Centuria Sells Adelaide asset and Maintains Guidance on Office REIT

2 May 2022

The Centuria Office REIT has provided an update on its 3rd Quarter activities confirming the sale of an Adelaide asset and re-affirming its previous guidance on distributions.

Despite providing strong results in the 1st Half of the FY22, the REIT is trading -10% lower than the 1st January price (in line with AREIT index) as the markets reflect on the global inflationary forces which will push up interest rates and potentially lower returns.

COF is working to further improve its balance sheet with a recent focus on assets sales and leasing.

COF has exchanged contracts to sell 131 Grenfell Street, Adelaide SA for $20.9million, a c.10% premium to book value, with settlement expected to occur in May 2022. The asset is a 5 level office strata tenancy that sits within a mixed use building.

Comprising 4,020sqm of lettable area the office space had been successfully repositioned over the past 18 months following a significant tenant departure in late 2020. The property is now fully leased to the South Australian and Commonwealth Governments with a 3.16year WALE and $1.68m of net income. The sale reflects a passing yield of 8% which is soft due to the strata nature of the property.

Centuria were wise to dispose of the asset which they acquired in 2015 for $20m and was written down to a low of $17.75m in 2020 but lifted back to $19.0m in its last results following the re-leasing of the asset.

COF also settled the acquisition of the remaining 50% share of 203 Pacific Highway, St Leonards NSW, which was previously announced on 6 September 2021.

Grant Nichols concluded, “COF is well positioned with a healthy balance sheet, limited near term debt expiry risk and a quality portfolio comprised of young, modern office buildings leased on strong tenant covenants. As we see more tenants gravitating towards higher quality tenancies, it is becoming increasingly important for office portfolios to provide efficient, sustainable, accommodation solutions in buildings that offer desirable internal and surrounding amenity. Given the quality of the COF portfolio, we believe it is well placed to meet changing tenant demands.”

Throughout FY22 (YTD), terms were agreed or leases completed for c.22,970 sqm across 30 separate deals, comprising 6,820 sqm of new leases (2.3% of portfolio NLA) and 16,150 sqm of renewals (5.3% of portfolio NLA).

Portfolio occupancy increased to 94.1% and WALE is 4.1 years. Most notably, COF has agreed six leases over 1,000 sqm during FY22 (YTD), accounting for over half the leased area.

Centuria’s pro-forma gearing as at 31 March 2022 is 33.2%.

During the quarter COF achieved an increased NABERS Sustainable Portfolio Index (SPI) energy rating of 4.8 Stars and NABERS water rating of 3.7 Stars. The NABERS SPI showcases property portfolios across Australia and is becoming an industry benchmark for the environmental performance of Australian real estate portfolios.

818 Bourke Street, Docklands VIC was awarded a Gold WiredScore, the first WiredScore across the COF portfolio, confirming it is among the best buildings for broadband and telecommunications infrastructure in Australia. WiredScore assesses, certifies and improves digital connectivity and smart technology in homes and offices on a global scale.

COF reiterates its FY22 FFO guidance of 18.3 cpu and distribution guidance of 16.6 cpu, representing a FY22 distribution yield of 7.5% based off the current trading price.