and the corporate tax rate.

However, not all companies pay fully franked dividends, and some dividends have no tax paid at all.

Term deposits

RBA data reveals the average term deposit rate on a one year, $10,000 investment was 2.25% at 31 July 2017; for three years, it’s 2.5%. Given the current inflation rate of 1.9%, once tax is paid on the income received, it would be unlikely to keep pace with inflation. In real terms, each dollar of income received would be worth less than when it was invested. Despite this, APRA’s Monthly Banking Statistics for June 2017 shows that Australians have more than $844 billion on deposit.

Investment bonds

An investment bond is a tax effective structure; tax is paid within the investment bond rather than personally by the investor. The maximum tax paid on the earnings and capital gains within an investment bond is 30%, although franking credits and tax deductions can reduce this effective tax rate.

If an investment bond is held for 10 years, no personal tax is paid by the investor, which makes investment bonds a particularly attractive retirement savings vehicle. However, the money is accessible; if the investment is redeemed in whole or part within the first 10 years, the investor will pay tax on the assessable portion of growth.

There are many ways to save outside of superannuation for an early retirement. Of the alternative options explored, investment bonds are a unique and useful savings vehicle. No other investment provides exposure to a range of underlying investment options with no tax liability on maturation after 10 years. Your clients don’t have to wait until they reach preservation age – with sound planning and saving, they can choose the timing of their retirement.

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Jason Huljich

Centuria Capital yesterday announced that its newest fund, the Centuria Diversified Property Fund (the Fund), has been rated as “Recommended” from both Lonsec and Core Property Research.

The Fund, which was created with the aim of offering investors direct property exposure, combined with daily unit pricing and access to monthly liquidity, has been recognised for its diversified portfolio of properties and for Centuria’s track-record of success managing both listed and unlisted property funds. The Fund is made up of investments in direct property (80%) as well as A-REITs and cash holdings (20%), to provide liquidity to investors.

Currently, the Fund invests in nine of Centuria’s unlisted funds, which own eleven properties in Sydney, Brisbane and Perth. As the Fund grows, it will acquire direct property assets.

Jason Huljich, CEO of Unlisted Property Funds for Centuria, said he was delighted with the ratings. “Our focus over the past 20 years has been on single asset unlisted property funds, and our track record shows we have done this very successfully.”

“We will continue to create unlisted funds, but at the same time we recognise that the high initial minimum investment, and the fact that funds are locked up for a minimum of five years, means that unlisted fixed term funds are not suitable for everyone. It’s also proved to be challenging for an unlisted fixed term fund to be included on approved product lists or platforms due to the short period they are open for investment.

“The Centuria Diversified Property Fund makes direct commercial property investment accessible to more investors, and provides monthly income combined with the potential for capital growth over the long term. Since inception over 12 months ago, the Fund has exceeded its benchmark by 24.93%, delivering a total return of 33.86%.”

The objective of the Fund is to provide investors with tax-effective monthly income and the potential for capital growth, through investing in an open-ended, high-quality, commercial property portfolio, diversified across assets and geographies.

Discussing the Fund’s strategy, Mr Huljich said the aim is to grow the portfolio significantly over the next few years.

“We have identified an initial pipeline of AUD$26.2 million in quality assets that will form the basis of the Fund’s portfolio“ said Mr Huljich.

Managing Director of Core Property Research, Dinesh Pillutla, said a Core Property Research ‘Recommended’ rating denotes that the fund is considered to be suitable for investors seeking a portfolio of well-rated Centuria property investments with monthly distributions and a limited monthly withdrawal feature.

“The main attraction of the Fund lies in its ability to provide investors with an open-ended structure to access Centuria’s investment capabilities, as well as units in funds that were fully subscribed previously, and direct property over time,” said Mr Pillutla.

Mr Huljich said that the difference between the Centuria Diversified Property Fund and other property funds with a similar structure is Centuria’s commitment to active property management.

“We don’t believe in ‘passive’ property investment; we have an in-house property management team, and a track record of adding value to our portfolio at every stage of the investment process. In fact, our ability to identify properties which require intensive asset management to reach their return potential has been key to our success.

“We are asset-specific buyers, because we know that an asset well-acquired and actively managed will outperform – regardless of macro-economic trends. In short, we buy and add value, then exit when the added value is reflected in the sale price,” he said.

In conclusion, Mr Huljich said that he was very confident about Centuria’s newest property investment option.

“We will apply the same investment process and philosophy to the Diversified Property Fund as we have to our other property investment funds over the past 20 years. We have a track record of providing strong returns to our investors, and the diversified Fund is no exception. Receiving a ‘Recommended’ rating from both Lonsec and Core Property Research is vindication of this approach, and we expect to see strong support from financial planners and their clients,” said Mr Huljich.

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John McBain

Centuria Capital Group (ASX: CNI or Centuria) yesterday announced an FY17 operating EPS of 10.3 cps in line with previous guidance. Centuria also confirmed a distribution of 7.5 cents per share for the financial year ended 30 June 2017 as per guidance and up 43% on FY16 results. Funds under management increased by 118%, from $1.9 billion to $4.2 billion during FY17 and market capitalisation grew from $80 million to $290 million over the same period.

During FY17 securityholders enjoyed total returns of 24% and Centuria expects that its operating EPS will grow approximately 5% during FY18 assuming performance fee contribution is consistent with the long term average.

Talking about Centuria’s performance over the 2017 financial year, Group CEO John McBain described the year as ‘transformational’, with an unprecedented level of activity across all divisions, including the acquisition of the $1.4 billion 360 Capital real estate platform.

“This acquisition was a very significant contribution to growth in funds under management and our consequent increase in scale and market presence. The result has been a step-change for Centuria Capital, bringing our business to scale and this activity should enable near-term ASX 300 inclusion.”

“In addition, the majority of 360 Capital’s funds were listed funds which were highly complementary to our platform which was previously skewed toward unlisted property funds,” Mr McBain said.

Mr McBain went on to say that since FY16 Centuria had purchased ten properties for $721 million across the listed and unlisted businesses, of which $517 million were acquired by unlisted funds.

“Our unlisted business had a bumper year, growing by 106% in its own right. It now manages property assets of $1.6 billion, and this year made the largest purchase in our history – the Zenith office tower in Chatswood, which was acquired for $279 million in a joint venture with global investor BlackRock.

In other significant initiatives undertaken during the year, Centuria merged its two office Real Estate Investment Trusts: Centuria Metropolitan REIT (CMA) and Centuria Urban REIT (CUA); and acquired the management of Centuria Industrial REIT (CIP).

Mr McBain said that as a result, CIP is now Australia’s largest pure rent-collecting REIT, with a market capitalisation of $563 million, and CMA is Australia’s dominant metropolitan office REIT, with a market capitalisation of $420 million

“We are very pleased with the performance of both funds this year. The merger of CMA and CUA resulted in a larger and more efficient fund, which went on to acquire a further $150 million in assets since the merger”

“Our aim going forward is to actively grow both funds, as we identify suitable assets,” Mr McBain explained.

The Centuria Diversified Property Fund (CDPF) was also launched this year. CDPF is an open-ended, unlisted diversified property fund which is invested in nine quality office trusts.

“CDPF gives investors all the benefits of direct property exposure from an unlisted fund, but with the addition of daily unit pricing and liquidity via a monthly redemption feature.

“CDPF has performed really well this year. Returns to investors are 19.5% for the 12 months to 30 June 2017, and it has been rated ‘Recommended’ by Lonsec and Core Property. This means it qualifies for inclusion in bank and other large dealer group’s approved product lists,” Mr McBain said.

The investment bonds business also performed strongly this year, with unitised bonds growing by 28% over the 2017 financial year and the business continuing to diversify its distribution channels.

Centuria is the fourth largest player in the market, with $799 million in funds under management, and Mr McBain said that he expects further growth in the coming year.

“We’re seeing accelerated, above-market growth in the investment bond business, supported in part from an increased interest from advisers looking to create, transfer and protect their clients’ wealth. Changes to superannuation regulations and uncertainty regarding negative gearing and family trusts also factor in peoples decision to consider our investment bonds,” he said.

In conclusion, Mr McBain said that FY17 was a year which had seen Centuria significantly increase its scale in the Australian funds management landscape, while retaining a sharp focus on reliable, growing securityholder distributions.

“Our focus moving forward is to utilise our market-leading real estate and financial services capabilities to identify growth opportunities and to use our balance sheet strength to accelerate growth across our listed and unlisted property and investment bonds businesses.

“We have a long track record of creating value for securityholders, and we now have a strong platform to deliver another successful year in FY18,” he said.

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John McBain

Centuria Capital Group (“Centuria” or ASX: CNI) is pleased to announce $106 million acquisition of 1231 Sandgate Road, Brisbane (the “Property”) and CNI total funds under management (FUM) to increase to $4 billion.

Centuria Property Funds Limited (“CPFL”), a wholly owned subsidiary of CNI, has settled the Property for $106.25 million.

The Property was acquired by a new single-asset unlisted property fund (the Centuria Sandgate Road Fund), and is a modern A-grade office building in metropolitan Brisbane that is 100 per cent occupied by a range of government and private sector tenants.

This acquisition is part of an active growth period for Centuria, which included:

• A successful corporate bond issue in April for CNI, upsized to $100 million due to significant investor demand
• The capital raise and acquisition of the Scarborough House Fund in April for $72.3 million
• The merger of Centuria Metropolitan REIT (CMA) and Centuria Urban REIT (CUA) in June, creating the dominant listed metropolitan office REIT on the ASX
• The acquisition of two additional assets by Centuria Industrial REIT (CIP) for $65 million in June, cementing CIP’s place as the largest pure income-focused industrial REIT on the ASX. This brings CNI’s industrial FUM to over $1 billion.
• A full year dividend of 7.50 cents per CNI stapled security.

Centuria CEO, John McBain said “This has been a transformational period for Centuria, with the business successfully diversifying our Property Funds Management business and growing market capitalisation.

“We remain on track in relation to FY17 earnings guidance of 10.2 to 10.4 cents per security.

“And there is the potential of further growth in FY18, with continuing low interest rates and the high level of independent activity across our three Property Fund Management platforms: Centuria Unlisted Property, CMA and CIP,” said Mr McBain.

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