Centuria Metro Office Results reflect Lower Income Yields4 February 2020
Centuria Metro Office Fund has increased its total return to 11.2% (up 0.4%) but with an income yield of 6.1%, down from 7.5% last year.
The lower yield comes as the group absorbs the trading cost of new acquisitions acquired on sharper cap rates which whilst beneficial for a diverse portfolio has come at a cost to returns.
Grant Nichols, CMA Fund Manager, commented, “CMA executed several significant leasing and capital transactions in HY20, which have combined to enhance CMA’s asset quality, tenant covenants and WALE, reinforcing CMA’s capacity to continue delivering sustainable and quality income streams from a $2.1 billion office portfolio diversified across major Australian office markets. As a result of executed transactions, CMA has increased its portfolio to 23 assets with an average building age of around 15 years, while the WALE has increased to 5.1 years and over 24.5% of portfolio income now being derived from government tenants.”
CMA completed 24 lease transactions, with leases agreed for 28,721sqm, representing 9.5% of portfolio NLA during HY20. The group maintain occupancy at 99.2% with the portfolio WALE extending from 3.9 to 5.1 years.
CMA has generated an 8 cent per unit increase in net tangible assets driven by like for like revaluation gains during HY20 of $37.9m. Significant revaluation gains included 144 Stirling Street, Perth, which increased by $9.5 million or 17.4% increase due to the 10,875sqm renewal to the WA Government for 10 years, and 555 Coronation Drive, Toowong which increased by $4.5 million or 15.5% due to the strong leasing outcomes achieved. The weighted average capitalisation rate reduced to 5.92% as at 31 December 2019.
HY20 Financial Highlights
- Funds From Operations (FFO) of $39.0 million
- FFO per unit of 9.6 cents per unit (cpu), in line with FY20 guidance
- Distributions per unit of 8.9cpu, in line with FY20 guidance
- Statutory net profit of $24.7 million
- 12 month total unitholder return of 30.7%
- Net Tangible Assets (NTA) of $2.57 per unit , and increase of 8 cents per unit
- Gearing of 33.2%, with significant debt covenant headroom and undrawn debt capacity
HY20 Portfolio Highlights
- Portfolio book value grew to $2.1 billion, underpinned by acquisitions across three high quality A Grade office assets for $636.5 million
- Leases agreed for 24 lease transactions, totalling over 28,721sqm (9.5% of portfolio NLA)
- As a result of the acquisitions and agreed leases, over 24.5% of portfolio income is now derived from government tenants
- High portfolio occupancy maintained at 99.2%, WALE extended to 5.1 years
- Over 800 solar panels have been installed across five properties, reducing CO2 emissions by an estimated 300 tonnes per annum
Grant Nichols commented, “Centuria continues to be a hands-on, proactive manager across the CMA portfolio, enhancing assets and creating value for both tenants and investors. CMA’s team continues to focus on addressing upcoming expiries, retaining high occupancy and identifying opportunities to improve the portfolio WALE. During the period, the team continued to enhance the portfolio’s income streams, with Federal government departments now representing CMA’s largest tenant at 13.3%. When combined with state government departments, the portfolio’s total government exposure increases to over 24.5% of portfolio income.”
CMA re-iterates its FY20 FFO1 guidance of 19.0 cents per unit, with distribution guidance of 17.8 cents per unit, payable in equal quarterly installments .
CMA are expected to be well supported by the outlook for Australian office markets which remain solid, with ongoing investment demand supported by the low or falling vacancy rates evident in most major office markets, coupled with a shift to lower interest rates.