Centuria Industrial Fund issues upgrade amid strong warehouse demand

The country’s largest listed Australian-focused industrial fund, Centuria Industrial REIT, has forecast a rise in sale and leaseback activity as large manufacturers look to sell their real estate and use the cash for expansion.

For the first half of the pandemic-hit financial year, the trust announced a record number of acquisitions as well as significant leasing activity that boosted its funds from operation (FFO) – a more accurate measure of a REIT’s operating performance – by 43 per cent to $42.8 million, in line with market expectations.

Centuria Industrial Fund paid $49 million for a cold storage site in Derrimut, Victoria in November.
Centuria Industrial Fund paid $49 million for a cold storage site in Derrimut, Victoria in November.

The strong activity and $99.6 million statutory net profit, led the group to issue an FFO upgrade to “no less than 17.6¢ per unit”, while the full-year distribution is reaffirmed at 17¢ per unit.

The $1.7 billion ASX-listed fund has 59 industrial properties across the country and, through a series of large acquisitions over the past six months, has increased its portfolio value by about 50 per cent to $2.4 billion.

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It has 117 diverse tenants skewed to customers directly linked to the production, packaging and distribution of consumer staples, pharmaceuticals and telecommunications.

CIP fund manager Jesse Curtis said due to the scarcity of quality, investment-grade industrial assets, he expects the sale and leaseback trend to continue throughout 2021.

“This is because businesses are able to raise liquidity for their mission-critical operations through sale and leaseback opportunities,” Mr Curtis said.

“Centuria has been a major player in sale and leaseback transactions, having completed the $236 million Arnott’s portfolio [deal] and the $416.7 million [purchase of a] Telstra data centre in Clayton, Victoria.

“During the COVID period we observed a rapid increase in demand for data warehousing, with a shift to cloud-based data storage coupled with an increase in online shopping, particularly for non-discretionary items such as groceries and pharmaceuticals.”

Mr Curtis said he expects these trends are here to stay and investing in the undersupplied industrial sub-sectors of data centres and cold storage is a “sound strategy”.

Gavin Bishop, head of industrial capital markets at Colliers International, agreed that with the strength of the industrial and logistics investment market, sale and leaseback transactions have been an integral factor within the investment market in 2020.

“Sale and leaseback transactions represented almost 50 per cent of investment volumes in 2020, with just over $2.6 billion trading via this arrangement. By comparison, about $1.4 billion in sale and leaseback transactions were recorded in 2019, representing around 30 per cent of investment volumes for the year,” Mr Bishop said.

Recently, the Centuria fund also launched a fixed-end wholesale fund and bought new assets for its listed vehicle.

Under the latest deals, it bought two centres in Derrimut, in Melbourne’s west for $37.25 million on an average initial yield of 5.1 per cent.

Michael Vincent from broker Jefferies said the result was in line with market expectations given acquisitions and demand for prime logistics space has been accelerated by the global pandemic.

“This is [a] strong read through for Goodman, Charter Hall, Stockland and GPT, in that order, which also own large industrial portfolios,” Mr Vincent said.

Centuria Industrial’s results were also boosted by leasing deals such as the renewal of a key Woolworths outlet at Warnervale on the NSW Central Coast and a Visy site at Warwick Farm in Sydney’s west.

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Source: Thanks smh.com