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The last few weeks have been a busy time for investing in my share portfolio. I’m pleased with the latest investment I made with $2,000. I chose a beaten-up share which had declined by 60% from its peak in September 2021.
For readers who don’t know this business, it’s a fund manager that manages listed and unlisted real estate funds, as well as a relatively small amount of investment bonds.
At the end of September 2023, it had assets under management (AUM) of $21.1 billion, which included $14.1 billion of unlisted real estate, $6.2 billion of listed real estate, and $0.8 billion of investment bonds.
Why I invested in this ASX share
It’s completely understandable that investors are feeling pessimistic about the company following the run of interest rate rises. Not only are interest rate rises meant to hurt asset prices, but higher interest rates also increase the cost of debt.
But I thought the sell-off of Centuria was overdone, which is why I invested at an average share price of $1.22.
I believe the ASX property share’s AUM will hold up better than some investors may be thinking, partly because of the strength of its industrial properties.
For example, the real estate investment trust (REIT) Centuria Industrial REIT (ASX: CIP) achieved re-leasing spreads of 48% in the FY24 first quarter. This is a huge jump in rental income for those renewed leases.
Centuria owns a substantial amount of Centuria Industrial REIT units on its balance sheet, which helps support its share price and good distributions.
It’s also worth pointing out that Centuria Office REIT (ASX: COF) has an occupancy rate of 96.7% and a 4.1-year weighted average lease expiry (WALE), with successful ongoing leasing and an appealing distribution yield. Centuria also owns some units of this real estate investment trust (REIT) as well.
Centuria is still generating pleasing management fees from its portfolio of assets. Ignoring the effect of debt on the financials for just a moment, if the value of those properties falls by, for example, 5%, then Centuria can still get 95% of the former management fee.
What about withdrawals?
Of course, there’s a danger that some investors may want to pull all their money from the fund manager amid the interest rate difficulties. I don’t know what’s going to happen on that front.
However, I think there are a few points of safety against that.
Firstly, the company is winning new mandates, such as a recently announced $500 million one from a US private investment firm looking to acquire assets within the supply-constrained infill industrial markets in Australia.
Second, a significant portion of its AUM is in close-ended funds. In other words, investors will usually need to sell their holdings to other investors if they want to pull out, rather than withdraw them from Centuria.
Thirdly, investors may accept the economic environment and leave their money with Centuria. After all, they invested for property exposure and may continue to want that.
It’s possible I may be wrong with my contrarian positivity about this ASX property share, but I think the Centuria share price had fallen to an incredibly attractive price of $1.22. In early trading on Monday, it’s currently at $1.445 a share.
The property business had guided that it was going to pay an annual distribution of 10 cents per security in FY24. At the price I bought, that translated into a forward distribution yield of 8.2%. At the current share price, it’s a yield of around 7%.
I think the RBA interest rate is going to stay higher for longer than many people are expecting. We recently learned Australia had the strongest annual inflation rate (to September 2023) of the top 15 countries with the biggest economies.
But, at some point, I think interest rates could go down. With investing being a multi-year endeavour, I think a decline in interest rates will help during my planned investment timeframe with my Centuria shares of three-ish years.