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Centuria Industrial REIT 1H19 results

Strengthening industrial markets drive strong half-year results, says CIP

Centuria Property Funds No. 2 Limited (CPFL2), as Responsible Entity of Centuria Industrial REIT (ASX: CIP), is pleased to announce CIP’s half year financial results for the period ended 31 December 2018.

1H19 financial highlights include:

  • 1H19 Statutory profit of $46.1 million
  • Distributable earnings of $23.3 million
  • 12-month Return on Equity1 (ROE) of 15.8%
  • Balance sheet gearing2 reduced to 37.0%3.

Portfolio highlights:

  • Leases agreed for more than 65,900sqm, representing 8.2% of portfolio GLA
  • Occupancy increased to 97.1% with a WALE of 4.7 years4
  • Portfolio value increased to $1.2 billion
  • $168.6 million of transactions to improve portfolio quality.

On track and on strategy

Commenting on the results, CIP Fund Manager, Ross Lees said “The first half FY19 result continues the momentum created by our team to execute CIP’s strategy of delivering income and capital growth to investors from a portfolio of high quality Australian industrial assets. At the same time, we have successfully grown our pure-play portfolio of Australian industrial real estate.

“Industrial markets continue to strengthen, particularly on the east coast, where increasing land values coupled with improved demand – particularly from growth in e-commerce – is putting upward pressure on rents. Both local and global investors are actively seeking increased exposure to logistics assets, and this is keeping pressure on capitalisation rates.

“With occupancy at 97.1%, lease expiries in FY19 of less than 2% and balance sheet gearing at a manageable 37%, CIP’s portfolio is well positioned as we continue to execute our investment strategy and create value for our investors.”

Acquisitions contributed to increasing valuations

Mr Lees pointed to a number of acquisitions that had helped to expand CIP’s portfolio and tenant base:

“We have had a strong half year of acquisitions and divestments. Speaking to our track record as active portfolio managers, we acquired $112.3 million in high quality properties.5

“These acquisitions, located in established industrial precincts or close to key infrastructure amenity, presented opportunities to expand CIP’s portfolio with complimentary assets whilst introducing new national tenant customers within the portfolio.

“As a result of these acquisitions and selective divestments, CIP’s portfolio is now valued at $1.2 billion, enforcing its position as Australia’s largest ASX-listed income-focused industrial REIT.”

Growth trajectory and strong leasing activity in core market segments

Mr Lees said the REIT has continued to grow value for unitholders with NTA increasing by 3.9% and a 12 month Return on Equity of 15.8%. This has been achieved by continued leasing momentum from FY18 and continuing to identify attractive investment opportunities.

“Our active asset management approach has helped contribute to strong leasing results. We have now improved occupancy to 97.1%6 (94.5% at FY18), and have leases agreed for 65,902 sqm7. In addition, we have continued to improve the Victorian portfolio with 80% of leasing occurring in this sub-portfolio, improving CIP’s Victorian occupancy to 96.4%.”8

The portfolio remains well positioned with lease expiry for the remainder of FY19 now 1.5% of CIP’s total portfolio.

Mr Lees said that CIP’s portfolio had benefited from strong leasing activity, based on growing tenant demand for inner ring industrial space.

“Over the past two years, 74% of national leasing activity has occurred in areas between 5,000 to 20,000 sqm9, according to Jones Lang Lasalle. We are well positioned to benefit from increased activity in our core market segment, which has an average size of 19,484 sqm. these sub-20,000sqm assets are well suited to the rising market of e-commerce tenants who require smaller fulfillment centres closer to urban areas, with a high weighting (64%) to New South Wales and Victoria.”

Outlook for 2019

In conclusion, Mr Lees forecast that CIP would continue to benefit from increasing demand across the industrial and logistics sectors.

“Economic tailwinds provided by e-commerce, last mile logistics and manufacturing continue to drive underlying demand from tenants seeking to be located in infill locations or near core infrastructure facilities. CIP’s portfolio is well positioned to benefit from tailwinds within the industrial sector while our focus on active management, enhancing outcomes for our tenant customers and continuing to identify opportunities to create value for unitholders continue to align with the execution of strategic initiatives for the remainder of the year ahead.”

1 Return on Equity is calculated as closing NTA minus opening NTA plus distributions divided by opening NTA
2 Gearing is defined as total assets borrowings less cash divided by total assets minus cash and goodwill Pro-forma gearing 34.2% post-settlement of 13 Ferndell Street, Granville NSW (settled on 31 January 2019)
3 Gearing is as total borrowings less cash divided by total assets less cash and goodwill
4 By income. Assumes 12 month rental guarantee for Cargo Business Park, 1 International Drive, Westmeadows, VIC
5 Acquisition prices and initial yields before transaction costs
6 By income. Assumes 12-month rental guarantee for Cargo Business Park, 1 International Drive, Westmeadows, VIC
7 Includes heads of agreement (HOA)
8 By income. Assumes 12-month rental guarantee for Cargo Business Park, 1 International Drive, Westmeadows, VIC
9 Source: JLL research