Centuria Office REIT Posts Steady FY25 with Signs of Market Recovery
Centuria Office REIT delivered FY25 results in line with guidance, marking a modest portfolio valuation gain and maintaining strong liquidity. The outlook for FY26 remains positive amid constrained office supply and rising rents.
- FY25 Funds From Operations of $70.4 million, 11.8 cents per unit
- Portfolio valuation up $18 million in 2H FY25, first gain since FY22
- Strong liquidity with $141.5 million debt headroom and no debt maturing before FY28
- Leasing activity of 24,406 sqm across 44 transactions, 91.2% occupancy
- FY26 FFO guidance of 11.1-11.5 cents per unit and 10.1 cents distribution per unit
Financial Performance in Context
Centuria Office REIT (ASX, COF), Australia's largest pure-play office REIT, has reported its full-year financial results for FY25, delivering Funds From Operations (FFO) of $70.4 million or 11.8 cents per unit. These results align closely with management guidance, reflecting a steady performance despite ongoing challenges in the metropolitan office leasing market.
Distributions to unitholders were maintained at 10.1 cents per unit, also in line with expectations, underscoring the REIT’s commitment to consistent income streams. While statutory profit remained negative at $19.8 million, this was a significant improvement from the prior year’s loss, indicating a stabilising financial position.
Portfolio and Leasing Dynamics
The portfolio, valued at approximately $1.9 billion, comprises 19 high-quality office assets with an average building age of 18 years and a dominant 93% weighting in A-Grade properties. Notably, the portfolio valuation increased by $18 million in the second half of FY25, marking the first uplift since FY22 and suggesting emerging positive momentum in asset values.
Leasing activity remained robust with 24,406 square metres leased across 44 transactions, representing nearly 9% of the portfolio’s net lettable area. Key leasing wins included significant deals at 825 Ann Street in Fortitude Valley and 201 Pacific Highway in St Leonards, as well as a notable 10-year lease at 818 Bourke Street in Docklands for a sovereign AI Factory tenant.
Occupancy held steady at 91.2%, supported by a weighted average lease expiry (WALE) of 4.1 years, which provides a degree of income stability. The tenant base remains diversified and high quality, with 75% of income derived from government, multinational corporations, and listed entities, mitigating concentration risk.
Balance Sheet Strength and Liquidity
Centuria Office REIT’s balance sheet remains solid, with gearing at 44.4% and ample headroom against covenants. The REIT enjoys $141.5 million in debt headroom and benefits from a weighted average debt expiry of 3.1 years, with no debt maturing before FY28. Additionally, 81.5% of debt is hedged, reducing exposure to interest rate volatility.
This financial flexibility positions COF well to navigate ongoing market uncertainties and capitalise on opportunities as the office sector evolves.
Sustainability and Market Outlook
On the sustainability front, COF is advancing its environmental goals, targeting zero scope 2 emissions by 2028 and aiming to eliminate gas and diesel use in operations by 2035. Over half the portfolio is now electrified, including all Queensland assets, aligning with broader ESG trends that increasingly influence tenant preferences and investment decisions.
Management expressed cautious optimism about the office market’s trajectory. With constrained new supply due to rising development costs and a growing trend of repurposing secondary office assets for residential and other uses, the supply-demand balance is expected to tighten. This dynamic, combined with improving rental growth averaging 4.5% year-on-year, could herald a new cycle of recovery for Australian metropolitan office markets.
Looking ahead, FY26 guidance projects FFO between 11.1 and 11.5 cents per unit and distributions steady at 10.1 cents per unit, implying a distribution yield of approximately 7.7%. These forecasts factor in anticipated leasing downtime and vacancy lease-up assumptions, reflecting a prudent approach amid fragmented leasing momentum.
Bottom Line?
Centuria Office REIT’s steady FY25 and positive outlook highlight resilience amid office market shifts, but execution risks remain.
Questions in the middle?
- How will ongoing shifts in office work patterns impact COF’s leasing momentum and occupancy?
- What is the potential impact of rising interest rates on COF’s hedged debt and future refinancing costs?
- How effectively can COF capitalise on constrained office supply and rising rents to drive portfolio value growth?