Why Centuria Office (ASX:COF) had to reduce its FY23 guidance?

August 02, 2022 03:06 PM AEST | By Sonal Goyal

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Why Centuria Office (ASX:COF) had to reduce its FY23 guidance? — Image source: © Designer491 | Megapixl.com

Key financial metrics for FY22

Statutory net profit stands at AU$115.0 million, up 50% from FY21.
Gross property income improved by AU$6 million, and reached AU$176.6 million, driven by acquisitions during the year.
Funds from operations increased to AU$104.9 million from AU$102.2 million the previous year.
Return on equity grew from 6% to 7.4%.
As at 30 June 2022, the gearing stood at 33.8%, with 55.9% of the debt hedge.

Centuria’s portfolio during FY22

Image source: © Avkerby | Megapixl.com

According to ASX announcement, Centuria divested one building and acquired three quality buildings.
In FY22, the portfolio occupancy grew by 94.7% and WALE was maintained at 4.2 years.
Reportedly the average building age of COF’s assets is 16 years. 90% of the COF’s portfolio is A-Grade assets.

COF said that majority of the portfolio income is driven by the government, listed and multinational tenants. In FY22, these tenants have delivered approximately 98.2% of average ret collection.

FY23 guidance

Nicholas commented on the guidance:

For FY23, the company expects a distribution per unit of 14.1 cents with a distribution yield of 7.7%. The company expects distributions to be paid in equal quarterly instalments.

The expected FFO for FY23 is 15.8 cents per unit.

As mentioned above, the REIT has reduced the guidance because of the uncertainty arising due to increasing interest rates. But how would the prevailing interest rate hike impact the REIT business?

Here’s the answer. With the increase in interest rates, the economic rents for new developments would also increase and hamper the supply.

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