Record leasing, higher rents lift earnings at Centuria industrial fund

Over the 12 months to June 30, CIP leased more than 300,000 square metres of space over the 2024 financial year – a 66 per cent rise on the prior year. Occupancy remained high at 97 per cent.

This big take-up of space allowed Centuria to lift rents by an average of 43 per cent (as they were reset to market rates) across over a fifth of its portfolio, generating like-for-like income growth of 6.5 per cent.

As a result of this pick-up in rental income, CIP forecast slightly higher earnings and distributions this financial year despite rising interest rates.

“Releasing spreads have generated quite significant net operating income growth and benefited out earnings outlook,” said Grant Nichols, CIP fund manager and Centuria’s head of listed funds.

“It’s been really pleasing for CIP to forecast a third year of earnings growth, despite a higher debt cost environment.”

After delivering funds from operations (or operating earnings) of 17.2¢ per unit in line with guidance and a distribution of 16¢ per unit over FY24, CIP forecast FFO of 17.5¢ per unit this financial year and full-year distribution of 16.3¢.

The strong pick-up in rents also helped offset an expansion in capitalisation rates – akin to investment yields – which otherwise would have driven down property valuations.

Instead, whilst CIP’s weighted average capitalisation rate expanded 17 basis points on a like-for-like basis to 5.81 per cent, its portfolio increased by $5 million or 0.1 per cent.

“We saw valuation stabilise over the six months to June 30 as opposed to the six months to December 31 [when they fell by 0.7 per cent on a like-for-like basis],” Mr Nichols said.

Reinforcing his view that valuations for industrial property have stabilised, he noted that CIP had sold four assets during FY24 for $120 million, and each had sold at or above a book value.

The stabilisation of asset values helped boost the bottom line at CIP – the trust reported statutory profit of $48 million over FY24, reversing a $76.6 million statutory loss over FY23, which was driven by asset writedowns.

Driving the record year of leasing deals, CIP renewed a lease with cotton and wool handling company AWH for 94,241 square metres across two sites in Perth’s southern suburbs for another seven years – WA’s largest industrial leasing deal for the calendar year.

CIP will be able to capture further positive rental reversions in coming years – provided demand for warehouse space remains high – with about 39 per cent of leases across its portfolio expiring between now and FY28.

Demand for warehouse space has been driven by the growth of ecommerce, strong population growth and an onshoring of supply chains due to global supply chain uncertainty, said Jesse Curtis, Centuria’s head of funds management.

During the financial year, Centuria increased its exposure to the high-flying data centre sector, acquiring the Fujitsu Data Centre in Perth for $39 million to take the value of its data centre sub-portfolio to $456 million.

Mr Nichols said Centuria was exploring opportunities to increase its exposure to data centres. It has no data centres planned in its $1 billion pipeline of future projects.

The trust’s securities ended Wednesday up 1 per cent at $3.18.

“CIP’s solid operating results for the year ended June 2024 are in line with our expectations,” said Moody’s Ratings analyst Liam Li.

“Strong rental growth reflects sustained demand for its industrial assets in the east coast of Australia, which remains supply-constrained.”