The Centuria Industrial REIT, the first listed property trust to report its 2021 interim results, set the tone for what is expected to be a bumper year for the industrial property sector after upgrading its full-year earnings guidance following a record six months of acquisitions and leasing deals.
On the back of surging e-commerce and strong demand for specialist cold-storage facilities from the non-discretionary food and pharmaceuticals sectors, CIP acquired almost $700 million of assets over the six months to December.
This included acquiring the Telstra Data Centre in Melbourne for $416.7 million in a sale-and-leaseback deal and $214 million of cold-storage facilities to lift its portfolio value to $2.4 billion.
This spending spree has continued into the second half of the financial year with the trust acquiring last week a further $37.3 million of assets in Melbourne, leased to Volkswagen and Tasman Logistics.
Highlighting how industrial property has been a net beneficiary of e-commerce growth during the pandemic, CIP completed more than 140,000 square metres of leasing deals – 13 per cent of it total portfolio gross lettable area – over the six month period, including securing long-term lease agreements with Woolworths and packaging giant Visy.
Occupancy held firm at almost 98 per cent, income rose 3.1 per cent on a like-for-like basis, while weighted average lease expiry (WALE) across CIP’s portfolio rose to 9.8 years from 7.2 years as at June 30 last year on the back of the Telstra deal, which came with a 30-year leaseback.
On these metrics, and the record $694 million of acquisitions, CIP lifted interim funds from operations (FFO) – the key earnings marker for real estate investment trusts – by 43 per cent to $42.8 million year-on-year.
As a result the trust increased its earnings guidance to 17.6¢ per unit, up from 17.4¢ at the start of the reporting period. It maintained a forecast 17¢ full-year distribution (lower than 18.7¢ per unit following a deleveraging of CIP’s balance sheet after the Telstra data centre acquisition, which was part-funded by a $341 million equity raising).
Highlighting the appetite for prime logistics, where an estimated $26 billion of institutional capital is seeking a home, the trust’s weighted average capitalisation rate – or yield – tightened by 63 basis points to 5.42 per cent over the half year.
CIP fund manager Jesse Curtis said the continued growth of e-commerce and the rapid increase in online grocery and food sales were the key “structural tailwinds” driving demand for warehouse space and competition among investors for prime industrial assets.
“The industrial sector has continued to strengthen, with sector tailwinds supporting invest appetite and driving asset values,” Mr Curtis said.
Over the half year the trust’s net profit rose 216 per cent to $99.6 million as it benefited from a $53.7 million net gain in the value of its portfolio ($103.8 million including capital expenditure).
Michael Vincent, senior vice-president of equity sales at Jefferies, said the strong CIP result was “in line with our expectations given acquisitions and demand for prime logistics space, accelerated by COVID-19”.
“This is a strong read through for Goodman, Charter Hall, Stockland and GPT, which also own large industrial portfolios,” he said.
CIP shares ended Tuesday flat at $3.07.
Keep up with Commercial Real Estate news.