Centuria Office REIT announces strong HY22 results
Positive tailwinds for Australia’s metro & near city office markets
- $273m of strategic acquisitions; $201m equity raised; additional $100m debt facilities
- $28.5m valuation uplift; 18,670sqm leases agreed1 (6.2% of NLA)
- Portfolio expanded to 23 assets worth $2.3bn2, 94.3% occupancy3, 4.3 year WALE4
- Upgraded FY22 Funds From Operations (FFO) guidance to 18.3 cents per unit (cpu)5
- Statutory net profit of $63.6m
Australia’s largest ASX-listed pure-play office fund, Centuria Office REIT (ASX:COF), has leveraged positive tailwinds in Australia’s metropolitan and near-city office markets to deliver strong interim results for the first half of the 2022 Financial Year.
During the period, COF increased its portfolio to 23 high-quality office assets worth $2.3 billion2. Importantly, its portfolio occupancy increased to 94.3%3 (from 93.1% in June 2021) and its Weighted Average Lease Expiry (WALE) was maintained at a healthy 4.3 years4.
COF’s portfolio expansion is credited to the acquisition of two modern, sustainable office assets worth $273 million, including 100% ownership of 101 Moray Street, South Melbourne VIC and the remaining 50% interest in 203 Pacific Highway, St Leonards, NSW.
COF benefited from a $28.5 million valuation uplift6, which increased Net Tangible Assets (NTA)7 to $2.49 per unit. This uplift was driven by strong leasing activity with 18,670 sqm1 leased during the half, representing 6.2% of portfolio Net Lettable Area (NLA).
Grant Nichols, COF Fund Manager and Centuria’s Head of Office, said, “In recent months, Australia has benefited from an uptick in white collar employment with the national unemployment rate at its lowest level in 13 years8. This improvement in employment levels has translated into stronger tenant demand for office accommodation across Australia.
“Increasingly, tenant demand is gravitating towards new-generation buildings that provide better COVID-safe work environments, efficient floorplates, improved amenity and competitively priced accommodation. There is also increased demand to be located in areas that provide short commutes to improve employee satisfaction and attract the best talent.”
COF benefits from a young portfolio with an average building age of 16 years. Younger buildings are generally more efficient than older generation buildings and are attracting stronger tenant demand. Approximately 90% of COF’s portfolio comprises A-Grade assets.
During the period, COF reported a $63.6 million statutory net profit for HY22, up from $21.5 million in HY21. Its Funds from Operations (FFO) were $54.7 million or 9.8 cpu, and distributions of 8.3 cpu were in line with FY22 guidance provided.
COF’s FY22 FFO guidance was upgraded from 18.0cpu to 18.3cpu5 during the period due to its leasing success.
The REIT maintains a robust balance sheet with $201 million of equity raised during HY22 and an additional $100 million added to its debt facilities, providing a weighted debt maturity of 3.9 years with no debt facility expiring until June 2024.
HY22 financial results
|Statutory profit / (loss)||$m||63.6||21.5|
|Funds from Operations9||$m||54.7||57.7|
|Funds from Operations per unit||cpu||9.78||11.21|
|Distribution per unit||cpu||8.30||8.25|
|Return on equity10||%||8.7||2.0|
|Balance sheet||Pro forma HY222||HY22||FY21|
|NTA per unit||$||2.49||2.50||2.48|
COF property portfolio
|Number of assets||23||22|
|Occupancy by area||%||94.3||93.1|
|WALE by gross income||years||4.3||4.3|
|Leases agreed by area||sqm||18,670||52,077|
|Average NABERS energy rating (by value)||stars||4.9||4.7|
|Average NABERS water rating (by value)||stars||4.1||3.2|
|Average building age (by value)||years||16.1||16.8|
Mr Nichols concluded, “COF remains focused on creating value for its unitholders through a portfolio of quality, connected and affordable assets across metropolitan and near city office markets throughout Australia. It continues to maintain a healthy balance sheet while its portfolio benefits from high-quality modern office buildings leased to strong tenant covenants. COF remains in a strong position to continue delivering a compelling performance throughout FY22.”
1. Includes Heads of Agreement
2. Pro forma includes 50% acquisition of 203 Pacific Highway, NSW which is expected to settle in February 2022
3. By gross income
4. WALE by gross income
5. FFO Guidance Upgrade was announced on 13 December 2021. Guidance remains subject to unforeseen circumstances and material changes in operating conditions.
6. Independent valuations across 11 of 23 assets. Past performance is not a reliable indicator of future performance.
7. NTA per unit is calculated as net assets divided by closing units on issue
8. The Hon Josh Frydenberg MP, S&P affirms Australia’s AAA credit rating, 27 January 2022
9. FFO is the Trust’s underlying and recurring earnings from its operations. This is calculated as the statutory net profit adjusted for certain non-cash and other items
10. Return on Equity is calculated as closing NTA plus distributions divided by opening NTA
11. Gearing is defined as total borrowings less cash divided by total assets less cash
Centuria Capital Group secures a $70.6 million industrial logistics facility in North Rocks, NSW, on behalf of US private investment firm, Starwood Capital’s, Last Mile Logistics Partnership (LMLP).
Centuria Capital Group has successfully exchanged conditional contracts to divest two adjoining industrial facilities located at 114 and 120 Old Pittwater Road, Brookvale NSW, which is anticipated to deliver a forecast 13.8% IRR to the assets’ closed-ended fund investors.