eCommerce growth & supply chain onshoring deliver CIP strong HY22 results
- Upgraded FY22 FFO guidance of no less than 18.2 cpu1; Distribution guidance reiterated
- Strong portfolio leasing and investment demand drives $281 million valuation uplift2and avg. 10% rental growth
- Portfolio expansion: 80 industrial assets worth $3.9bn; 8.9 year WALE; 99.2% occupancy3
- 21 acquisitions worth $680m4; 100% off-market
Centuria Industrial REIT (ASX: CIP), Australia’s largest listed pure play industrial fund, today announced its strong interim results for the first half of 2022 Financial Year with upgraded Funds From Operation (FFO) guidance of no less than 18.2 cents per unit (cpu) and a reiterated distribution guidance of 17.3cpu, reflecting a 4.6% distribution yield5.
Strong tailwinds from the ecommerce sector and increased supply chain onshoring, have increased occupier demand for last mile urban infill markets, where CIP has significant exposure. Subsequently, CIP delivered strong leasing activity with 109,188sqm of lease terms agreed, representing 8.5% of portfolio GLA6, and achieved an average 10% rental growth over prior passing rents.
Jesse Curtis, CIP Fund Manager and Centuria’s Head of Industrial, said, “CIP delivered a strong performance throughout the first half of FY22 with significant leasing activity supported by exceptional, double digit rental growth and strategic acquisitions. Strong leasing activity increased our portfolio occupancy to a high 99.2% while portfolio WALE was maintained at a long 8.9 years. We credit our strong occupancy to our active inhouse asset management approach.
“Demand, particularly from the ecommerce occupiers, created competition for high quality industrial assets. Major renewals and new tenant leases, together with strong investment demand for industrial assets, underpinned a healthy $281 million valuation uplift.”
During the period, CIP’s portfolio expanded 32% to 80 high quality industrial assets worth $3.9 billion with 155 tenant customers. The expansion included 21 urban infill acquisition worth $680 million with 56% of the acquisition in tightly held NSW markets.
Of the 21 transactions, nine of the acquisitions were adjoining assets that delivered on CIP’s strategy to create consolidated landholdings, that generate income in urban infill markets to create scale and deliver value with future optionality.
Illustrative of Centuria’s strong transaction capability and market relationships, all of the acquisitions were secured off market or via select campaigns.
Mr Curtis explained, “Acquisitions were largely positioned within land constrained, eastern seaboard markets that lend themselves to low vacancy rates and high tenant demand, creating opportunities to extract outsized returns. Several acquisitions provided value add opportunities through near term development, repositioning or leasing.”
CIP commenced the second half of FY22 in a strong position and already expanded its portfolio to 84 high quality industrial assets worth $4.0 billion, while maintaining 99.2% portfolio occupancy and 8.8 year WALE.
Mr Curtis, continued, “Australian industrial property remains a highly favoured asset class. Tenant demand remains unabated, driving national industrial vacancy to record lows. With demand for industrial space expected to remain elevated, and with limited supply within urban infill markets, we expect to see industrial rents continue to rise. Coupled with sustained global investment for quality Australian industrial assets, upward pressure continues to be applied on asset values.”
During HY22, CIP strengthened its balance sheet and was assigned a Moody’s Credit Rating of Baa2 Stable. It successfully completed its inaugural Medium Term Notes issuance with a $350 million debt raising, broadening its range of capital sources.
CIP also benefited from a 10% increase in Net Tangible Assets (NTA) per unit to $4.21, which supported a strong 46.5% Return on Equity. Its portfolio’s Weighted Average Capitalisation Rate (WACR) compressed 35bps from 4.54% to 4.19% during HY22.
HY22 financial results
|Statutory profit / (loss)||$ million||308.1||99.6|
|Funds From Operation7||$ million||53.9||42.8|
|FFO per unit||cpu||9.1||8.8|
|Distribution per unit||cpu||8.7||8.5|
|Return on Equity8||%||46.5||11.9|
|Total Assets||$ million||3,936.6||3,105.9|
|Net Tangible Assets (NTA)9 per unit||$||4.21||3.83|
|Portfolio Snapshot||Pro forma HY2210||HY22||FY21|
|Number of assets||84||80||62|
|Book value||$ million||3,972.4||3,878.9||2,945.1|
|Occupancy by income||%||99.2||99.2||96.9|
|WALE by income||years||8.8||8.9||9.6|
|Leases agreed GLA||sqm||–||109,188||239,950|
Since Centuria assumed management of the REIT five years ago, CIP’s portfolio has transformed. Across the five year period CIP has delivered a 12% average annual growth in Net Tangible Assets with average annual return on equity of 23% per annum.
Mr Curtis concluded “Under Centuria’s active management approach we’ve achieved meaningful scale, been included in major indices, enhanced tenant and building quality, and improved portfolio metrics. Looking forward, CIP looks to continue its strategy of delivering reliable income streams and capital growth for investors from a high quality portfolio of industrial assets.”
1. Remains subject to unforeseen circumstances and material changes in operating conditions
2. Reflects gross increase, excluding capital expenditure incurred
3. By income
4. Before transaction costs, includes assets exchanged but not settled as at 31 December 2021
5. Based on $3.80 unit price as at 31 January 2022
6. Includes Heads of Agreement (HoA)
7. FFO is CIP’s underlying and recurring earnings from its operations. This is calculated as the statutory net profit adjusted for certain non-cash and other items
8. Return on equity calculated as (closing NTA minus opening NTA plus distributions) divided by opening NTA
9. Past performance is not a reliable indicator of future performance. NTA per unit is calculated as net assets less goodwill divided by number of units on issue
10. Includes assets exchanged but not settled as at post 31 December 2021 being; 5/243 Bradman Street, Acacia Ridge QLD; 8 Hexham Place, Wetherill Park NSW; 159-169 Studley Court, Derrimut VIC and the acquisition of 90-118 Bolinda Road, Campbellfield VIC, which was contracted in January 2022
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.