Centuria Industrial REIT (ASX – CIP) reported a robust HY26 with strong income growth, portfolio valuation gains, and an upgraded full-year earnings forecast, underpinned by active leasing and strategic capital management.
- 5.1% like-for-like net operating income growth in HY26
- $75 million increase in portfolio valuation
- Upgraded FY26 funds from operations guidance to 18.2-18.5 cents per unit
- Completed $450 million debt refinancing and issued $325 million exchangeable note
- Active leasing with c.80,000 sqm secured in Melbourne despite market challenges
Strong Operational Performance Amid Market Challenges
Centuria Industrial REIT (CIP), Australia's largest ASX-listed pure-play industrial REIT, has delivered a solid first half for FY26, reporting a 5.1% like-for-like growth in net operating income (NOI) and a $75 million uplift in portfolio valuation. This marks the fourth consecutive period of valuation gains, reflecting the strength of its diversified industrial property portfolio across key Australian markets.
Despite a challenging leasing environment, particularly in Melbourne where vacancy rates have risen, CIP successfully secured approximately 80,000 square metres of lease agreements, representing about 20% of its Melbourne portfolio. The REIT's focus on urban infill locations and smaller unit sizes continues to attract high-quality tenants, maintaining portfolio occupancy at a robust 95.7%.
Capital Management and Financial Upgrades
On the capital front, CIP refinanced $450 million of debt, extending the weighted average debt maturity to four years while reducing margins by 10-20 basis points. Additionally, the REIT issued a $325 million exchangeable note with a 3.5% coupon, enhancing its capital structure flexibility. Gearing remains conservative at 35.9%, supported by a strong balance sheet and Moody's Baa2 stable credit rating.
Reflecting these operational and financial strengths, CIP upgraded its full-year FY26 funds from operations (FFO) guidance to a range of 18.2 to 18.5 cents per unit, representing up to a 6% increase over FY25. Distribution guidance was reiterated at 16.8 cents per unit, a 3% increase on the prior year, signalling confidence in sustainable income growth.
Strategic Development and Data Centre Expansion
Centuria continues to unlock value through its development pipeline, with projects underway in infill markets such as South Australia and Queensland. Notably, CIP is advancing data centre opportunities, capitalising on the growing demand driven by AI and cloud computing workloads. The REIT holds a 50% joint venture with ResetData and is progressing a significant expansion at its Clayton Data Centre Complex, with development approvals in place for up to 40MW of additional capacity.
These initiatives position CIP to benefit from structural market tailwinds, including constrained industrial land supply, rising e-commerce demand, and the increasing importance of data infrastructure. The portfolio's valuation remains underpinned by land value, with approximately 60% of assets supported by land holdings, offering potential for further capital growth.
Market Outlook and Investor Considerations
The outlook for Australian industrial real estate remains positive, with Cushman & Wakefield forecasting net absorption to recover and vacancy rates to peak mid-2026 before declining. Rental growth is expected to average around 4% per annum nationally through to 2030, supported by limited new supply and strong tenant demand.
Despite these fundamentals, CIP units trade at a notable 20% discount to net tangible assets, reflecting a disconnect between market pricing and underlying asset value. The REIT's ongoing on-market buy-back program aims to address this undervaluation and enhance shareholder returns.
Bottom Line?
Centuria Industrial REIT’s strong HY26 results and strategic positioning set the stage for continued growth, but market undervaluation and development execution remain key watchpoints.
Questions in the middle?
- How will CIP navigate potential delays in data centre infrastructure availability?
- What impact will rising interest rates have on CIP’s cost of debt and future refinancing?
- Can CIP close the valuation gap reflected in its persistent discount to net tangible assets?