Centuria Office REIT Faces Revenue Dip but Maintains Distribution Guidance in Challenging Market

HY25 Financial and Operational Highlights

Centuria Office REIT (COF) delivered its half-year results for HY25, reporting a portfolio book value of approximately $1.9 billion and a robust occupancy rate of 92.2%, significantly above the national market average of 83.9%. The REIT’s funds from operations (FFO) declined to 5.8 cents per unit from 7.0 cents in the prior corresponding period, reflecting the impact of divestments and valuation adjustments. Despite this, COF reiterated its FY25 FFO guidance at 11.8 cents per unit, signaling management’s confidence in the underlying portfolio and market fundamentals.

Revenue for the period decreased to $84.9 million, down from $93.7 million in HY24, while distributions per unit were reduced to 5.05 cents from 6.00 cents. The payout ratio remained steady at around 87%, underscoring a disciplined distribution policy aligned with earnings.

Strategic Portfolio Management and Leasing Activity

Active portfolio management was a key theme, with 12,611 square metres leased across 23 deals, representing 4.6% of the net lettable area (NLA). The weighted average lease expiry (WALE) stood at 4.2 years, supporting income stability. Notably, COF’s portfolio is predominantly A-grade assets (93%) with an average building age of 17.8 years, and a strong tenant mix including government, ASX-listed, and multinational corporations.

One of the standout initiatives is the development of a 1.1MW edge data centre at 818 Bourke Street, Docklands, expected to complete in Q4 FY25. This project is anticipated to uplift the asset’s valuation by 10%, diversify tenant mix, and address existing vacancy, reflecting COF’s innovative approach to enhancing asset value and sustainability.

Capital Structure and Refinancing Success

Centuria successfully refinanced $862 million of debt during the period, renegotiating covenants without margin increases and extending debt maturities to no expiries before FY28. The REIT’s gearing ratio increased slightly to 42.9%, remaining well within covenant limits, and the weighted average cost of debt rose modestly to 5.4%. These refinancing efforts provide financial flexibility and reduce refinancing risk amid a rising interest rate environment.

Market Context and Outlook

The report highlights encouraging signs for the Australian office market, driven by population growth, corporate office mandates, and constrained new supply due to elevated construction costs. Transaction volumes have improved, indicating growing investor confidence. COF’s portfolio benefits from geographic diversification across key markets including NSW, Victoria, Queensland, and Western Australia, with occupancy rates consistently above market averages.

Management’s FY25 priorities focus on maintaining high occupancy, enhancing portfolio quality, and proactive capital management. The reaffirmed guidance for FFO and distributions reflects a cautious yet optimistic stance, balancing near-term challenges with medium-term sector tailwinds.