Centuria Industrial REIT: 1H sees further portfolio evolution
About the author:
- Author name:
- By Fiona Buchanan
- Job title:
- Director of Research, Senior Analyst
- Date posted:
- 02 February 2021, 4:00 PM
- Sectors Covered:
- Centuria Industrial REIT (ASX:CIP) reported 1H21 FFO of A$42.8m/8.8c (vs A$30m/9.9c in the pcp) with the uplift driven by new acquisitions and 3.1% growth in LFL property income.
- FY21 FFO guidance has been upgraded from at least 17.5c to be no less than 17.6c. DPS guidance is unchanged at 17c which equates to a yield of 5.6%.
- Following an acquisitive FY21 YTD (cA$730m/11 assets), the portfolio is currently valued at +A$2.4bn across 61 assets with a WALE of around 9.8 years.
- Revaluations during 1H21 saw the portfolio WACR move to 5.42% from 6.05%.
- We retain a Hold rating with a revised price target (login to view).
1H21 result overview
CIP reported 1H Funds from Operations of A$42.8m or 8.8c (vs A$30.0m/9.9c in the pcp). The significant uplift was underpinned by acquisitions and 3.1% growth in like for like property income.
There was also A$0.8m in rent provisions during 1H21 relating to COVID-19.
CIP paid a 1H distribution of 8.5c (vs 9.4c in the pcp/97% payout ratio). Operating cash flow was A$48.7m. Gearing is 29.6% which is at the lower end of the range.
The weighted average debt maturity is 3.3 years with next maturity FY22. ICR = 5.8x (vs covenant of 2x). NTA sits at A$2.99 (up from A$2.82 at June 2020).
FY21 FFO guidance: small upgrade
FY21 FFO guidance has been upgraded from at least 17.5c to be no less than 17.6c (vs 18.9c in the pcp/17.4c guidance at August 2020). DPS guidance of 17c (vs 18.7c in the pcp) is unchanged.
We update our forecasts for the recent post balance date acquisitions (A$37.25m/5.1% initial yield) and divestment (A$40m) as well as lower than forecast interest costs which have resulted in minor changes.
Current debt headroom available is cA$100m. CIP also undertook two capital raisings in 1H21 raising approximately A$465m with funds largely used for new acquisitions.
Portfolio valued at +A$2.4bn
Incorporating recent acquisitions, the portfolio is valued at +A$2.4bn across 61 assets up from A$1.6bn across 50 assets at June 2020. At December, occupancy was 97.7%; WALE 9.8 years; WACR 5.42% (vs 6.05% at June 2020).
There was A$694m in new acquisitions undertaken during the 1H period (9 assets/average yield 4.74%) and one divestment (A$40m). So far in 2H21, CIP has added a further two acquisitions valued at A$37.3m (yield 5.1%).
Revaluations on a like for like basis resulted in a 6.5% increase/36bp cap rate compression (WACR = 5.69%).
FY21/22 lease expiries stand at 3.4%/5.0% respectively. During the half there was leasing activity equivalent to 13% of the portfolio across 14 transactions (81% tenant retention).
Offers exposure to a pure play industrial REIT
CIP offers investors exposure to Australian industrial property across several sub-sectors which is leveraged to the growing e-commerce/logistics thematic.
Post changes and a roll forward, our valuation - which is also our revised target price - moves from A$3.16 (login to view new target price) based on a 50/50 DCF/NAV (5.4% cap rate).
Near term catalysts relate to accretive acquisitions. Key downside risks to our forecasts include falls in asset prices; lack of access to funding; unknown impacts from COVID-19; and lease/tenant default.
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