Investment Matters

Company News: Centuria Office and Retail Funds (Property Sub-Portfolio), Origin, Paladin (sale) and others.

Property Securities

Centuria Office Fund (COF) (positive impact)

Centuria Office REIT comprises of a portfolio of metropolitan office assets in NSW, Queensland, Victoria, WA, SA and the ACT and is the largest domestic pure play Office REIT listed on the ASX.

The fund provided a market update this week, detailing changes in leasing, movements in asset values and outlook for, what is in our mind, a very uncertain time.

We sold the majority of our stake in the REIT in late 2019 and early 2020 for more than $3 per share, as the stock traded higher than our view of intrinsic value. We bought additional shares at very low prices during the market selloff, much of which we have sold around current levels. COF represents approximately 3% of the property portfolio. Our reticence in owning more remains due to the uncertainty regarding demand for office space in a post-Covid world.

The outlook for COF’s suburban office in particular is uncertain. COF has the benefit of a diversified geographic exposure, however, greater than 19% of income is either vacant (8.5%) or expiring in FY-21 (4.3%) or FY-22 (6.4%).

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Centuria Industrial REIT (CIP) (positive impact)

The Centuria Industrial REIT consists of a portfolio of 59 industrial properties in key metropolitan areas throughout Australia. We re-introduced this security to the property portfolio in April 2020, having previously owned it from 2015 to 2017.

The past year has seen the size of the fund grow significantly, with the addition of nine industrial assets of $694m in value, facilitated by capital raisings in which we have participated.

Strong demand for industrial property has seen valuations firm. The tailwinds the industrial real estate sector enjoys, from changes in the way our economy is structured, are considerable.

Greater levels of outsourcing for all household services (from cooking and cleaning, pet grooming to physical activity) increase demand for industrial space closer to residential areas.

An increase in online spending has completely reorganised many wholesale functions, requiring either rebuilds or entirely new set-ups for companies such as Amazon, Woolworths and Kathmandu.

Some changes have led to an increase in demand that is both transformative and local. The best example being “dark stores” operated by major supermarkets, in which large scale “supermarket like” facilities, replete with automation, and physically inaccessible to the public, are used to online fulfill orders made by households.

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Australian Equities 

Origin Energy (negative impact) announced that it anticipates operating profit for FY-21 to be lower than previously expected. The company has been impacted by several factors, including lower electricity wholesale prices, a mild summer, unfavorable changes in gas supply contracts, foreign exchange impacts and higher corporate costs.

We see current prices as discounting Origin Energy’s ability to be a key participant in the future energy transition, as the structure of the National Electricity Market changes and energy generation decentralises.

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Clients’ holding in Paladin has been sold in full.

Paladin has been a rewarding position in client portfolios over the financial year, returning more than 200%.

Recent price movements imply much higher future uranium prices than our estimates, taking into consideration risks still present for demand, uncertainty around market dynamics and the persistence secondary supply.

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Worley (negative impact) have signaled that revenue and operating profit for the first half of the financial year will be below expectations.

The company had a drop in revenue, with rising COVID infection rates internationally creating uncertainty and impeding site access. This has seen a deferral of projects.

As we have mentioned, the company has taken a range of measures to reduce costs in the current environment, including a reduction in headcount and rationalization of property leases, the impacts of which are expected to flow through operating profit in the second half.

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MMA Offshore (neutral impact) has undergone a share consolidation. As part of the consolidation, every 10 shares in the company will be consolidated to one. The change will have no impact on clients’ ownership of the company – which will remain the same, nor the value of their holding.

The price per share however has changed to reflect the consolidation of shares – from 3.4 cents per share to 34 cents (as at Thursday, February 4, 2021).

During the consolidation period, the security will appear under the code MRMDA in client portals before reverting back to MRM.

 

 

The above market commentary represents the views and opinions of First Samuel Pty Ltd. Such market commentary contains information of a general nature only. Such market commentary is not intended to provide a sufficient basis on which to make any investment decision and should not be taken as such. It has not taken into consideration your objectives, needs or financial situation. Before making decisions in relation to any financial product, you should always obtain and read any relevant Product Disclosure Statement or information statement and seek personal financial advice.