Profit Down for Centuria, but Huge Acquisition on the Table (ASX:CIP)

ASX CIP Share Price Chart - Centuria Industrial REIT

Earnings season is upon us.

Which means we’re set to see a flurry of telltale accounts. Many of which will be significantly lower than last years, and some which may be greater.

For Centuria Industrial REIT [ASX:CIP], it is a case of the former.

Profit for FY20 is down to $75.3 million from $88.8 million the year prior. A 15% decline on their overall bottom line year-on-year.

Underscoring the tougher conditions seen in recent weeks and months. Much of which stems from the pandemic.

However, while this is no doubt a sore point for Centuria, there is plenty to be pleased about as an investor too. Even with the stock going into a trading halt for a $340.8 million equity raise…

Big time buyout

First of all, an important clarification for Centuria’s final result is required.

Because while profits may be down, revenue and ‘funds from operations’ are both up. Clocking in at $116.2 million and $63.5 million respectively. Exceeding the $94.4 million and $50 million totals recorded the year prior.

In other words, while profit may be down overall, the business is in a better cash flow position. With rising expenses largely taking the blame for the poorer bottom line.

So, from a more holistic perspective, Centuria is in a better spot than it may seem.

On top of that, this newly announced capital raising could even deliver more growth to come.

As I mentioned, Centuria has gone into a trading halt today. A result of their decision to raise $340.8 million in fresh capital. Capital that will be used to fund a prize addition to their portfolio: a Telstra Data Centre.

While this is certainly the jewel of the deal, it does also include the purchase of two other sites as well. One an industrial facility in NSW, and a distribution centre in Victoria.

All up, the acquisition will cost them $447.1 million. With the data centre making up the bulk of the purchase valued at $416.7 million.

And, should it all go to plan, it will become Centuria’s biggest portfolio purchase to date. Not to mention their first data centre.

For shareholders, that is something worth getting excited about.

As Centuria’s CEO Jesse Curtis comments on the deal:

Telstra will become CIP’s largest tenant, representing 13% of  the portfolio’s income. As an iconic ASX20 Australian company, Telstra is exemplary of CIP’s high-quality tenants.

The data centre acquisition also enables CIP to expand into the industrial sub-sector of data centres, a continually growing sector particularly in light of increased demand that has resulted from COVID-19’s impact and reliance on digital infrastructure.

Whether or not the market will share this enthusiasm though, is yet to be seen.

We will have to wait for trading to recommence to see how the news is received.

For now though, it is clear that Centuria aren’t content with staying idle. Whether it leads to a boom or bust, this REIT is committed to this stark pivot.

Time will tell if it pays off or not.

Changing needs

From a broader perspective, Centuria’s strategy is also indicative of the wider property market. At least, the commercial property market anyway.

As we’ve seen, COVID-19 has upended land and property values in a dramatic fashion. Led by the massive changes we’re seeing in business.

It is clear that the space required for traditional retailers isn’t quite as reliable as it used to be. With the emergence of digital-oriented infrastructure and industry becoming far more pronounced.

Data centres in particular look likely to only increase in prevalence.

That’s why we could see some serious bargains in the commercial property to come. With the old having to make way for the new.

Indeed, this is a pattern that is happening right across the property market. Even for residential assets.

Our own property guru — Catherine Cashmore — has been investigating exactly that. Cataloguing several prominent locations that could have some bargain prices. Even in some very prestigious and prominent suburbs.

Check out the full report for yourself, for free, right here.

Because despite what the naysayers may think, now might be your best chance to get into property for years to come.


Ryan Clarkson-Ledward,
For Profit Watch