Centuria Metropolitan REIT FY18 results

21 August 2018

Active management supports 15% ROE1, total assets up to $1.0b

Inclusion in S&P/ASX 300 Index, strategic acquisitions and portfolio revaluation cement position as Australia’s largest listed metro office trust


Centuria Property Funds Limited (CPFL) as Responsible Entity of Centuria Metropolitan REIT (ASX: CMA) today announced full-year financial results to 30 June 2018, revealing strong returns on the back of growth and operational performance.

FY18 highlights include:

  • Guidance achieved: distributable earnings2 (epu) of 18.6 cents per unit (cpu), distributions per unit (DPU) of 18.1 cpu
  • Statutory profit up 126% on FY17, from $37.7 million to $85.1 million
  • Gross assets reached $1.0 billion3 for the first time, up 52% year on year
  • Inclusion in the S&P/ASX 300 Index
  • Highest portfolio occupancy rate achieved since inception, at 99%4
  • Generated 14.9% return on equity1, with net tangible assets growing 7.3%5.

Doug Hoskins, CMA Acting Trust Manager described FY18 as a milestone year for CMA, where it delivered positive returns for investors and achieved significant goals including inclusion in the S&P/ASX 300 Index for the first time, as well as growth in total assets under management to $1.0 billion2.

“CMA has continued its track record of delivering positive investment returns, delivering distributable earnings1 of 18.6 cents per unit and distributions of 18.1 cents per unit, in line with guidance. Total return on equity for FY19 was 14.9%4, an excellent result for investors.

“The Fund’s distributable earnings increased 86% from $22.8 million to $42.4 million, while distributions per security rose from 17.5 cents to 18.1 cents,” Mr Hoskins said.

The fund also enjoyed excellent access to both equity and debt markets, with gearing currently at 28.3%6, within its guidance range.

“The flexibility offered by our balance sheet and prudent capital management means we are well-positioned to act when we identify value opportunities in the market,” Mr Hoskins said.

Operational overview

A key highlight was growth in the value of CMA’s portfolio, which increased to $930.5 million[7]. Mr Hoskins explained this was a result of key revaluation gains across the portfolio and a continued investment appetite for quality metropolitan office assets.

“We leased 17,970 sqm, or 9.75% of the portfolio’s net lettable area, and increased average portfolio WALE to 4.0 years8. Forty-seven per cent of the portfolio’s expiry profile is now out to FY23 or beyond. Occupancy across the portfolio is at its highest since inception at 99%9.

“The ten-year, 3,503 sqm lease we executed at 203 Pacific Highway, St Leonards is a record rent for the property, and contributed strongly to the positive revaluation of this key asset.

“On the transaction side, our portfolio continued to improve this financial year, with more than $256 million in high-quality transactions achieved. Acquisitions over the period were accretive in comparison to the portfolio’s like-for-like average capitalisation rate,” Mr Hoskins said.

“We divested two assets in NSW: 3 Carlingford Road, showing a 27.2% premium to book value, and 44 Hampden Road, which reflected an internal rate of return to unitholders of 18% over the period of CMA’s ownership. The sale of 3 Carlingford Road represents the fulfilment of a strategy to deliver and unlock capital value to CMA unitholders.”

Mr Hoskins went on to say that CMA’s agreement to acquire retailer Target’s new headquarters at 2 Kendall Street, Williams Landing in Victoria is on track and that, with recent transactional activity in the area, the signs are positive for further rental and capital value uplift.

Outlook

In conclusion, Mr Hoskins said that moving into FY19, CMA’s focus will be continuing to build Australia’s pre-eminent, metropolitan office REIT.

“The coming year will see us complete the acquisition of our Williams Landing property and settlement of 3 Carlingford Road, Epping.

“The trust also anticipates divestment of the portfolio’s industrial assets if market conditions are favourable, which would subsequently provide investors with a pure-play, high quality metropolitan office portfolio.

“We expect returns will continue to be underpinned by a broad income stream from quality tenants. At the same time, we are seeing demand for metro office property increasing and, as Australia’s largest metro office trust, we are well positioned to find value and deliver returns to investors from these markets,” 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 CMA.
3 Including the forecast settlement of 2 Kendall Street, Williams Landing VIC, total AUM of $958.1 million.
4 By area.
5 NTA per unit is calculated as net assets less goodwill divided by closing units on issue.
6 Gearing is defined as total assets borrowings less cash divided by total assets minus cash and goodwill. 30 June 2018 pro-forma gearing of 30.0% adjusted for 2 Kendall Street, Williams Landing, VIC and sale of 3 Carlingford Road, Epping, NSW.
7 Includes 2 Kendall Street, Williams Landing VIC as if complete.
8 By gross income.
9 By area.