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Centuria Office REIT expands portfolio with $273.1m acquisitions

  • Two office acquisitions in Melbourne and Sydney’s key near-city & metropolitan markets
  • Portfolio expands to $2.3 billion, 4.5 year WALE, 93.7% occupancy
  • Expansion complements FTSE EPRA Nareit Global Index inclusion
  • Acquisitions partially funded by $201.0 million Equity Raise

Centuria Office REIT (COF), has acquired two high quality office acquisitions in key near-city and metropolitan Melbourne and Sydney markets for a total purchase price of $273.1 million1.

The acquisitions increase the REIT’s portfolio value by c.14% to $2.3 billion2, while improving its Weighted Average Lease Expiry (WALE) from 4.3 years to 4.5 years3 and occupancy from 93.1% to 93.7%.

These modern assets also further reduce the portfolio’s average building age to 15.5 years4 while increasing its combined NSW and VIC exposure to 49.5%5. COF’s FY22 lease expiry profile has also further reduced 6.5%6.

Grant Nichols, COF Fund Manager and Centuria Head of Office, said, “These high quality, modern office acquisitions are strongly aligned with COF’s strategy and deliver benefits including broader geographic diversification, high occupancy, an enhanced portfolio WALE and, being young assets, limited capital expenditure requirements.

“COF’s portfolio focuses on metropolitan and near-city office markets that provide excellent worker commutability via good public transport nodes and road arterials. These have been better performing office markets throughout the past 12 months, attracting occupiers seeking shorter travel time to and from work at affordable rents.”

Complementing the acquisitions is the recent announcement COF will be included in the FTSE EPRA Nareit Global Index from Monday, 20 September 2021. This enables COF to be more easily compared to international listed peers.

COF secured a 100% interest in 101 Moray Street, South Melbourne for $205.1 million on a 5.00% capitalisation rate. The recently constructed building is fully occupied with a 6.3 year WALE. Its near-city location has become a desirable area for Melbourne tenants, particularly within the technology and media sectors, as South Melbourne offers iconic retail amenity with access to key transport infrastructure. The building was fully leased within nine months of practical completion and now enjoys a strong and diversified income profile.

COF is also acquiring the remaining 50% interest7 in 203 Pacific Highway, St Leonards, Sydney, for $68 million on a 5.75% capitalisation rate. The high quality office building is 99.3% occupied with a 3.9 year WALE. The REIT already owns a 50% interest in 203 Pacific Highway and has exercised its pre-emptive right after the co-owner issued a transfer notice8.

203 Pacific Highway adjoins another COF asset, 201 Pacific Highway. Both properties are located in the heart of the St Leonards’ business precinct, directly above the entrance to the railway station, approximately four kilometres north of Sydney’s CBD.

To partially fund the acquisitions, COF is undertaking a fully underwritten 1 for 6.4 accelerated non-renounceable entitlement offer to raise $201.0 million.

COF reaffirms its FY22 Funds From Operations (FFO) guidance of 18.0 cents per unit (cpu)9, and Distribution guidance of 16.6 cpu.

The acquisitions and equity raise consolidate COF’s position as Australia’s largest listed pure-play office REIT.

1. COF’s interest, excluding costs
2. Assumes the acquisition of 203 Pacific Highway proceeds.
3. By gross income
4. Previous portfolio average building age was 16.8 years as at 30 June 2021
5. Previous period’s combined NSW and VIC portfolio weighting was 42.6% as at 30 June 2021
6. Previous period’s lease expiry profile was 7.2% as at 30 June 2021
7. Leasehold interest
8. COF currently owns a 50% leasehold interest in 203 Pacific Highway. The remaining 50% leasehold interest is being acquired from Centuria 203 Pacific Highway Fund, a closed-end unlisted fund managed by CPFL. Given the acquisition is from a related party, it requires approval from COF unitholders by an ordinary resolution. The acquisition is also subject to approval from Centuria 203 Pacific Highway Fund unitholders by an ordinary resolution and the consent of the freehold owner of the property.
9. Assumes the acquisition of 203 Pacific Highway proceeds. If the acquisition does not proceed, COF expects FY22 FFO to be 17.6 cpu