Centuria Metropolitan REIT (ASX:CMA) 1H20 results & outlook

Interviews

by Rachael Jones

Centuria Metropolitan REIT (ASX:CMA) Fund Manager, Grant Nichols talks 1H20 results, portfolio metrics and guidance.

Rachael Jones: Hello. I'm Rachael Jones for the Finance News Network. Joining me today at Centuria's head office is Centuria Metropolitan REIT (ASX:CMA) Fund Manager Grant Nichols. Grant, welcome back to the network.

Grant Nichols: Thank you, Rachael.

Rachael Jones: Now, today, you have a portfolio spanning all major markets. What does this mean for investors?

Grant Nichols: CMA, through its portfolio of 23 high quality office buildings, provides exposure to virtually every major Australian office market across Australia. This level of diversification enhances CMA's ability to deliver sustainable and quality income streams to investors, particularly at a time when we're seeing very low or falling vacancy rates in most Australian office markets.

Rachael Jones: Now let's talk about your first half 2020 results. What were the highlights?

Grant Nichols: It's been a very active first half of FY20, with the Centuria team completing a number of significant leasing and capital transactions, which have enabled the fund to improve its asset quality, enhance the tenant covenants, extend the WALE and maintain very high occupancy. As a result of these transactions, the portfolio has grown to over $2 billion, and the average age of the 23 office assets is about 15 years, which is very young for an office portfolio.

In addition to that, almost 25 per cent of the income is now derived from either Federal or State Government tenants. We've also delivered FFO and distribution guidance with an 8 cent per unit increase in net tangible assets due to some valuation uplift across the current portfolio.

Rachael Jones: Thanks, Grant. Now let's talk about the portfolio a bit more. Can you provide us with an update on the key metrics?

Grant Nichols: The Centuria team executed a number of leasing transactions, with approximately 29,000 square metres of leasing completed during the half. This is saying the occupancy maintained at over 99 per cent and the weighted average lease expiring expanded to 5.1 years. At the same time, we have maintained a very strong capital position with gearing of 33.2 per cent, with significant undrawn debt capacity and significant debt covenant head room.

Rachael Jones: And Grant, what can you tell me about your acquisitions?

Grant Nichols: So, during the quarter, we acquired three high-quality office buildings valued at around $636 million. These assets were located in the Sydney Fringe, Canberra, and in Perth. And all had 100 per cent occupancy, a combined WALE of eight years, and had excellent underlying tenant covenants.

Rachael Jones: And what is the outlook for office markets?

Grant Nichols: The outlook for commercial property across Australia remains solid, with investment demand underpinned by either low or falling vacancy rates. And with the shift to lower interest rates throughout 2019, the relative attractiveness of commercial property against fixed interest rate alternatives is increasing. When we compare the yield spread between commercial office cap rates and fixed interest rate alternatives, that risk spread has never been greater.

Across our portfolio, we're still generating pretty good levels of tenant demand, evidenced by very high occupancy, as we witness tenants seeking to find accommodation in very well located, affordable office accommodation that is located near retail amenity and transport infrastructure.

Rachael Jones: And last question now, Grant. What is the guidance for financial year 2020?

Grant Nichols: The focus for the remainder of FY20 and beyond is to continue providing sustainable and quality income returns with the opportunity for capital growth. For FY20, we have reiterated FFA guidance of 19 cents per unit and distribution guidance of 17.8 cents per unit. This equates to a current distribution yield of about 6 per cent.

Rachael Jones: Grant Nichols, thanks for the update.

Grant Nichols: Thank you.


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