Centuria Metropolitan REIT (ASX:CMA) Fund Manager, Grant Nichols talks FY19 results, portfolio metrics and guidance.
Jessica Amir: Thanks for your company. My name's Jessica Amir, for the Finance News Network. Today I'm catching up with Centuria Metropolitan REIT (ASX:CMA) fund manager, Grant Nichols. Grant, welcome back to the network.
Grant Nichols: Thanks for having me.
Jessica Amir: Congratulations. You've just announced a great set of numbers, including a total shareholder return for the financial year of 22 per cent, or over 22per cent. Take us through some of the key highlights.
Grant Nichols: 2019 was a really active year for CMA, where there were a number of transactions combining to transition the fund to Australia's largest pure play office REIT on the ASX. At the same time, we've seen the portfolio go to about $1.4 billion. The market cap passed $1 billion. In the last half we've refinanced our entire debt book.
In that refinancing we've seen the debt cost reduce, the number of lenders increase and the debt turn to maturity increase to about four years. The Centuria (ASX:CMA) team has worked hard to reposition CMA so that we fulfil our primary objective of providing quality and sustainable income returns to our investors.
Specifically looking at FY19, CMA has delivered FFO on a per unit basis of 18.7 cents and provided distributions of 17.6 cents per unit. That equates to a distribution yield of over 6 per cent.
Jessica Amir: Grant, you mentioned CMA is now Australia's largest pure play office REIT. What's the opportunity here for investors?
Grant Nichols: In the current environment of falling interest rates, investors are looking at commercial property as an opportunity to acquire investments that are delivering a decent yield and a potentially growing yield. Australian office is one of the more favourable commercial property markets with low vacancies, growing rents, and at the moment, strong investment demand. For investors seeking an exposure to Australian office markets, CMA is the largest straight office REIT on the ASX.Offering exposure to 20 high quality office properties located in some of Australia's major office precincts. With an occupancy of over 98 per cent, CMA is well-placed to continue delivering strong, sustainable and quality income streams to investors. And as mentioned, we're currently distributing over 6 per cent.
Jessica Amir: That's great. And over the financial year, can you give us an update on your key metrics. What occurred?
Grant Nichols: As mentioned, CMA has got a current occupancy of over 98 per cent, with over 21,000 square meters of leases agreed during the course of the year. This has helped maintain the weighted average lease expiry (WALE) at 3.9 years. The CMA portfolio is also a very young portfolio, with an average building age of about 16 years. This is important because newer buildings generally have greater efficiency, lower capital expenditure requirements, and are generally more attractive to tenants.
Jessica Amir: Thanks Grant. Can you give us an update on the tenant profile?
Grant Nichols: CMA has a portfolio of over 200 tenants, with over 70 per cent of the income being derived from either ASX listed, multinational or government tenants.
In addition to that, no single tenant represents more than 6 per cent of the portfolio income. This level of tenant diversification creates a staggered lease expiring profile, which adds to the sustainability of income. With over 60 per cent of leases expiring at or beyond FY23.
Jessica Amir: The portfolio has grown quite considerably. Tell us about the acquisitions and disposals in the financial year.
Grant Nichols: During the CMA acquired four high-quality office buildings valued in excess of $520 million. This acquisition was supported by a $276 million equity rising. Around the same time, CMA disposed of its remaining two industrial assets. Combined these transactions transformed CMA from a diversified property fund, to the largest listed pure play office REIT that CMA is today.
In FY20, and as part of our ongoing asset allocation assessment, we have budgeted for the sale of our Hamilton office building. This sale will be subject to ongoing market conditions, but we remain optimistic on the outcome.
Jessica Amir: Grant, while you're here, can you just give us an update on the Australian office markets?
Grant Nichols: Australian office markets continue to generate strong interest from both tenants and investors alike. With the growing population and improved transport infrastructure, Australia's metropolitan office markets are particularly well placed to take advantage of this interest.
With pending supply relatively in check, this should underpin future market rental growth and investment demand, which continues to be strong in this low interest rate environment.
Jessica Amir: Just lastly Grant, before we let you go, what's your outlook and guidance for FY20?
Grant Nichols: Our focus for CMA throughout FY20 and beyond will be continue to deliver strong sustainable income returns to investors with the opportunity for capital growth.
We'll do this by continuing to build Australia's largest listed pure play office REIT, taking advantage of Australia's favourable office market conditions.
For FY20, we have issued FFO guidance of 19 cents per unit, with distribution guidance of 17.8 cents per unit paid in quarterly instalments. This translates to a healthy distribution yield of over 6 per cent
Jessica Amir: Great. Grant Nichols, thank you so much for the update. Congratulations again on the numbers.
Grant Nichols: Thanks Jessica.