Centuria Industrial REIT: Breaking $3bn AUM
About the author:
- Author name:
- By Fiona Buchanan
- Job title:
- Co-Head of Research, Senior Analyst
- Date posted:
- 06 August 2021, 2:30 PM
- Sectors Covered:
- Property, AREITS
- Centuria Industrial REIT's (ASX:CIP) FY21 result was in line with guidance and expectations. CIP has been very active with A$966m in acquisitions announced over the past year which has introduced assets focused on the cold storage and data centre sectors.
- A key outcome has been the significant re-rating of industrial assets with CIP’s WACR compressing 151bps (LFL gains +27%) over FY21 driven by positive sector trends, low vacancy rates and e-commerce growth.
- FY22 guidance has been provided with FFO to be no less than 18.1c and DPS of 17.3c which equates to an implied distribution yield of 4.5%.
- Post balance date the portfolio is valued at $3.1bn across 67 assets (WACR 4.54%; WALE +9 years and occupancy 96.9%).
- We retain a Hold rating with a revised price target of (login to view).
FY21 result – FFO $91.4m/17.6c vs $63.5m/18.9c in the pcp. DPS of 17c (97% payout) vs 18.7c in the pcp. FFO and DPS were in line with guidance.
FY22 guidance – FFO expected to be no less than 18.1c. DPS guidance expected to be 17.3c. This was slightly below our expectations for FFO of 18.4c and DPS of 17.5c.
Lfl income was solid +3.5% on the pcp with rent collection averaging 99% over the period. RE fees increased materially on the back of significant AUM growth via
acquisitions and revaluations.
Balance sheet – 27.8% gearing; weighted average debt expiry 3.1 years with interest costs 2.7%. Next debt refi in FY23. ICR 6.3x.
Currently CIP’s portfolio is valued at $3.1bn across 67 assets (WALE +9 years; occupancy 97% which was slightly below 3Q occupancy). 75% of leases are fixed.
The portfolio cap rate compressed 151bps (LFL gains +27%) since June 2020 and now sits at 4.54% (was 6.05% at June 2020).
NTA stands at $3.83 vs $2.82 in the pcp. For core industrial assets the market has seen transactions below CIP’s WACR so there may be further NTA upside.
FY21 acquisitions delivered $149m in revaluation gains. There has been $966m in announced acquisitions over the period across 18 assets/4.8% yield. There was only one divestment during the period ($40m).
Leasing – over the period CIP secured 33 leases representing 22% of the portfolio’s NLA. FY22/23 lease expiries stand at 4.7%/5.9% respectively.Event
Forecast and valuation update
We adjust our forecasts and now expect FY22 FFO of 18.2c (was 18.4c). DPS is in line with guidance of 17.3c (was 17.5c) with the payout ratio c95%.
Including post balance date acquisitions we estimate gearing sits around 32% and liquidity around $230m. We don’t forecast any acquisitions not already announced.
Post changes, our valuation moves to (login to view) based on a 50/50 DCF/NAV (4.6% cap rate) which is also our revised target price.
Investment view: retain Hold rating
CIP offers investors exposure to Australian industrial property assets across several sub-sectors including manufacturing, transport/logistics and cold storage.
The industrial/logistics sectors remain resilient given the growing shift to e-commerce which has accelerated over the past 18 months. There has also been a focus on supply-chain resilience on the back of COVID (onshoring) and a lack of investment-grade assets which has led to a strengthening in demand. National vacancy rates remain low at around 2.2%.
Further asset revaluations and accretive acquisitions.
Key downside risks include asset prices; lack of access to funding; increased supply; unknown impacts of COVID; and lease/tenant default.
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