Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Centuria Industrial REIT (ASX:CIP, Financial) delivered upgraded FFO guidance of $0.172 per unit for FY 24, showcasing strong financial performance.
- The company achieved a 43% average re-leasing spread across significant leasing transactions, indicating robust demand for its properties.
- High occupancy rate of 97.1% and a weighted average lease expiry of 7.6 years, reflecting strong tenant retention and long-term stability.
- Successful divestment of non-core assets at an average 4% premium to book value, optimizing portfolio construction and maintaining liquidity.
- Development pipeline with an estimated value of $1 billion, focusing on urban infill industrial markets, providing future growth opportunities.
Negative Points
- Higher debt costs impacted financial performance, with total interest costs increasing by $7.5 million to $51.4 million for the full year.
- Some leasing transactions, such as the Campbellfield project, took longer than expected to lease up, indicating potential market challenges.
- The payout ratio has been coming down modestly over the past few years, reflecting a cautious approach to capital management.
- Increased supply in the industrial market, albeit modest, could potentially impact rental growth and occupancy rates in the future.
- Potential impact of new taxes and charges, such as the absentee owner surcharge and commercial industrial property tax in Victoria, on property values and investor sentiment.
Q & A Highlights
Q: Can you provide more color on the key inputs for FY 25 guidance, particularly around re-leasing spreads, occupancy, and interest costs?
A: We forecast an average funding rate of 4.6% for the full year. Each vacancy or lease expiry has been individually assessed, so we can't provide a single average for downtime or re-leasing spreads. β Jesse Curtis, Head of Industrial and Fund Manager
Q: Why has the payout ratio been coming down modestly over the past few years?
A: We have a long-term ambition to get the payout ratio to about 90%. Currently, we are comfortable with a payout ratio of around 93% for FY '24. This is a prudent capital management position, considering potential capital commitments from the development pipeline. β Unidentified Company Representative
Q: Can you step through your development hurdle rates and expected starts in FY '25?
A: In FY '25, most projects are still in the planning phase, so there won't be significant starts impacting FFO. We are targeting yield on cost in excess of 6.5% for most projects. β Unidentified Company Representative
Q: What are your expectations for market rent growth in '25, given rising vacancy rates in industrial markets?
A: Despite rising vacancy rates, the national vacancy rate is still below 2%. We expect rental growth across most industrial markets in the next 12 months, though it may not be as strong as in FY '22 and FY '23. β Unidentified Company Representative
Q: Can you provide an update on the leasing at Campbellfield and your expectations for the remaining 20,000 square meters?
A: We have interest in both units at Campbellfield but no executed lease agreements yet. We expect these facilities to be leased in the coming months, hopefully by half-year results. β Unidentified Company Representative
Q: What are your expectations for FY '25 in terms of capital transactions, both buying and selling?
A: We expect valuations to stabilize through FY '25, with continued strong demand for our assets. We have a good track record of selling assets at or above book value, and we are confident in maintaining this trend. β Unidentified Company Representative
Q: How are sublease space and incentives tracking across the portfolio?
A: Most sublease space and softness are in tenancies over 20,000 square meters, which doesn't significantly impact our portfolio. Our average tenant size is about 7.5 to 8,000 square meters, where demand remains strong. β Unidentified Company Representative
Q: Can you comment on the impact of the absentee owner surcharge and commercial industrial property tax in Victoria on values?
A: It's too early to determine the full impact. We haven't seen enough transactions to ascertain how foreign owners will price the change in taxation. It's something to watch in the coming years. β Unidentified Company Representative
Q: What are your expectations for demand over the next six months?
A: We expect the second half of calendar year 2024 to be stronger than the first half. Our assets, particularly those with smaller tenancy profiles, continue to see high demand. β Unidentified Company Representative
Q: Can you provide more details on the data center acquisition and the likelihood of tenant renewal?
A: We are confident in tenant renewal due to the availability of power at the site. If the space becomes available, it remains an attractive proposition due to its power availability. β Unidentified Company Representative
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
