Centuria Industrial REIT FY18 results
Acquisition, leasing success drives 95% profit growth, 17% ROE1
Positive portfolio revaluation and strategic acquisitions result in transformational year as demand for Australian industrial property increases
Centuria Property Funds No. 2 Limited (CPF2L) as Responsible Entity of Centuria Industrial REIT (ASX: CIP) today announced full-year financial results to 30 June 2018, topping off a year with a significant uplift in portfolio valuation and a 17% return on equity (ROE) for investors.
FY18 highlights include:
- Distributable earnings2 (EPU) of 19.5 cents per unit (cpu) and distribution (DPU) of 19.4cpu,
in line with guidance
- Statutory profit up 95% year on year from $50.8 million to $98.9 million
- 2% return on equity1
- Total assets increased by 19%, from $921 million to $1.1 billion3
- Record leasing volumes, with more than 238,000sqm leased
Ross Lees, CIP Fund Manager commented on the Fund’s FY18 results, saying “We delivered strong results for investors, including a 17.2% return on equity1 and a distribution of 19.4 cents per unit, while transforming and significantly growing our portfolio.”
Overview of operations
According to Mr Lees, growth in the portfolio was driven by two things – a positive revaluation of existing assets, and leasing activity.
“The positive revaluation of existing assets can be attributed to the leasing successes of our asset management team, combined with some capitalisation rate compression.
“Our active asset management also led to record leasing volumes, with more than 32% of the portfolio leased during FY18, and occupancy rising to 94.5%4. Tenant retention was high at 78%5 and portfolio arrears of less than 0.3% of billings are evidence of the success of our proactive engagement with tenants.
“On the transaction front, we acquired four properties in off-market transactions, for a total of $78.4 million, and sold two non-core assets for a total of $40.1 million.
“The properties we purchased are complementary and accretive to the portfolio – overall they deliver an average initial yield of 8.2% and a long average weighted average leasing expiry (WALE)6 of over seven years. Three of the four properties acquired also adjoin existing assets,” Mr Lees said.
“The sale of two properties was based on their relatively short WALE of 1.8 years, which heightened the leasing risk of the portfolio. Nonetheless, they were sold at an average of 10% premium to book value and contributed an internal rate of return of 17% over the period of our ownership,” Mr Lees said.
In conclusion, Mr Lees highlighted that CIP’s asset management team achieved record leasing volumes in FY18, while at the same time reducing gearing,7 and increasing net tangible asset backing and return on equity.
“Looking forward, we expect the economic tailwinds provided by e-Commerce and last mile logistics to support our portfolio, which is well-suited to the needs of these businesses, because we own many high quality and infill properties located close to transport and logistics hubs.
“CIP remains Australia’s largest ASX-listed income-focused industrial REIT, and our balance sheet strength and flexible capital structure means we are well-positioned to continue our strategy of active property management and strategic growth,” he said.
1 Return on Equity is calculated as (closing NTA minus opening NTA plus distributions) divided by opening NTA.
2 Distributable earnings is a financial measure which is not prescribed by Australian Accounting Standards (AAS) represents the profit under AAS adjusted for specific non-cash and significant items. The Directors consider that distributable earnings reflect the core earnings of CIP.
3 Since 30 June 2017.
4 By income.
5 By area.
6 By income.
7 Gearing is defined as total borrowings less cash divided by total assets minus cash and goodwill.