Centuria Capital Group reported a strong half year FY21 performance, resulting in an upgraded FY21 distribution per security guidance to 10.0cps.
Centuria reaffirmed its FY21 operating earnings guidance of 11.5-12.5 cents. It reported HY21 operating earnings per stapled security of 6.2cps and its HY21 distribution of 4.5cps is in line with guidance.
Underpinning its strong performance was the expansion of its real estate platform with 24 assets worth $1.5 billion. The Group’s total assets under management (AUM) increased by 16% to $10.2 billion during HY21.
John McBain, Centuria Joint CEO, explained, “We’ve had a strong start to FY21, delivering on our corporate dual strategy of direct real estate and corporate acquisitions. Operating businesses we’ve acquired throughout the past three years, namely the 360 Capital industrial portfolio, Heathley Limited and Augusta Capital, are now contributing strongly to our AUM growth.
“We credit this two-step growth approach to underpinning Centuria’s 33% compound annual growth rate (CAGR) in AUM throughout the past five years. The strategy has also resulted in our second guidance upgrade during FY21, from 8.5 cents to 9.0 cent and now 10.0 cents per stapled security. As the effects of COVID-19 unwind and greater certainty emerges, we have also reaffirmed FY21 earnings guidance.”
During HY21 the ASX-200 Centuria Industrial REIT (CIP) expanded its portfolio by 50% to $2.4 billion. Centuria Healthcare’s portfolio expanded by 29% to $0.9 billion and the New Zealand arm’s AUM grew by 24% to $2.1billion.
Landmark acquisitions secured during FY21 include the $417million Telstra Data Centre in Clayton VIC, the NZ$178million Visy Glass manufacturing facility in Auckland, more than $369million worth of private day hospitals and medical centres and $631million worth of cold storage facilities.
Centuria’s Group real estate platform accounts for $9.3billion of AUM with a collective 216 assets with 948 tenants. Approximately, $0.9billion or 9.0% of the Group’s assets comprise investment bonds.
Jason Huljich, Centuria Joint CEO, continued, “HY21 was a record half year period for acquisitions, which averaged about one transaction a week. Of the 24 assets secured, 47% were transacted on sale and leaseback terms and 57% on triple-net leases, the latter of which provides great value to our investors as these assets require minimal capital expenditure and maintenance costs.
“Complementing our record deals is our successful active asset management with more than 273,000sqm leased across 117 tenancies. Despite the challenging environment resulting from COVID-19, Centuria achieved an average rent collection of 97% during HY21. This strong performance is a credit to our active, in-house management team.”
Centuria launched two unlisted funds during the half year including the multi-asset Augusta Property Fund (APF) in NZ, which completed its first capital raise in nine days for the NZ$55million Anglesea Medical Centre seed asset. Also launched was the Centuria Healthcare Property Fund (CHPF), an open-ended entity, which has already completed two capital raisings. The last was oversubscribed by approximately $3million in December 2020.
A further two unlisted fund launches are currently underway including the NZ Visy Penrose Fund, which aims to raise NZ$110million, and the fixed-term Centuria Industrial Income Fund No.1 (CIIF1), anchored by three industrial asset, which is anticipated to raise approximately $40million. The latter will close on 26 February 2021.
For the first time, Centuria also reported on the strength of its Development division, which has a pipeline of $1.6billion across Australia and New Zealand.
Huljich explained, “The development team has approximately $878million worth of asset currently in the pipeline and a further $761million will be imminently committed. In Australia, these works range from value-add initiatives to improve an existing property’s rental income, tenant covenants and cap vals; to development of sustainable healthcare and industrial properties with both pre-let agreements as well as speculative opportunities. We have also undertaken social infrastructure developments such as affordable homes within regional NSW and homes for those living with dementia.
“We will continue to selectively use our healthy balance sheet to unlock development profit and grow our operating income.”
During the HY21, Centuria delivered a 22% 12-month total securityholder returnvi, which outperformed the S&P/ASX 200 Index’s return of 1.4% and S&P/ASX 200 AREIT Index return of negative -4.6%.
Statutory profit of $41.4million was recorded for HY21. Recurring revenues accounted for 83% of total Group revenue in HY21, underpinned by increased property funds management fees and co-investment income from the larger real estate platform.
Centuria continued to recycle its larger balance sheet to support the Group’s expansion. Cash on hand was $168.0million as at 31 December 2020 with operating gearing ratio of 2.4%. Net asset value (NAV) increased to $1.54, a 6.9% increase for HY21.
Also in HY21, Centuria was re-classified under the Global Industry Classification Standard (GICS) code to Diversified REITs. The reclassification provides a more transparent means for global and domestic investors to compare CNI to its closest peers.
Our Views
Centuria are trading at a 60% premium to NTA which is due to the strong cash flows in the business from its FUM, as opposed to from its assets.
The forecast distribution for FY21 of 0.10 per unit, the forecast yield on its current unit price of $2.48 is just 4%.
If Centuria deliver the 10cpu in distribution for FY21, it will represent a 3% increase from FY20, off the back of a 16% growth in FUM.
Centuria desire to grow FUM by 50% in the near term, off the back of its newly expanded Healthcare division, NZ division and as a result of a push to secure more wholesale investors to the group. If successful, Centuria should be able to improve distributions above $0.12cpu.
Centuria Capital have a well developed and diverse business and is on our recommend list.
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