ASX-listed Centuria Industrial REIT (CIP) increased its funds from operations to $54.1 million during the first half of the 2023 financial year, resulting from substantial warehouse leasing activity.
The company boosted its leasing activity during the period, as record low national vacancy and continuous tenant demand drove industrial market rents higher.
The REIT reported 19% positive re-leasing spreads across 19 transactions during HY23, as well as 88,517 sqm of lease terms agreed, representing 7% of portfolio gross lettable area.
Another sign of increased warehouse demand was CIP’s completion of its value-add development project in Melbourne’s Dandenong South, which was fully leased within five months of completion.
The strong leasing activity helped offset the REIT’s capitalisation rate expansion and valuation decline.
The REIT’s weighted average capitalisation rate (WACR) expanded 47 bps to 4.66%, resulting in a 1.9% valuation decrease on a like for like basis.
CIP attributed much of the valuation decline to two assets, while valuations across the remainder of its active portfolio remained broadly unchanged.
On the transaction front, CIP divested a half stake in eight assets to an investment vehicle sponsored by Morgan Stanley for $180.9 million and an Eastern Creek, NSW asset for $34.5 million.
The REIT used the sale proceeds to decrease its debt and gearing to 31.6%, representing the bottom end of its target gearing range.
CIP reported a $45.6 million statutory loss in HY23 due to a change in non-cash asset values, compared to a $308.1 million profit during HY22,
“With a substantially strengthened balance sheet CIP will continue to execute its core strategies across its urban infill industrial portfolio during the remainder of FY23,” CIP Fund Manager and Centuria Head of Industrial Jesse Curtis said.
“The portfolio is well positioned with high occupancy and strong, reliable rental streams.
“Though transaction volumes have moderated during 2022, industrial asset values are continuing to hold with uplift in market rental growth counteracting capitalisation rate expansion.
“CIP maintains its guidance while continuing to monitor broader economic conditions.”
The REIT reaffirmed its FY23 FFO guidance of 17.0cpu and distribution guidance of 16.0cpu.
Half-year FFO grew from $53.9 million recorded during HY22.
CIP owned 88 industrial properties across Australia worth $3.9 billion, as at end-2022.
CIP shares closed slightly lower at $3.34 in Sydney on Tuesday.