Centuria Capital Group (ASX:CNI) provides a portfolio update

Centuria Capital Group Limited (ASX:CNI) Joint CEO John McBain discusses the rising interest rate environment, the company's expansion into the healthcare and agricultural sectors, the acquisition of Primewest, and possible future M&A opportunities.

Tim McGowen: We're talking today with Centuria Capital Group (ASX:CNI). The company is an ASX-listed specialist investment manager with a 35-year track record of delivering a range of products and services to investors, advisors and security holders. Centuria Capital Group has 20 billion in assets under management. We're joined by John McBain, who is the Joint CEO. John, thanks for your time.

John McBain: Thanks for having me.

Tim McGowen: You're one of the founders, you just told me, of Centuria Capital. For shareholders or investors who don't know the business, can you give us a brief overview?

John McBain: So, we've been around just over 27 years. The business is basically a real estate funds management business, but we operate in a number of different asset classes, ranging from offices to industrial, healthcare, agriculture and other things.

Tim McGowen: And just on your asset breakdown, I was just going to ask a question here. Office and industrial assets represent the largest components of your asset base. Can you talk about these two sectors in a rising interest rate environment?

John McBain: Yeah, so I think, combined, our office and industrial assets are around 13 or 14 billion. And whilst they've been the backbone of our operations over a long time, we've been diversifying out of those for a number of years now, five or six years. In the asset class themselves, probably most people know that industrial or logistics, as people like to call it now, has been tremendously successful and popular, with extremely high rental growth. So, our investors have captured a lot of growth just on the back of rents, as they've risen over that period. And they look set to rise further in the future. Office, on the other hand, in the last half, our office portfolio did 30,000 square metres of new leasing deals. So, I presume they all went to people who want to occupy offices. However, there is no doubt that there's an apprehensive outlook around office while people sort out their work-life balance and everyone works out how much office space they actually need. And I think that's happening quite quickly at the moment.

Tim McGowen: Yeah, it's certainly well understood, that kind of work from home policy. Our office can be empty at times. Can you talk about your other asset classes that kind of include retail, healthcare, real estate, finance?

John McBain: Sure. In addition to those, we have daily needs retail, which you'd probably see a supermarket and 10 to 15 shops supporting it. We like those investments. We have over a billion dollars, about 1.3 or 4 billion, of those. We have large format or bulky goods retail, once again over 1.2, 1.3 billion of those class of assets. Both we think incredibly defensive, both anchored by major tenants, and they're the types of revenue flows we like to see in our funds. A couple of new cabs off the rank. We got involved in healthcare to diversify further. That was 3.5 years ago. That's been quite successful. So, we own private hospitals, eye surgeries and some quite innovative new private hospital deals with Medicare we're doing at the moment. And, lastly, agriculture. We've grown our first major ag fund this year from zero to 330 million, and that's been very, very eagerly sought after by our clients.

Tim McGowen: And you touched on agriculture. Has the acquisition of Primewest been fully integrated now, having regard to the agricultural exposure that that gives you?

John McBain: Yes. That's been fully integrated. Primewest was a great company. We often looked at what they had bought, and it was a terrific meeting of the minds when those two companies came together. We had about 10 billion of funds under management. They had 5. The founders are still working in the business, as Jason Huljich, my co-CEO, is. And we're very close to the assets we buy, but also to the investors who go into the funds.

So, that integration's complete. They had started some agriculture funds. And it was one of the things that came out of the merger, if you like, which really has excited us, different to just accretive returns and all those investment bank speak, this is hardcore expertise in an area that we didn't have previously. And to build a fund… And let's face it, these are difficult times. You know, people are apprehensive about investing their money, and they want to invest in things that they can feel sure they'll get good return flows and consistent returns. Agriculture is one of those areas where everyone knows… You know, the food bowl story, the protein story, the farm gate revenue's going up. So, to build a brand-new revenue stream from nothing has been a really good outcome for us.

Tim McGowen: Like you said, it's very well known by Australians, of course, that agriculture sector. What sort of assets are within that?

John McBain: So far, we've bought three very large tomato greenhouses, and we expect to continue to buy more of those. To give you an example, the first one we bought was over 30 hectares under glass. So, there are about four or five large-scale operators who supply the supermarket. So, you've got a ready take-up for all the produce you can grow, and climate is completely out the window because of the construction, very high-tech construction of the glasshouse, and extremely scientific and high-tech methods of production within the glasshouse. And we'll move on to other fields, agricultural assets, as we build out in the sector. But we want to start with this very good platform of climate-protected farming.

Tim McGowen: And there's obviously a number of opportunities in the listed sector too. You've seen a lot of REITs trading below NTA. Are they the sort of opportunities you may look at in the future?

John McBain: Yes. I mean, if you look at the growth of Centuria, we have acquired four or five businesses over 20 years. What we're always looking for is a business that has assets under management that we like, perhaps sometimes in a new field where we can learn something and offer our investors a wider, a more diverse investment offering or talent within the target. We wouldn't look at necessarily just acquiring a listed vehicle. Many of the acquisitions we make are unlisted operators too, who are perhaps a little bit subscale, but we can acquire their shares or exchange them, and they still really end up running their business.

Augusta in New Zealand was a great example of a great operator run by a guy called Mark Francis. He's still running his business. He's just now a large Centuria shareholder alongside me, and his business is called "Centuria", not "Augusta". And within three months of acquiring that business, they did the largest securitisation of an unlisted trust, a Visy investment of 180 million. So, if you bring idea, talent and capital and apply them in the right way, it can be a very good outcome for both parties.

Tim McGowen: John, thanks for your time.

John McBain: Thank you.

Source: Finance News Network