- Portfolio occupancy increased to 97.1%.
- Leasing activity increased by 3.4% from FY22.
- FY23 distribution of 14.1 cpu.
Centuria Office REIT (ASX: COF) has announced an increased occupancy as part of its FY23 results.
The company achieved 97.1% occupancy for its portfolio, improving from 94.7% in FY22. The company also maintained a WALE of 4.2 years across its 23 asset portfolio, which is worth $2.2 billion. Among other portfolio highlights, the average building age of the portfolio is 17 years; 90% of the portfolio comprises A grade assets; 78% of the portfolio income is derived from government, MNCs, and listed entities; a 4.9 star NABERS SPI energy rating by value, and BBB MSCI ESG rating.
During the financial year, COF leased 42,686 square metres (sqm) across 62 deals, representing 14.1% of portfolio net lettable area (NLA); the leasing activity represents a 3.4% increase from FY22.
COF also noted that over 168,000 sqm of space had been leased since Covid hit, amounting to circa 56% of portfolio NLA.
“FY23 was an operationally successful year for COF with increased portfolio occupancy and a healthy WALE being maintained,” said COF fund manager and Centuria head of office, Grant Nichols.
“COF continues to be exposed to well-performing markets where tenant net absorption has been strong comparative to the Sydney and Melbourne CBD. In particular, the REIT has benefited from robust leasing activity in Brisbane and Perth, which is consistent with wider activity in these markets.”
Throughout FY23, COF executed several value-add development and leasing strategies. In Q4 2023 its boutique office development at 57 Wyatt Street, Adelaide SA reached practical completion (PC) with circa 84% pre-leasing commitments. The asset provides a healthy 6.5-year WALE as at 30 June 2023.
Additionally, COF executed a repositioning strategy at 154 Melbourne Street, Brisbane QLD taking its occupancy from 67% as at 1 January 2023 to 85% as at 30 June 2023 by executing 12 separate leasing agreements totalling 7,800 sqm. Market rents also increased across the building by 10% during this period.
In financial highlights for COF, the company generated $93 million funds from operations (FFO), or 15.6 cents per unit (cpu) FFO.
The REIT completed $225 million of debt refinancing across $175 million of existing loan facilities and added $50 million of new liquidity.
As at 30 Jun 2023, the REIT has no debt expiries until FY26 and its weighted average debt expiry (WADE) has expanded from 2.7 years to 3.2 years. It maintains a diverse pool of six lenders and substantial undrawn debt and cash on hand totalling $132.8 million.
“Capital management remained a key focus during the period, with recent divestments delivering a pro forma gearing of 36.7%, while refinancing resulted in no debt tranche expiring until FY26,” said Nichols.
“Recent non-core divestments also improved overall portfolio quality, while the sales prices achieved were consistent with COF’s Year End portfolio revaluations.”
Among other highlights and notes:
- Distributions of 14.1 cpu were delivered in line with FY23 guidance,
- FFO was impacted by rising interest rates,
- Gearing as at 30 June 2023 was 38.4%, and
- Pro forma gearing of 36.7% is expected once the settlement of recent sales are completed.
The 54 Marcus Clarke Street property in Canberra will be divested for $23 million, and 35 Robina Town Centre Drive in Robina, Queensland, will be divested for $40 million.
“With productivity falling both in Australia and overseas, we have seen an increase in mandated return to office policies that aim to address productivity, increased loneliness and diminished corporate culture,” said Nichols.
“While hybrid working arrangements and increased workplace flexibility is likely to become more prevalent, it is becoming increasingly apparent that the office will remain an important and focal point in many workplace operations.
“In fact, Centuria’s 2023 annual Australian office tenant customer survey reinforced this view, with approximately 75% of respondents stating they expect to retain or increase their office space requirements in the medium term.
“Additionally, tenant respondents stated they’ve considerably pulled back on providing fully flexible working from home (WFH) arrangements. This indicates an emerging return to office work culture and greater potential for rising physical occupancy.
“Looking ahead, we will continue to focus on maintaining high portfolio occupancy, improve portfolio quality and preserve a solid balance sheet, maintaining sufficient liquidity and debt covenant headroom.”
COF provided FY24 FFO guidance of 13.8 cpu and distribution guidance of 12 cpu.