Centuria Office REIT provide an operating update for Q1 FY22, with expectations of a strong return to Metro office locations as lockdown conditions ease.
Grant Nichols, COF Fund Manager and Centuria Head of Office, said, “During the first quarter of FY22, COF achieved positive leasing outcomes for numerous assets located in various markets throughout Australia. This demonstrates Centuria’s strong leasing capability and as the benefits of owning a geographically diversified portfolio of quality Australian office assets.
“Significantly, the REIT acquired more than $273million worth of both A-Grade assets across near-city markets in Sydney and Melbourne. These assets are well leased to a diverse range of quality corporate tenants. The assets are positioned near key transport infrastructure and surrounded by substantial retail amenity, which means they are likely to continue attracting strong ongoing tenant demand.
“With a new $100 million debt facility, COF continues to be well placed with a robust capital structure providing sufficient undrawn debt, a very competitive all-in cost of debt, significant debt covenant headroom, and a diversified debt maturity profile with six quality lenders and no debt expiring until June 2024.
“We believe the lockdowns are directing more tenant interest toward decentralised office markets, particularly the metropolitan and near city markets where COF is predominantly invested. The quality, highly connected and affordable office space that COF provides is clearly resonating with tenants.”
PROPERTY AND PORTFOLIO LEASING
Throughout Q1 FY22, terms were agreed or leases completed for c.5,000 sqm across 10 separate deals (1.6% of portfolio NLA), comprising c. 3,000 sqm of new leases. As a result of this leasing, the portfolio WALE as at 30 September 2021 was 4.3 years, with a portfolio occupancy of 94.0% (portfolio occupancy was 93.1% as at 30 June 2021).
ACQUISITIONS AND EQUITY RAISING
On 6 September 2021, COF announced it had entered into a contract to acquire 101 Moray Street, South Melbourne VIC for $205.1 million and accepted a pre-emptive notice to acquire the remaining 50% of 203 Pacific Highway, St Leonards NSW for $68.0 million. These acquisitions were supported by a $201 million equity raise.
The South Melbourne acquisition has settled, and COF has entered into a contract to acquire the remaining 50% of the St Leonards asset. As the Vendor of the St Leonards asset is a related party, the acquisition remains subject to COF unitholders’ approval by an ordinary resolution. A separate Notice of Meeting and Explanatory Memorandum relating to the St Leonards acquisition will be sent to COF unitholders shortly.
The acquisitions geographically re-weight the portfolio, with COF’s exposure to Australia’s East Coast now accounting for about 85% of the portfolio. The acquisitions also further reduce COF’s average building age to approximately 15.7 years, reinforcing COF’s position as having one of Australia’s youngest office portfolios.
DEBT REFINANCING
COF has added $100 million to its debt facilities. This additional financing increased the REIT’s weighted average debt maturity from 4.2 years to 4.3 years. Despite the increased tenure, COF maintains a competitive all-in debt cost of 2.4%. COF has also increased it diversified pool of lenders from five to six.
COVID-19 UPDATE
Rent collections during Q1 FY22 remained strong, averaging 97.1% across the portfolio. Included within the outstanding rent is agreed and pending rent relief claims.
Grant Nichols said, “As vaccination rates rise across Australia, we expect there will be a strong return to the office as organisations and individuals alike seek to end the isolation of lockdowns and working from home. Our discussions with tenants indicate that many organisations recognise productivity that results from in-person collaboration cannot be replicated virtually, and employee isolation has a detrimental impact on an organisation’s culture and staff wellbeing.”
FTSE EPRA NAREIT GLOBAL DEVELOPED INDEX INCLUSION
COF was included in the Financial Times Stock Exchange (FTSE) European Public Real Estate (EPRA) National Association of Real Estate Investment Trusts (Nareit) Global Developed Index on Monday, 20 September 2021.
The FTSE EPRA Nareit Global Developed Index is a global real estate index that tracks listed REITs’ performance based on liquidity, size and revenue, and offers domestic and international investors with another transparent and efficient means for comparing COF to global real estate peers.
FY22 GUIDANCE AND SUMMARY
COF reiterates its FY22 FFO guidance of 18.0 cents per unit (cpu) and distribution guidance of 16.6cpu, which represents a current distribution yield of 6.8%.
Grant Nichols concluded, “COF is well placed to benefit from a projected increase in tenant demand in the second half of FY22 as organisations return to the office and Australia experiences economic recovery. While COF has continued to generate decent levels of tenant demand through COVID-19 impacted trading periods, ongoing lockdowns have had an adverse impact on tenants’ ability to contemplate and assess their office accommodation requirements. As a result, we believe a level of pent-up tenant demand will be released once the threat of ongoing lockdowns dissipate.
“From an investment perspective, there is solid demand for quality Australian office real estate with investors attracted to the long-term fundamentals. Recent sales transactions continue to strongly support COF valuations and net tangible assets.”
Further Information
Centuria Office Fund are on our AREIT Top Picks list. The Office fund continues to perform well despite the COVID lockdowns with vacancy and incomes hold firm and or improving.
Leasing enquiry has been slow with only 5,000sqm of leases completed in the quater. Vacancy has dropped from 6.7% to 6% partly due to the inclusion of the fully leased 101 Moray Street into the tenancy numbers. Without this asset, the vacancy rate has reduced to approx 6.3%.
The forecast distribution yield of 6.8% continues to provide a good option for investors seeking stabling income.
Disclaimer: The information contained on this web site is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.
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