Centuria Industrial REIT has secured a landmark 10-year lease with Tesla, delivering a 133% re-leasing spread and deferring redevelopment plans, while pursuing a major data centre expansion in Victoria.
- Tesla signs 10-year lease at Derrimut VIC with 133% re-leasing spread
- Second data centre development planned adjacent to Telstra site in Clayton VIC
- 42 Hoepner Road asset sold at 10% premium to book value
- On-market buy-back of 7.1 million units narrows valuation gap
- FY26 FFO guidance raised to 18.2-18.5 cents per unit; distribution guidance reaffirmed
Strong Leasing Momentum and Strategic Flexibility
Centuria Industrial REIT (ASX – CIP) has kicked off FY26 with a robust operating update, highlighted by a significant 10-year lease agreement with electric vehicle giant Tesla at its Derrimut, Victoria property. This deal not only delivers a remarkable 133% re-leasing spread but also defers previously planned redevelopment, underscoring the REIT’s flexible approach to asset management.
Fund Manager Grant Nichols emphasised how this lease exemplifies the optionality within CIP’s development pipeline, which is uniquely composed of income-producing assets situated in Australia’s urban infill markets. These locations benefit from strong tenant demand, low vacancy, and constrained supply, allowing CIP to pivot between development and leasing strategies to maximise unitholder value.
Data Centre Expansion Taps into Growing Infrastructure Demand
Adding to the momentum, CIP is advancing plans for a second data centre development adjacent to the existing Telstra Data Centre in Clayton, Victoria. Following Telstra’s surrender of underutilised land, CIP aims to develop up to 40MW of additional capacity, targeting the surging demand for data and AI infrastructure.
While development approvals and power allocations are still underway, the project is expected to commence after mid-2027, once Telstra decommissions its existing infrastructure. This initiative positions CIP to capitalise on a high-growth sector, potentially enhancing net tangible assets once operational.
Asset Divestments and Capital Management
On the capital recycling front, CIP divested its 42 Hoepner Road industrial facility in Bundamba, Queensland, for $11.8 million; approximately 10% above its June 2025 book value. This sale reflects a solid 13% internal rate of return over CIP’s ownership period and continues a trend of divesting assets at premiums, with over $270 million sold since 2023 at an average 8% premium.
To address the persistent gap between CIP’s trading price and its asset divestment metrics, the REIT has executed an on-market buy-back campaign, repurchasing 7.1 million units worth $24.7 million. This move aims to support unit price stability and enhance shareholder value.
Strengthening Debt Profile and Upgraded Guidance
In September 2025, CIP issued A$325 million in exchangeable notes with a fixed 3.5% coupon, exchangeable into CIP units in 2030 at an initial price of A$4.00. This issuance lowers the REIT’s average cost of debt, increases fixed-rate debt proportion, and diversifies its capital structure, thereby reducing financial risk.
Reflecting these positive developments, CIP has raised its FY26 funds from operations (FFO) guidance to a range of 18.2 to 18.5 cents per unit, up from the previous 18.0 to 18.5 cents. Distribution guidance remains steady at 16.8 cents per unit, payable quarterly, signaling confidence in ongoing cash flow generation.
Overall, CIP’s Q1 update paints a picture of a REIT leveraging its urban infill industrial portfolio to capture value through strategic leasing, development optionality, and disciplined capital management.
Bottom Line?
Centuria’s strategic leasing wins and data centre ambitions set the stage for a potentially transformative FY26.
Questions in the middle?
- Will the second data centre development secure timely approvals and power allocations to meet mid-2027 targets?
- How will CIP’s on-market buy-back impact unit liquidity and market valuation in the near term?
- What are the prospects for further high-value leases or divestments in CIP’s urban infill portfolio?