Shares in ASX-listed Centuria Office REIT (COF) closed almost 8% higher on Wednesday after increasing its office occupancy to more than 96% during the first half of the 2023 financial year. 

In its HY23 earnings, COF said it executed 35 transactions made up of 24,285 sqm in new leases and 6,135 sqm in renewals throughout the half. 

COF, which owns 23 offices across Australia worth $2.3 billion, reported $48.6 million in funds from operations (FFO) during the HY23 in line with guidance, down from $54.7 million in HY 22.  

“COF’s leasing activity substantiates the increasing demand for metropolitan and near-city office markets that lends themselves to affordable office accommodation, an increasing consideration from occupiers in the current economic environment,” said COF Fund Manager and Centuria Head of Office Grant Nichols (pictured). 

“COF’s encouraging leasing activity runs contrary to anecdotal speculation concerning the impact flexible work may have on demand for office space. With tenants increasingly recognising the benefit offices provide to collaboration and culture, and labour demand remaining strong, we are confident that COF’s quality office portfolio will continue to attract and retain tenants.”  

101 Moray Street, South Melbourne. Source: Centuria.

FFO per unit was 8.1 cents per unit (cpu) in HY23, down from 9.8 cpu in HY22. 

The trust had a 4.2-year weighted average lease expiry (WALE), with 90% of COF’s portfolio comprising A-Grade assets with an average building age of 17 years. 

COF’s weighted average capitalisation rate (WACR) expanded 17 bps during the half to 5.75%, with like-for-like portfolio revaluations down 2% at end-2022 compared to its previous portfolio value.  

The REIT’s gearing was 35.6% at end-2022, with undrawn debt worth $101.5 million. 

COF reported a $17.4 million statutory loss in HY23, compared to a $63.6 million statutory profit in HY22.  

“During the period, there has been a noticeable reduction in capital transaction volumes due to rising interest rates impacting asset and debt pricing,” Nichols said.   

“Of the assets that transacted, there is evidence of bifurcation based on quality and leasing risk. Well tenanted, high-quality buildings continue to trade on competitive sales metrics. It is expected that transaction volumes will increase once interest rates stabilise and investor conviction improves. 

“With positive industry data revealing an increasing number of workers returning to the office across all capital cities and tenants generally seeking to accommodate peak office occupancy rather than average occupancy, we are optimistic tenant demand will continue in the near term.” 

The REIT reaffirmed FY23 FFO guidance of 15.8 cpu and distribution guidance of 14.1 cpu. 

COF shares closed 7.9% higher at $1.76 on Wednesday.