Centuria Industrial REIT: Upside potential in new acquisitions

About the author:

Fiona Buchanan
Author name:
By Fiona Buchanan
Job title:
Director of Research, Senior Analyst
Date posted:
06 October 2021, 9:30 AM
Sectors Covered:
Property, AREITS

  • Centuria Industrial REIT (ASX:CIP) has announced further acquisitions valued at $351.3m which will be funded via new equity ($300m placement competed) and debt.
  • CIP has stated it has a further +$100m in properties under due diligence.
  • FY22 guidance is reaffirmed comprising FFO of at least 18.1c and DPS of 17.3c. The portfolio is now valued at approx. $3.5bn across 75 properties (WACR 4.5%; occupancy 97.3%; WALE 9 years).
  • We retain a Hold rating with a (login to view) price target.

Event

Acquisitions – CIP has acquired a further 8 industrial assets for $351.3m (4.23% cap rate/3.8 year WALE).

Capital raising – the new acquisitions will be largely funded via a $300m institutional placement. There is also a unitholder purchase plan (closes 22 October) which could raise up to a further $25m (price of login to view adjusted for the September 2021 distribution of 4.325c).

Analysis

The new acquisitions are largely focused on Sydney (now 30% of the total portfolio up from 26%) and comprises 8 industrial freehold assets (largely underpinned by a $200.2m distribution centre in Fairfield, Sydney).

The assets are diversified across industrial sub-sectors including distribution centres, cold storage and transport logistics.

Taking a medium term view, management expects the new assets will provide CIP with rental growth. CIP has stated that the properties are considered to be under rented and given the WALE sits at 3.8 years provides upside to rental income.

Other assets are likely to provide potential development opportunities.

Forecast and valuation update

We adjust our forecasts for the acquisitions and capital raising which results in some dilution. However, we note that FY22 guidance is reaffirmed comprising FFO to be no less than (login to view).

Pro-forma gearing sits at 30.3% and liquidity around $230m. CIP has flagged it is in due diligence on +$100m in potential acquisitions. We assume a further $50m in acquisitions in FY22.

Pro-forma NTA is  (login to view).

Post changes, our valuation moves to  (login to view) based on a 50/50 DCF/NAV which is also our revised target price.

Investment view

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 ecommerce 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%.

Price Catalysts

Further asset revaluations; under-rented assets delivering rental growth; and accretive acquisitions.

Risks

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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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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