Centuria Industrial REIT: 1H sees further portfolio evolution

About the author:

Fiona Buchanan
Author name:
By Fiona Buchanan
Job title:
Co-Head of Research, Senior Analyst
Date posted:
02 February 2021, 4:00 PM
Sectors Covered:
Property, AREITS

  • 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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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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