Strong Dividend Yield Fortifies Centuria Office
This story features CENTURIA OFFICE REIT. For more info SHARE ANALYSIS: COF
Centuria Office REIT has sustained reliable income despite the travails of the Australian office sector during the pandemic, yet will FY22 show signs of improvement?
-Dividend yield implied by FY22 guidance among the highest in the sector
-Yet earnings growth likely to be modest for another year
-Will Centuria Office require equity for further acquisitions?
By Eva Brocklehurst
The Australian office sector has been battered by the pandemic yet Centuria Office REIT ((COF)) has managed to sustain reliable income. Vacancies have been minimised and weighted average lease expiries (WALE) have increased for some assets.
Afterpay Day
The clue was in the SPI futures, which closed up 0.5% on Saturday morning after the S&P500 fell -0.5% on Friday night, and for no obvious reason. The trend this year has been that whenever the overnight futures make a seemingly oversized, contrarian move, a big buy/sell order is going to hit the ASX.
Yesterday saw the banks, healthcare, energy, discretionary, staples and utilities all rally 1.3-1.9%, and it’s pretty difficult to justify why. Industrials, property and telcos chimed in with around 0.6%. Other than a couple of specific events yesterday, this looks very much like a “Buy Australia” order from someone, probably foreign, aided by the present level of the currency.
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Demand from tenants looking for new workplaces in fringe locations increased strongly for the Centuria Office REIT through the back half of the 2020-21 financial year.
But occupancy across the 22-asset, $2 billion portfolio finished well down on the previous year because of multiple concurrent lease expirations, Foxtel’s unexpected early exit in Queensland and tough times in the Melbourne central business district.
Tenants are favouring fringe office buildings such as 154 Melbourne Street, South Brisbane, owned by Centuria Office REIT
Occupancy fell from 98.1 per cent at June 30, 2020, to a record low of 91.5 per cent six months later. It has since climbed to 93.1 per cent based on record leasing activity.
Just a Flesh Wound
Clearly investors stood aside on Wednesday as the ASX200 suffered a rolling sell-down on lockdown worries, in which sector falls were largely uniform. With nothing untoward coming out from the Fed overnight, the way was clear to buy the dip from the open yesterday.
It was nonetheless blink-and-you’ll-miss-it, with the index gaining 37 points in the first twenty minutes of opening rotation and closing up 38.
Unlike Wednesday’s fall, yesterday’s rally did not include all sectors.
With the Nasdaq bouncing back on Wednesday night following Tuesday night’s plunge, technology rose 2.6%. A 5.8% rebound for Zip Co ((Z1P)) suggests maybe the BNPL stocks had been sold down enough.
Hitting Home
Wall Street may have been down overnight but it was pretty clear yesterday’s action on the ASX was all about Sydney. With the lockdown extended not one, not two, but four more weeks, memories are evoked of last year’s three-and-a-half month run in Melbourne.
And that was the less contagious Wuhan strain.
Ceteris paribus, the market should have been chuffed with the June quarter CPI numbers. Yes, headline inflation surged 3.8% but unlike in the US, where headline numbers well exceeded forecasts, economists here expected 3.7%.
And unlike the US, where core inflation numbers equally surged, our core inflation remained barely moved at 1.6% year on year, and still well below the RBA’s target of 2%. The headline number, up from 1.1% in the March quarter, was elevated by the oil price rally and cycling last year’s free child care – factors that will ease in coming quarters.