Centuria Industrial rent growth offsets interest rate headwinds
Record low vacancy rates and sustained demand has helped Centuria Industrial REIT, the country’s largest listed pure-play industrial fund reported a significant jump in rents which will be a buffer against the impacts of higher interest rates.
A focus on having warehouse space close to customers for speedy delivery led to a 19.1 per cent rise in re-leasing spreads, being the difference between what existing tenants pay and rents changed for new leases.
In the first-half the ASX-listed real estate investment trust reported $54 million in funds from operations, the most accurate measure for the REIT sector, which was marginally lower than the prior year, but was impacted by asset sales and valuation changes.
Centuria Industrial has a market value of $2.13 billion with 88 properties nationally worth $3.99 billion. The leases cover 88,517 square metres and around 83 per cent of the portfolio is based in urban infill markets, which are close to densely populated areas. This is where occupier demand remains highest as these markets lend themselves to fast delivery times for e-commerce and logistics operators.
Industrial market rents accelerated during the period due to record low national vacancy and continuous tenant demand, particularly in urban infill markets
Jesse Curtis, CIP Fund Manager
Fund manager Jesse Curtis said industrial property has become an integral part of the economy’s infrastructure, not just for the e-commerce sector, but for use as data centres, manufacturing storage and transport providers.
He said while rising interest rates will impact some sectors, the fund has lowered its debt with asset sales and the low supply will help to underpin rental growth.
“Industrial market rents accelerated during the period due to record low national vacancy and continuous tenant demand, particularly in urban infill markets,” Curtis said.
He said with the average Australian rent is sitting well below other countries there are opportunities to execute new leasing and “value-add initiatives to capitalise on the domestic market’s strong rental growth trajectory” with nearly one-third of its portfolio expiring or value-add developments being delivered by 2025.
Australian rents are on average $129 per square metre with 0.6 per cent vacancy, which compares to $313 per square metre in Los Angeles with 1.4 per cent vacancy and Tokyo’s $181 per square metre with 5 per cent vacancy.
“Global rental data demonstrates there is a long runway for rental growth in Australia,” Curtis said.
During the half year to December 31, Centuria Industrial opened its multi-unit 40,500 square metre Dandenong South development, Southside Industrial Estate in Melbourne. It also completed an early lease renewal across 22,481square metes at 82 Rodeo Road, Gregory Hills NSW bringing forward an uplift in rental income.
The vice president of Moody’s Investors Service, Saranga Ranasinghe, said Centuria Industrial REIT’s solid results for the six months are credit positive.
’Despite capitalisation rates widening, the increase in market rents has resulted in Centuria’s asset values reducing only slightly,” Ranasinghe said.
“However, we expect asset values to be under pressure in the current high-interest rate environment. Still, given Centuria’s current low gearing level, we expect the REIT to maintain sufficient headroom against its internal targets as well as our tolerance levels for the rating.”
For the half-year, the fund delivered an 8¢ per unit distribution payable on January 3 and reaffirmed its full-year funds from operations guidance of 17¢ per cent and distribution guidance of 16¢ per unit.
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Source: Thanks smh.com