Grant Nichols Interview: Centuria Office REIT, Return to the Office and World Financials
We recently had the opportunity to interview Grant Nichols, the Fund Manager of Centuria Office REIT. Centuria is a real estate investment trust that specialises in commercial property investment in Australia. With over $20 billion in funds under management, Centuria has grown considerably since its inception in 1999. Grant Nichols has played an integral role in the success of the company and has been with Centuria for over a decade.
During the interview, we discuss Centuria’s recent performance, particularly in the last 18 months, and the key factors that have contributed to their net profit. We also delve into the concept of net tangible assets and the current discrepancy between Centuria’s net tangible assets and their share price. Grant Nichols provided valuable insight into the real estate market and shared his views on the impact of rising interest rates and low unemployment rates on office occupancy.
Furthermore, we explored Centuria’s future plans and growth strategies. With a focus on specialist fields such as office, industrial, healthcare, agriculture, and retail, Centuria is constantly seeking new investment opportunities. Grant Nichols shared his confidence in Centuria’s abilities and their commitment to continuing their trend of strong performance.
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Centuria’s Performance
Centuria has seen a surge in net profit over the last 18 months, which has been driven by strong sales evidence and improved valuation metrics across its portfolio. Net tangible assets, the combined value of all assets less debt, are significantly greater than the current share price, creating a 30% discrepancy. This difference is due to the daily trading of unit prices on the ASX, where unitholders determine the units’ worth based on the market’s perceptions of the outlook for office and real estate values going forward. Centuria’s Grant Nichols believes that the current market discount is too great and that the real estate investment trust’s valuation is overshot, with the recent sales activity reinforcing this view. He thinks that even if interest rates moderated at 2 to 2.5%, buying commercial real estate between 5 to 6% cap rates, where Centuria’s portfolio lies, is still an attractive yield gap for investors. Therefore, the current discount is an opportunity for investors to invest in Centuria and capitalise on its growth potential.
Market Outlook
The market outlook is currently uncertain due to rising interest rates and a pessimistic outlook for office and real estate values. According to Grant Nichols, there are concerns that rising interest rates may have a negative drag on asset values going forward. However, Nichols also offers a personal view that the current market is overshot and that a doomsday forecast is not likely. Despite this, uncertainty still lingers in the market due to the wide discrepancy in where interest rate forecasts currently stand.
Nichols also discusses the importance of a low unemployment rate and its potential impact on office occupancy. He notes that low unemployment is a strong tailwind for office occupancy because if there is an increase in employment, it necessitates more office space occupancy. However, Nichols also suggests that the bigger issue for new absorption going forward is whether or not more staff can be employed by businesses. He believes that things like immigration may become more important in meeting employment needs and clearing some of the backlogs due to the low immigration in the past two years caused by COVID-19.
Centuria’s Growth Plans
Centuria has undergone rapid growth in recent years, with funds under management increasing from $3.8 billion to over $20 billion. The company is focused on specialist fields such as office, industrial, healthcare, agriculture, and bulky goods/retail, and intends to continue building its business in these areas. The company’s team and abilities will enable it to achieve its goal of building funds under management in a sustainable manner. The performance of Centuria’s funds has been a key driver of its growth, and the company intends to continue delivering strong returns for investors. With its strong track record and specialist expertise, Centuria is well-positioned to capitalise on opportunities in the Australian property market and continue its rapid growth trajectory.
Conclusion
In summary, Centuria’s recent net profit has been driven by strong sales evidence and improved valuation metrics. While there is a discrepancy between Centuria’s net tangible assets and current share price, the current market discount is an opportunity for investors. The market outlook is uncertain due to rising interest rates and a pessimistic outlook for office and real estate values, but there is potential for low unemployment rates to impact office occupancy. Centuria is focusing on specialist fields such as office, industrial, healthcare, agriculture, and bulky goods/retail to continue its rapid growth. Interested investors can contact Centuria for more information on investing in its listed and unlisted funds.
We want to thank Grant Nichols for taking the time to discuss Centuria’s performance and growth plans with us.
