REST0001 Property Performance Analysis, 2017

John Vu, Qiaoyu Kong, Henry Liu

PROPERTY PERFORMANCE ANALYSIS
PIR Centuria Scarborough House Fund Review
Things PIR Report not covered:
 100% Tax deferral is only applied for Australian residents
and only applies to the first two years and uncertain for the
rest investment term.
 Lack of information substantiating the current physical
condition of the property
 Initial interest covered ratio calculation is not provided.
 Ongoing management fee is based on an estimated
number from the PDS and do not represent the actual
management fee.
 All-in-fee analysis provided by PIR based on assumed
numbers, which dilutes the accuracy of other figures which
base on it.
Things PIR Report considered:
 Market Risks( economic or market conditions fall
down, poor sale price, policy changes)
 Debt facility and metrics is reasonable and
understandable.
 Capex, a total of $3.5M between the periods May
2017 and Jan 2019, is likely to improve the value
of the building, but the estimate capex
expenditure is uncertain.
 Cap rate is the main performance drivers in
sensitivity analysis and the floating interest rate
for refinance (Trench B) is considerable.
 Macro environment including infrastructure
developments, projected population growth and
the presence of an established ‘health precinct’ in
Woden.
 PROPERTY PERFORMANCE ANALYSIS
Centuria Scarborough House Fund Pros and Risks Analysis
• Good Track Record - Fund Manager
History Performance
 ~30% IRR on sale of 175
Castlereagh St
 ~20% IRR on sale of 80 Waterloo
Rd, Macquarie Park
• Strong Market
 Canberra A-Grade Office
vacancy compression
 The total return of Office in
Canberra Region is steadily rising
from the end of 2014
• Government Support – Health Hub
 Strong Tenant
 The ACT Government will be
relocating its workforce of about
750 staff from multiple sites
around Canberra and will be
joining other Commonwealth
Government Departments
already in Woden.
• Mild Property and Market Risk
(Location, Tenants, Physical Performance,
Demand and Supply)
• Financial Risks
Liquidity - a closed-end fund which
means investors may not withdraw
from the Fund with a WALE of 8.2
years.
(If market start to fall - Redemptions may
not be covered by inflows)
Refinance - The Fund estimated it is
necessary to draw debt in year 4 in
order to maintain distributions due to
incentive.
(The availability of debt, and the cost of
debt)
• Other Risks
Leasehold Title – Future selling price
Indistinct Fees and Expense –
Operating Expense
Lease Expire and Single Major
Tenant Risk – Future selling price
Source: Centuria group, The Canberra Times, Collier
PROPERTY PERFORMANCE ANALYSIS

Centuria Scarborough House Fund – Investment Strategy

• The data referenced in the PIR is from the Product Disclosure Statement of Centuria
Scarborough Fund at the date of publication and may vary over time. The forecast and
opinions formed are assumptions and should not be taken as personal financial product
advice.
• Investor need to assess their own personal circumstances (including financial and taxation).
• The illiquid nature of the fund requires investors to be comfortable with the prospective returns
verse the illiquidity.
• Fund portfolio: government tenant, stable yield, strong market, proven fund manager,
guaranteed building quality, further risks can be minimized by active management and
professional operation.
• CPF has approximately $2.8 billion of property under management spread across 18 unlisted
property funds and three A-REITs, thus refinance will not be a major issue.
• Income return is guaranteed in the investment term, capital growth is questionable. Due to
supply shortages and governments focus on Woden as a major health precinct, we believe the
capital growth estimate by PIR is achievable.
• In conclusion, we are in the opinion that Centuria Scarborough House Fund is a viable
investment option with the potential for strong risk adjusted returns.