adelaide office fund investment summary - winston capital€¦ · health and medical research...

Adelaide Office Fund Investment Summary

NOVEMBER 2019

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*Artist impression of new building advertising.Realside Adelaide Office Fund 03

Why Adelaide? 05

Tenancy Profile 10

Portfolio Overview 11

169 Pirie Street, Adelaide

Rundle Square, 141 Rundle Mall, Adelaide

100 Pirie Street, Adelaide

186 Greenhill Road, Parkside

About Realside 15

Property

Capital

Board & Executive

Contents

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Realside | Adelaide Office Fund | Investment Summary

Realside Adelaide Office Fund

Realside is pleased to advise that it has entered into option agreements to acquire a 50% interest in a high quality diversified office portfolio in the Adelaide CBD and fringe.

The Portfolio consists of 4 refurbished A grade offices leased to a diverse range of quality tenants including, the State Government of South Australia, Nine Network, Kellogg Brown Root, Viterra, HAMBS (Hospital and Medical Benefits Systems) & Home Start Finance.This is a securely leased office portfolio with a weighted average lease expiry of approximately 5.8 years, diversified across multiple tenants and 4 high quality, well located office buildings.An Information Memorandum will be issued in the coming weeks with settlement anticipated in early 2020.Realside will be acquiring a 50% interest from Adelaide based Australasian Property Developments (APD) who will retain the other 50% interest. The portfolio will be jointly managed by Realside and APD combining 20 years of active asset management expertise with 20 years of active development and refurbishment capabilities. We will be targeting a yield of 8% per annum with a total return target of 11% over an anticipated 5-7 year initial investment term.We are very excited to bring you this opportunity and look forward to presenting you with an Information Memorandum in the coming weeks.

Portfolio Metrics

Net Lettable Area 39,108 sqm

Car bays (No.) 351

Passing income $13,806,983

Fully leased income $14,528,363

Vacancy 1,360.2 sqm (3.5%)*

WALE (by income) 5.8 years (As at 1 Feb 2020)

Purchase price $100m (50% interest)

Yield (fully leased) 7.26%

Capital rate per sqm $5,114

* Investors benefit from a 12-month gross rental guarantee.

Investor Returns (proposed)

Cash return > 8%

IRR (5 years) 11%

Investment term 5 – 7 years

Gearing 50% – 55%

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• 169 Pirie Street

• 100 Pirie Street

• Rundle Square, 141 Rundle Mall

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• 186 Greenhill Road

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Why Adelaide?

The investment thesis relating to the purchase of the Adelaide properties is founded upon:• Disproportionately high yields achieved from Adelaide properties,

relative to Sydney and Melbourne in particular;• Lower volatility in the South Australian economy, and consequently

less risk to Adelaide property prices;• Recent State and Federal Government initiatives which are expected

to increase demand within the state and reduce interstate population outflows, which has reduced the state’s economic growth historically.

Realside believes that the purchase of the 4 Adelaide properties provides the opportunity to exploit Adelaide’s high relative returns, whilst maintaining a below-average risk profile.

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Prem

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Australian City CBD Prime Yields vs Sydney

Adelaide CBDPerth CBD

Brisbane CBDCanberra CBD

Melbourne CBDSydney CBD

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Disproportionately high yields, relative to Sydney and MelbourneRelative to the larger markets of Sydney and Melbourne, Adelaide offers yield premiums which appear excessive, even after taking into account the stronger growth profile of the eastern seaboard cities. Yield premiums to Sydney have increased to 2.1%, their highest level over recent years.

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Lower downside risks from Adelaide Properties

South Australia possesses a diverse and stable economy, with State Final Demand (SFD) being broadly derived across a variety of sectors. The largest contributor to SFD, the health care and social assistance sector, accounts for 9.4% of South Australia’s SFD relative to 7.0% across Australia as a whole1.

Further, the state is less exposed to the volatile mining sector, contributing only 3.6% of SFD, well below the national average of 7.6%. This diversity of demand manifests itself in an economy less exposed to downturns, as shown in the chart below.

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South Australia

Victoria

Australia

NSW

Tasmania

ACT

Queensland

Western Australia

Northern Territory

4.5%

2.5%

3%

3.5%

4%

2%0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%

CBRE Research reports that South Australia and Victoria are the only states not to record any instances where SFD declined on an annual basis over the past 20 years (resulting in zero downside volatility in SFD in the chart above).

It should be noted that this is despite manufacturing’s share of South Australia’s SFD declining from 14.3% in 1998 to just 6.2% in 2018, with this decline predominantly associated with the closure of Holden’s car manufacturing operations in the state, at a cost of 1,600 jobs.Moving forward it is expected that the Federal Government’s $85b commitment to building maritime vessels in South Australia will underwrite economic growth for decades to come.

Growth of SFD & Downside Volatility (20 Years annualised)

1 https://www.adelaide.edu.au/saces/economic-and-social-indicators/industry-level-indicators#share-of-gross-statedomestic-product-by-industry-per-cent

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Lower downside risks from Adelaide Properties (Continued)The more stable returns from Adelaide CBD properties reflect the reduced risk of the South Australian economy as a whole. As a consequence, Adelaide CBD properties have achieved the highest risk-adjusted returns of any major Australian city, over the period since 2001.

Commercial property values in Adelaide during the last two decades have experienced subdued growth, and significantly below that of other Australian cities. In an environment of increasing global uncertainty this provides some level of comfort that Adelaide may weather an external economic shock relatively well noting the moderate reaction to the GFC in 2008. It also illustrates however that with the right set of circumstances the potential for capital appreciation exists.

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Sydney CBD Core Core

Melbourne CBDBrisbane CBDPerth CBDAdelaide CBD

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Adelaide CBDPerth CBDBrisbane CBDMelbourne CBDSydney CBD

Average Prime CBD Office Market Returns Since 2001 and Risk

Historical Australian Capital City Property Values

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Why

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Positive impacts from tax reforms and State and Federal Government initiativesThe South Australian property sector is expected to reap the benefits of the abolition of stamp duty on commercial property that took effect from 1 July 2018. The reform is expected to improve liquidity and upfront yields across the commercial property sector.More broadly, the South Australian economy is expected to benefit from several federal and state government initiatives some include the following:

During 2019 the following businesses have expanded their commercial office footprint in the Adelaide CBD;

Lockheed Martin 4,000sqmBHP 3,000sqmBAE Systems 3,000sqmNDIS (Commonwealth Government) 3,000sqm

Boeing 2,000sqmBabcock International 1,500sqmBeach Energy 1,500sqm

Defence$85 billion of defence projects in the pipeline for South Australia, including $50 billion for future submarines and $35 billion for future frigates. Resulting in 3,500 shipbuilding jobs, 4,550 jobs in related industries, up to 25,000 flow-on jobs due to a population increase of 30,000.

Biomedical $3.6 billion medical precinct on Adelaide’s North Terrace boulevard. Largest health cluster in the Southern Hemisphere. New $2.4 billion Royal Adelaide Hospital. South Australian Health and Medical Research Institute (SAHMRI) houses over 700 medical researchers.

InnovationLot Fourteen on North Terrace is home to the Australian Space Agency ($300 million committed for 2018/19), Office of Entrepreneur, 650 Start-up Hub and Smart City Studio. Australia’s only CISCO Lighthouse City. Australia’s first Ten Gig City network providing next-generation gigabit internet.

Cultural Known as the Festival State, Adelaide’s Festivals held in and around the CBD attract over 3 million visitors per year. The expanded Convention Centre hosts over 700 events per year, equating to over 200,000 delegates and guests.

LiveabilityAdelaide is consistently ranked as one of the most liveable cities in the world. Adelaide has the shortest work commute times and lowest residential property prices of all mainland capital cities (ABS).

EducationOf the 102,000 tertiary students in South Australia, 70,000 are studying in the CBD’s Universities.

TourismTourism expenditure has increased to $6.9 billion, up 5% on the previous year. International tourism has increased by 10%, above the national average of 7%. Nights spent have reached 33.5 million.

ResourcesSouth Australia hosts 68% of Australia’s economic copper. The Olympic Dam copper, uranium, gold and silver deposit is one of the world’s largest known accumulations of metals. The largest uranium mine in the world. 4th largest copper mine in the world. 2 of the top 6 ASX listed energy companies are based in SA, Santos and Beach Energy.

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Tenant Industry Exposure by Area

Government 45%Financial Services 11%Engineering 10%Media 6%Agriculture 6%Other 6%Food and Beverage 6%Healthcare Services 6%Construction 3%Fashion 1%

Tenant Profile by Area

Government 45%Nine Network 6%Viterra Operations Pty Ltd 6%Kellogg Brown & Root Pty Ltd 6%Other (17 tenancies each <250sqm) 6%Foodland Supermarket 5%SMSF Operations Pty Ltd 4%HAMBS 4%Home Start Finance 4%Rental Guarantee 3%Lucid Consulting Engineers 3%TMK and Associates 2%Snap Fitness 1%Ord Minnett Limited 1%Contact 1-2-1 1%Laser Vision 1%Nike 1%The Wyatt Benevolent Fund 1%

Government

45% 45%Government

Tenancy Profile

The portfolio’s income stream is underpinned by the Government of South Australia and the Commonwealth Government, accounting for 45% of the portfolio’s total area. These include such government tenants as The Department of Health and Ageing, South Australia Civil and Administrative Tribunals and the National Heavy Vehicle Register. Further high profile tenants displaying strong covenants include Nine Network, Viterra Operations Pty Ltd, Kellogg Brown & Root Pty Ltd and Foodland Supermarket, accounting for an accumulated 23% of the portfolio by area. The portfolio also has a respectable WALE by income of 5.8 years, which is long in comparison to most diversified portfolios, and a high occupancy rate of 96.5% noting that the vacancy benefits from a 12 month gross rent guarantee.In addition the portfolio includes several high profile brands such as Westpac, McDonalds, KFC, Nike and Snap Fitness.

The RAOF benefits from a strong tenancy mix that provides income diversification across multiple industries over an extended period of time.

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169 Pirie Street, Adelaide169 Pire Street is located within Adelaide’s core CBD precinct, on the northern boundary of Hindmarsh Square, surrounded by cafe’s, restaurants and hotels. The building’s prominent location makes it a desirable destination for tenants who demand a commanding position within the precinct.The A grade building benefits from high quality office accommodation boasting large floor plates (1,450 sqm) and ground floor retail with ample parking to the rear and short-term parking available on Pirie Street. 169 Pirie Street is home to Channel 9 studios and a diversified range of office tenants generally. The property boasts an abundance of natural light and outstanding views over Hindmarsh Square.169 Pirie Street underwent a substantial refurbishment in 2014 with the result being 169 is currently one of Adelaide’s most recognisable office buildings.


Car bays (No.) 37



Vacancy Nil


Purchase price $50,250,000



Anchor Tenants HAMBS (30%) exp 30 June 2026Nine Network (24%) exp 20 Sept 2030WT Partnership (24%) exp 31 July 2022

NABERS Rating 3.5 Stars (Energy)

Tenure Freehold

Property Metrics

Portfolio11


Rundle Square, 141 Rundle Mall, AdelaideRundle Square (formally Citi Centre) is located on the southern boundary of Hindmarsh Square with additional frontages to Pulteney Street and Adelaide’s premier retail thoroughfare Rundle Mall. The office component boasts a side core with unimpeded views on all three sides and is 100% leased to the Government of South Australia until 2026. The property benefits from unrivalled surrounding amenity, a high car parking ratio and abundant public transport networks.A refurbishment program is currently underway including upgraded bathrooms across all office levels, end of trip facilities, internal lighting and refurbished external façade to feature new signage and centre branding. The capital expenditure program with exceed $5m on completion.Following a substantial reposition of the retail ground floor plane the property has secured leases to Romeos’ Foodland large format supermarket until 2034, KFC, Bonzai Bowls Acai Bar and Sushi Hub.

Property Metrics


Car bays (No.) 99



Vacancy 343 sqm (2.0%)





Anchor Tenants State Govt SA (79%) exp 30 Dec 2026

IGA Supermarket (Romeo)(10%) exp Sept 2034

NABERS Rating 2.5 Star (Energy) (Prior to refurbishment)

Tenure Leasehold (Currently expiring 2085)

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Portfolio

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Car bays (No.) 32



Vacancy 1,017 sqm (11.38%)





Anchor Tenants State Govt SA (38%) exp 31 Aug 2023

SMSF Operations (19%) exp 30 Sept 2024

NABERS Rating 4 Star (Energy)

Tenure Freehold

100 Pirie Street, Adelaide100 Pirie Street is an imposing landmark office tower on the streetscape of Pirie Street. The tower comprises 8 levels of high-quality office accommodation and ground floor retail. The building offers side core floor plates averaging 898 sqm and enjoys excellent natural light with floor to ceiling windows and on-site parking for 32 vehicles. A refurbishment program has recently been completed including a new ground floor lobby, upgraded end of trip facilities as well as bathroom facilities on all office levels.With a south facing aspect to Pirie Street, the building is superbly located within the heart of the Adelaide CBD. It boasts views on all four sides with additional frontages to Wyatt and Chesser Streets and is surrounded by office, retail and hotel developments, with numerous multi-deck car park facilities nearby.

Property Metrics

Portfolio

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Car bays (No.) 183



Vacancy Nil





Anchor Tenants Kellogg Brown Root (49.5%) exp 30 April 2024

Viterra (50.5%) exp 31 Jul 2025

NABERS Rating 4 Star (Energy)

Tenure Freehold

186 Greenhill Road, Parkside186 Greenhill Road is a substantial 2 storey office building located 2 kilometres south of the Adelaide CBD. The building sits upon a 5,903 sqm parcel of land with 3 street frontages being Greenhill Road, Jeffrey Street and Stamford Street.The building provides expansive floor plates of 2,467 sqm and benefits from outstanding natural light, end of trip facilities and excellent exposure to Greenhill Road, and lift access to undercover and open-air on-site car-parking for 183 vehicles.Greenhill road is popular for tenants seeking high car bay ratios and easy access to the broader metropolitan area for both staff and customers alike. Public transport is readily available with multiple bus routes servicing Greenhill Road.

Property Metrics

Portfolio

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Property Our focus is on identifying attractive commercial property assets from core property through to value add. Pro-active asset management is central to our approach, with a keen focus on the relationship between risk and reward and capital preservation.

Capital A hand’s on approach to partnering with successful developers and operators to fund a wide range of projects, assets and ventures. Flexibility to invest across the capital structure, from senior debt to equity across a range of opportunities including opportunistic or developed assets, or operating businesses.

About Realside

Realside is a specialist Property Funds Management and Private Market investment firm that provides sophisticated clients with access to high quality property and private market investment opportunities.The principals have been working together for many years and were previously responsible for the successful development of two multi-billion dollar investment firms; Atrium Investment Management and Primewest.The business has two primary focuses; management of commercial property assets and capital investments into a range of private market opportunities.

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ALEX HONE, DIRECTORAlex Hone is Managing Director of Realside Financial Group Pty Ltd and is also a Director of Realside Property Pty Ltd and Realside Capital Pty Ltd. Alex has more than 20 years investment experience having worked with leading global firms in both Sydney and London. His experience has included establishing and developing funds management businesses that in turn developed global reputations for investment excellence. Alex was previously the founding CEO/CIO of Atrium Investment Management. Prior to this, Alex was a Portfolio Manager with Magellan Financial Group and with Capital Partners (now CP2), a specialist global investment advisory and management firm. Alex commenced his career in the Treasury division of the National Australia Bank.

MARK VONIC, DIRECTORMark Vonic is Chief Executive Officer and Director of Realside Property Pty Ltd. Mark has over 20 years of continuous property funds management experience in the Australian real estate industry. He has held roles that span the full spectrum of the real estate funds management industry, from acquisition to asset management, through corporate governance to capital raising. He has been involved in the start-up of several funds management businesses, including in the UK, and has executed a China real estate strategy. Mark has held various roles with Glenmont, Primewest and now Realside. Mark has a long track record of identifying investment opportunities for investors, often off market, that produce income and capital growth commensurate with the specific underlying real estate with a keen focus on the relationship between risk and reward. Mark has completed well in excess of $2b of acquisitions.

BRETT IRELAND, DIRECTORBrett Ireland is Chief Operating Officer of Realside Financial Group Pty Ltd and is also a Director of Realside Property Pty Ltd and Realside Capital Pty Ltd. Brett has over 20 years’ experience in the financial services industry and over 10 years in the Funds Management industry. Brett was previously the Chief Operating Officer for Atrium Investment Management. Brett has also held roles as General Manager for the Australian chapter of the Alternative Investment Management Association (“AIMA”) and Chief Operating Officer for Brevan Howard, one of the world’s largest hedge fund managers. Brett was Chief Operating Officer for Brevan Howards Jersey office and was also an executive director for a number of their investment management entities around the world. In addition, Brett trained as a chartered accountant with PWC working in both their Sydney and Jersey offices.

Realside Board & Executive

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NICK NICOLAIDES, INVESTMENT DIRECTORNick has more than 12 years investment experience, including 8 years focussed on private debt and equity within investment banks, family offices and multi-asset fund managers. Prior to Realside, he was Portfolio Manager of Private Markets at Atrium Investment Management. During this time he originated and managed a diversified portfolio of property & commercial debt, private equity and growth capital assets. His experience also includes investment banking at J.P. Morgan in their real estate team and transaction advisory at Ernst & Young, where he focussed on mergers & acquisitions as well as restructuring. Nick is a Chartered Accountant and holds a Bachelor of Business with 1st class Honours from the Queensland University of Technology and a Bachelor of Commerce from the University of Queensland.

MARCUS DARVILLE, NON-EXEC DIRECTORMarcus Darville is a non-exec Director of Realside Financial Group Pty Ltd. Marcus is also the Managing Partner for Quadrant Private Equity having joined in March 2006. Marcus has over 20 years private equity experience starting in the UK with NatWest Ventures (now Bridgepoint). He joined AMP in 1994 as Joint Head of Private Equity where he completed several major buyouts including Tasman Building Products. Marcus is a member of the Quadrant Investment Committee is a Director of Quadrant investees A-Mart/Barbeques Galore, Experience Australia, Fitzpatricks Wealth, QSCAN and Home Care Holdings

BEN DIMSEY, INVESTMENT ASSOCIATEPrior to joining Realside Ben worked at The Blackstone Group’s European logistics platform, Logicor based in London focusing on portfolio and asset management. Prior to this Ben worked with JLL in the Corporate Finance team based in London focussing on alternative real estate classes including student housing, healthcare and data centres. Ben commenced his career with JLL in the Capital Markets team, based in Perth. Ben holds a B.Comm (Fin) from Curtin University of Technology and GradCert in Real Estate Valuation from Deakin University.

Realside Board & Executive

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real

side

.com

.au

Sydney Level 3, 28 O’Connell St Sydney NSW 2000

Perth 1202 Hay St West Perth WA 6005

Important InformationThe information in this document (Information) has been prepared by Realside Financial Group (Realside). Realside Financial Group includes Realside Capital Pty Ltd ABN 19 634 572 508 (RC) and Realside Property Pty Ltd ABN 60 634 585 210 (RP). RC and RP are authorised representatives of Atrium Investment Management Pty Ltd ABN 17 137 088 745 (AFSL: 338634). The Information is of a general nature only and does not take into account the objectives, financial situation or needs of any person. Before acting on the Information, investors should consider its appropriateness having regard to their own objectives, financial situation and needs and obtain professional advice. No liability is accepted for any loss or damage as a result of any reliance on the Information. Past performance is not a reliable indicator of future performance. Future performance and return of capital is not guaranteed.

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