Centuria Metropolitan REIT (ASX:CMA) talks FY18 results & outlook


by Rachael Jones

Centuria Metropolitan REIT Limited (ASX:CMA) Acting Fund Manager, Doug Hoskins, talks FY18 results, portfolio metrics and trends.

Rachael Jones: Hello. I'm Rachael Jones for the Finance News Network. Joining me today from Centuria Metropolitan REIT Limited (ASX:CMA) is Acting Fund Manager Doug Hoskins. Doug, welcome to FNN.

Doug Hoskins: Thanks, Rachael. It's great to be here.

Rachael Jones: So, first up, Doug, can you give us an introduction to the fund?

Doug Hoskins: The Centuria Metropolitan REIT, or CMA, is Australia’s pre-eminent metropolitan REIT, with total assets of $1 billion, a figure that has more than tripled since our inception. Our market capitalisation is just over $600 million, and we own and manage a portfolio of 19 quality assets around Australia, valued at $930.5 million.

Rachael Jones: And now to your 2018 results, what were the highlights?

Doug Hoskins: CMA has had a great year. Not only did our portfolio grow by 52.3 per cent, achieving $1 billion of total assets for the first time, but the fund was also included in the S&P/ASX 300 Index; a major milestone that has many positive flow-on effects, including added liquidity for unitholders.

We’ve got 98.9 per cent occupancy across our assets, the highest level since listing, and we’ve achieved a very strong return at equity of 14.9 per cent.

CMA is well positioned with this strong occupancy, a four-year WALE, and gearing currently at 28.3 per cent, which is well within our guidance range.

Rachael Jones: And, Doug, what are the drivers of these results?

Doug Hoskins: Well, it comes down to our in-house core competencies and expertise. Not just owning high-quality assets, but also delivering high-quality asset management, which makes us a highly attractive landlord. Together, these result in strong tenant relationships and better tenant retention.

At the same time, our transactions team continues its track record of finding value. We sold 3 Carlingford Road, Epping on Sydney’s North Shore at a 27.2 per cent premium to its November 2017 book value, and we entered into a contract to purchase 2 Kendall Street in Williams Landing, Victoria. We have seen recent market evidence in the Williams Landing precinct of rising market rents, and further cap rate compression, both of which may create further value for our investors.

Across the board, our core capitalisation rate for the portfolio on a like for like basis is 6.65 per cent. We’ve been buying high at 7.1 per cent and sold Carlingford Road at 5.25 per cent, which is a substantial arbitrage.

Rachael Jones: And can you give us more detail about the portfolio and your approach?

Doug Hoskins: FY18 was a year of strong leasing activity that has seen the trust hit 100 per cent occupancy in four of its six investment markets.

Upon the completion of the purchase of 2 Kendall Street, Williams Landing, the REIT's income stream will be spread across approximately 185,000 square meters of lettable area.

We continue to see demand for high-quality metropolitan office assets, and through astute transactions we’ve been able to continue to deliver value to unitholders.

When we first listed the trust, we promised to unlock value for investors -- most recently demonstrated through the sale of 3 Carlingford Road, Epping. In addition, we continue to deliver on our earnings and distribution guidance.

Rachael Jones: And finally, Doug, what can we expect over the coming year?

Our focus through FY19 and beyond will be continuing to build Australia’s pre-eminent metropolitan office REIT.

The coming year will see us complete the acquisition of our Williams Landing property and settlement of 3 Carlingford Road, Epping. The trust also anticipates divestment of the portfolio’s industrial assets if market conditions are favourable, which would subsequently provide investors with a pure-play, high-quality metropolitan office portfolio.

The industrial properties are quality, well-located assets with excellent tenant covenants, and we anticipate keen interest from the market.

We’ve also given distributable earnings guidance range of 18.3 to18.5 cents per unit, with distributions of 18.1 cents per unit, for FY19. The FY19 distribution forecast reflects a distribution yield of 7.3 per cent.

The earnings reflect the anticipated divestment of our industrial assets, which currently account for approximately 5 per cent of the portfolio. We will redirect this capital when we identify value opportunities in the market.

Rachael Jones: Thanks, Doug, and congratulations on the results.

Doug Hoskins: Thanks, Rachael. Thanks for your time.