Welcome to our latest newsletter

Welcome to our latest newsletter.

This edition provides updates on our Full Year FY22 results for Centuria Capital as well as our listed REITs, CIP and COF. There is also news of our latest agriculture fund launch, a summary of our recent acquisitions and details of recent ESG initiatives.

During FY22 real estate assets under management have grown to $19.8billion, an increase of 18% from the close of FY21. We have also confirmed FY23 operating earnings guidance of 14.5 cps as well lifting FY23 distribution guidance by 5.4% to 11.6 cps.

Looking ahead, we continue to see the impacts of COVID abating. Workers are returning to the office, healthcare is slowly returning to pre-COVID service levels and shoppers continue to support daily needs retail and large format retail. The resumption of business as usual has a correspondingly positive impact on the office, daily needs retail, large format retail and industrial sectors while strong tailwinds continue to support our healthcare, agriculture, and real estate credit businesses.

There is no doubt that we will all experience rising interest rates in the short term as the world grapples with high levels of inflation and we depart the artificially low emergency interest rates required to stimulate the economy through COVID. There are positive signs that inflation is at or close to its peak in Australasia and while we expect the cash rate to increase further in the short term it is well accepted that provided inflation can be brought down to an acceptable level, following this higher rate period, we believe the central bank will adopt a lower stabilised cash rate which should settle financial markets.

What this means to our investor clients is that in the short term we do expect some high-quality assets to sell at attractive prices as larger owners liquidate buildings which they have written down as non-core and where the Centuria team can see the potential to add considerable value. This is a core skill set within the Centuria group and pricing has simply been too aggressive in the past few years to enable us to package up higher return funds in the value-add space.

So, over the next few months please look out for further agriculture and healthcare investment opportunities, some interesting credit opportunities as well as the value-add projects that you know us so well for.

Thank you for your ongoing support.

John and Jason
Joint Chief Executive Officers

It’s our pleasure to present highlights from Centuria Capital Group’s Full Year FY22 Results, which demonstrate how the Group diversified throughout the past 12 months with each of our seven real estate verticals contributing meaningfully to our growth.

This diversification helped the Group achieve considerable scale, increasing Funds Under Management (FUM) by 18%pcp to $20.6 billion. Our real estate portfolio increased 20%pcp to $19.8 billion with a third weighted to listed funds ($6.8 billion, up 23.6%pcp) and two-thirds to unlisted funds ($13 billion, up 18.2%pcp).

This growth contributed to Centuria delivering on its Upgraded Operating Earnings per Security (OEPS) of 14.5 cents per security (cps), up 20.8%pcp as well as delivering on distribution guidance of 11.0cps, up 10%pcp.

Centuria’s expansion throughout FY22 is attributed to organic growth with $3.1 billion worth of gross real estate transactions, $1.0 billion valuation uplift, a $2.1 billion development pipeline and $100 million worth of development completions.

During past reporting seasons, we announced several mergers and acquisitions, with these entities now known as Centuria Healthcare, Centuria New Zealand and Centuria Bass. These entities provided a gateway into new sectors including healthcare, agriculture, large format retail, daily needs retail and real estate finance as well as expanding our office and industrial platforms.

Our results illustrate how we have organically grown each of the merged entities across a broad property market spectrum. It is a framework that can provide future growth across funds management, transactions and development management,

During the period, the Group benefited from significant recurring revenues (89%), $33 million in FY22 recognised performance fees, collected c.$21 million in FY22 performance fees, and c.$179 million in FY22 latent¹ unrecognised performance fees.

Centuria has a resilient revenue profile. By generating these different sources of income we are not reliant on one income stream.

Our evolution through diversification appeals to a broader variety of investors, by providing more investment options across the Australian and New Zealand markets. In fact, during the period we increased our exposure to institutional equity by 12%pcp to $1.9billion, with significant partnerships and mandates across the healthcare, office and daily needs retail sectors.

Looking ahead to FY23, we are cognisant of rising inflation and a higher interest rate environment. Our experienced, disciplined management team is well suited to variable market conditions and we expect that value opportunities will emerge across our asset sectors.

Centuria’s FY23 OEPS guidance² is in line with FY22 at 14.5 cps and FY23 Distribution Per Security (DPS) guidance increases to 11.6cps, (+5.4% from FY22).

Centuria retains a solid balance sheet with $339 million in cash and undrawn debt, a 13.2% operating gearing ratio and a 6.8 x interest cover ration. These metrics illustrate how Centuria’s balance sheet provides flexibility to support further growth across our funds management platform.

We look forward to updating you in FY23.

CIP has delivered strong results for the FY22 period supported by significant leasing activity with 185,200sqm leased (14% of portfolio Gross Lettable Area) and double-digit rental growth of 11% over prior passing rents.

This resulted in CIP delivering on its upgraded Funds From Operation (FFO) guidance of 18.2 cents per unit (cpu), which provide a 20.3%pcp and distribution guidance of 17.3cpu.

During the period, Australia’s industrial market reported one of the lowest industrial vacancy rates in the world (0.8%)³ driven by a combination of sustained high occupier demand and limited supply.

Subsequently, our strong leasing activity contributed to a healthy valuation gain of $325 million during FY22⁴, up 11%pcp with Net Tangible Assets (NTA) per unit rising to $4.24.

CIP’s portfolio scale significantly expanded throughout the year to 88 assets worth $4.1 billion (42%pcp), underpinned by 26 strategic acquisitions within urban infill markets worth $765 million. These acquisitions increase CIP’s exposure to growing market rents and build our value-add pipeline.

During the period CIP divested a number of assets worth $45million at a healthy premium to book value (average +32%), recycling that capital into higher yielding opportunities.

Portfolio occupancy also considerably increased to c.99% during the period and CIP maintained its weighted average lease expiry (WALE) of 8.3 years.

It’s important to note that the vast majority (82%) of CIP’s assets are within in supply-constrained urban, infill markets where tenant demand is highest.

CIP is well placed to take advantage of this sustained demand and benefit from continued forecast rental growth.

To help meet market demand for high-quality industrial space, CIP leverages Centuria’s inhouse development capabilities to execute on several value-add and development projects. Additionally, CIP continues to build scale through land consolidation strategies within key urban submarkets.

Looking to the year ahead, prevailing inflation and subsequent rising interest rates present market-wide challenges but with the operating environment for industrial property remains strong and CIP is well positioned to deliver on its strategy.

CIP provides FY23 FFO guidance of 17.0cpu⁵ and distribution guidance of 16.0cpu¹³ (distribution yield of 5.4%⁶), which are expected to be paid in equal quarterly instalments.

We thank you for your support and look forward to updating you further throughout FY23.

Centuria Office REIT has delivered solid results for the full 2022 Financial Year, including a 50% increase in net profit ($115 million) while providing Funds From Operation (FFO) of 18.2 cents per unit (cpu) and distributions of 16.6cpu consistent with guidance despite the impacts of rising interest rates.

Leasing was a significant highlight throughout the year with more than 40,000sqm leased. In fact, COF has 120,000sqm throughout the COVID impacted period, accounting for c40% of portfolio Net Lettable Space (NLA).

This is credited to COF’s portfolio providing modern sustainable office accommodation, with 90% of the portfolio comprising A-Grade assets, an average building age of 16 years, and an average 4.8 star NABERS energy rating.

This quality portfolio has attracted high-quality tenant customers with 79% of portfolio income derived from multinational corporations, ASX-listed entities and Government tenants. During the period, COF achieved a c.98% rent collection.

Leasing successes also contributed to a healthy portfolio valuation gain of $37.9 million on a like-for-like increase. Current valuations are further supported by recent capital transactions across metropolitan and near city office markets, which illustrates strong investor for these types of buildings.  Furthermore, these transactions strongly support COF’s net tangible assets.

During FY22, we witnessed a continuous shift in tenant preferences towards better quality accommodation that is close to key transport nodes, providing better commutability and subsequently improved work-life flexibility.

Australia’s strong employment rate and rising return to office corporate policies, provide encouraging tailwinds for tenant demand in FY23.

While we are looking to the year ahead, prevailing inflation and subsequent rising interest rates present market-wide challenges and consequently, our forecast FFO and guidance has been impacted.

COF provides FY23 FFO guidance of 15.8cpu⁷ and distribution guidance of 14.1cpu⁸ (distribution yield of 7.7%⁸), which are expected to be paid in equal quarterly instalments. In this current economic environment, we believe COF continues to provide an attractive and compelling distribution yield.

We look forward to updating you further throughout FY23.

Centuria has launched an unlisted, open-ended agriculture fund, Centuria Agriculture Fund (CAF or “Fund”), which is seeded with a $177 million state of the art glasshouse in Warragul, Victoria.

CAF has initially acquired the Warragul glasshouse, which benefits from a 19 year sale and leaseback, triple-net lease to well-regarded Australian vegetable provider Flavorite. Flavorite is the largest glasshouse producer of fresh fruits and vegetables in Australia and has 25 years of experience in this industry.

The Flavorite facility is a climate-controlled, protected cropping facility covering 33.5 hectares or approximately 40% of the total site and is one of the largest glasshouses in Australia.

The property is the Fund’s first asset of an anticipated larger, highly selective Australian agricultural portfolio. CAF will target assets leased to experienced agricultural operators as well as associated agri-logistics assets with correspondingly favourable lease terms.

Jason Huljich, Centuria Joint CEO, continued, “CAF intends to carefully partner with select operators who have a strong track-record in producing high-yielding produce and who are well established with extensive experience throughout various weather cycles.

“The Fund has a two-prong investment strategy. It will primarily focus on Precision Farming assets, such as glasshouse production, netted crops, vertical farming and properties with access to water, substrate growing and automated harvesting. Secondly, we will target assets aligned to the agricultural supply chain, such as processing, storage/cold storage and distribution to meet the paddock-to-plate demand. This remit includes both existing assets as well as those where farming operations can be expanded or improved through capex funding.”

John McBain Centuria Joint CEO, said, “Centuria branched into the agriculture sector following our merger with Primewest in July 2021 and we intend to expand this vertical to capitalise on the growing demand for premium agricultural products. Strong fundamentals that underpin the sector include population growth forecasts, which increase demand for food domestically and internationally, robust free trade agreements supporting exports, and an $80.4 billion⁹ gross value agricultural production forecast for 2022, contributing approximately 2% to Australia’s GDP¹⁰.”

CAF’s launch will complement Centuria’s existing agriculture trusts. In total, Centuria manages seven agriculture properties worth a collective c.$343 million¹¹.

Based on the Fund’s initial asset, CAF has a starting distribution yield of 5.25 cpu¹² and will aim to provide monthly distributions¹³, a limited quarterly withdrawal facility¹⁴, and daily unit pricing. It has a minimum entry investment of $10,000. The fund is expected to open again by the end of the 2022 calendar year. More information, including CAF’s Product Disclosure Statement (PDS), is available on Centuria’s website at https://centuria.com.au/caf.