Centuria Industrial REIT (ASX:CIP) FY19 results & outlook


by Jessica Amir

Centuria Industrial REIT (ASX:CIP) Head of Funds Management, Ross Lees talks FY19 results, portfolio metrics and trends.

Jessica Amir: Hi! I'm Jessica Amir for the Finance News Network here in Western Sydney, at one of Centuria's 45 industrial properties, catching up with the Head of Funds Management for Centuria, Ross Lees. Ross, thanks for having us here at your Arndell Park estate. It's great to see you again.

Ross Lees: Thanks very much for coming out here, Jessica.

Jessica Amir: Today as I mentioned earlier, to those who are watching at home, we're talking about your Centuria Industrial REIT (ASX:CIP), ticker code CIP. Just tell us about the strategy of the REIT and just give us an overview.

Ross Lees: CIP is Australia's largest domestic pure-play industrial REIT. We have a portfolio of 45 assets around the country with a total portfolio value of $1.3 billion. Our objective is to provide investors with income from the properties in the form of distributions, and the opportunity for capital growth on their investments.

Jessica Amir: Moving to your financial year highlights. Congratulations, a great set of numbers, including a total shareholder return of 27 per cent. Take us through some of the highlights.

Ross Lees: It was really pleasing year for us. We delivered earnings per unit to our investors of 18.8 cents, which was in line with the guidance that we provided. We've delivered distributions to those investors of 18.4 cents per unit, again in line with guidance that we provided. And overall delivered a total shareholder return to investors of 27 per cent, so we're really pleased with that result.

At the same time, we're obviously mindful of our capital management and making sure we continue to improve our balance sheet, and our gearing, continue to trend down over the year as well. Subsequent to the end of the financial year, we raised some additional capital to fund some acquisition opportunities, and on a pro forma basis, our gearing's now down to 34.9 per cent which is the lowest it's been in this vehicle's history.

Jessica Amir: Congratulations again on the numbers. Operationally, what were the highlights?

Ross Lees: For us, the real operational highlights were our high occupancy. We've delivered and maintained occupancy above 95 per cent for the year and finished the year at 95.8 per cent. That's really important for us to be able to continue to deliver predictable and ongoing distributions to our investors. During the year as well, for all the tenants that we had expire in our portfolio, by the end of the year that space was either renewed or re-leased. It really demonstrates the active management approach of our team to identify what's happening with our customers, and how to get ahead of that to make sure the buildings are staying full for as long as possible.

Jessica Amir: Now to the fund in more detail, just tell us about the tenant profile. We know who some of your tenants are, but tell us who's leasing your buildings.

Ross Lees: A broad range of really high-quality national and multinational and ASX-listed tenants that lease the buildings. Some of the names that people might know, Visy, Toll, Australia Post, DHL, to name a few. Those tenants, as I said, are all very-high quality tenants. The weighted average lease expiry across our portfolios is 4.3 years. That shows the duration of the contracts we have with these groups.

Jessica Amir: In the financial year you've considerably grown the portfolio. Just tell us about the acquisitions and key sales.

Ross Lees: Sure. We've continued to grow the fund really to reinforce our position as Australia's largest domestic pure-play industrial REIT. Our portfolio's now grown through to $1.3 billion. The acquisitions we've undertaken, there was eight of them in the year for a total of about $188 million, and most of those were undertaken off-market. We were really quite selective in why we pursued those acquisitions, to ensure they were complementary to the portfolio. We thought they had long-term ongoing relevance to our customer base.

Jessica Amir: What's CIP's real clear point of difference in the market in the REIT-listed space?

Ross Lees: We've made a real point of specialising in differentiating ourselves at the moment. Where we're doing that is specialising by having a portfolio of pure-play industrial assets and being quite selective about what's in that portfolio. Where we've differentiated ourselves within that is really focusing on the market for assets of about 20,000 square meters. So CIP's average asset size is 19,500 square meters.

When we analyse leasing markets nationally, we're seeing almost 88 per cent of leasing nationally happening in buildings under 20,000 meters, so there's a very strong weight of capital chasing very large assets in the market at the moment. What we're finding is that we're able to find better-quality acquisitions that are complementary to our existing asset base in this 20,000 square meter space. We know that we can keep those buildings full for longer, and it's demonstrated by our very high occupancy rates as well.

One of the key themes we're seeing in the markets, this global trend towards e-commerce as well. And what's happening with the assets is it's creating more demand for smaller assets located close to the population centres. So for tenants that are requiring very rapid delivery to their customers, they need to be located in these smaller facilities, that are in full markets with very good transport infrastructure connections. Again, they're the types of tenants that we're seeing taking up these facilities at a very high rate.

Jessica Amir: Just lastly, Ross, before we let you go, what's your outlook for FY20?

Ross Lees: Sure. We think the Australian industrial markets are going to continue to be very well supported with a very strong weight of capital still looking to get invested in the asset class. We think that's going to maintain very strong pressure on capitalisation rates, and upward pressure on values. For the ecommerce market that I mentioned earlier, we think that's going to create tailwinds for demand for our tenants and help elevate rental growth, particularly on the East Coast. For CIP particularly, we've put our earnings guidance out into the market and we're expecting to grow our earnings by 2 per cent to 3 per cent next year, and increase our distribution to 18.7 cents per unit.

Jessica Amir: Wonderful. Ross, congratulations on the results and thanks very much for having us here at YHI, your Arndell Park estate.

Ross Lees: Thank you very much, Jessica. Thanks for coming up.


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