Centuria Office REIT delivered a $55.2 million statutory profit in FY26 and near-record leasing, but its FY27 distribution guidance falls below this year’s payout. The balance sheet is stronger after a $1 billion refinancing, leaving occupancy and rental growth as the key tests ahead.
- $55.2 million statutory profit versus a $19.8 million prior-year loss
- $66.9 million FFO, down from $70.4 million in FY25
- 39,821 sqm leased across 47 transactions at 5% positive re-leasing spreads
- $1 billion refinanced, with no debt maturities until FY29
- FY27 guidance of 11.3 cpu FFO and 9.0 cpu distributions
FY27 Distribution Guidance Drops to 9.0 Cents
Centuria Office REIT (ASX:COF) has set a curious marker for the year ahead: higher FFO guidance, but a lower distribution target. The office landlord expects FY27 funds from operations of 11.3 cents per unit, up from 11.2 cents in FY26, while guiding to distributions of 9.0 cents per unit against the 10.1 cents paid this year. The lower payout implies an expected payout ratio of 80%, compared with 90.1% in FY26, and distributions are expected to be paid quarterly.
That change sits alongside a mixed earnings result. Statutory profit rebounded to $55.2 million from a $19.8 million loss, helped by a $3.1 million fair-value gain on investment properties and a $16.2 million gain on derivatives. But recurring FFO declined to $66.9 million from $70.4 million, or 11.2 cents per unit from 11.8 cents. Net property income was affected by asset sales and higher vacancy, while finance costs rose to $50.3 million from $48.7 million.
Leasing Momentum Supports Rental Growth
The strongest operational number is leasing: COF completed 39,821 square metres across 47 transactions, equivalent to 14.5% of portfolio net lettable area. New leases covered 17,026 square metres and renewals another 22,795 square metres, producing a 5% positive re-leasing spread. Only 4.7% of portfolio income expires in FY27, and those leases are currently around 6% under-rented relative to market values, according to the report.
That leasing volume did not materially lift headline occupancy, which eased to 91.0% from 91.2%, while weighted average lease expiry shortened to 4.0 years from 4.1 years. The portfolio’s regional performance remains uneven: Western Australia and South Australia were fully occupied, while Victoria stood at 73%. COF’s 18 assets were valued at $1.874 billion at year end, with a 7.04% weighted average capitalisation rate and a reported 4.4% average market rental increase.
Refinancing Removes Near Term Debt Pressure
COF’s balance sheet provides a clearer source of comfort. It refinanced $1 billion of debt during FY26, reduced margins by about 30 basis points and extended weighted average debt expiry to 4.3 years. There are no debt expiries until FY29, while available headroom increased to $180 million. Gearing fell to 43.7% from 44.4%, although the proportion of drawn debt hedged also declined to 75.7% from 81.5%.
The refinancing was supported by the sale of 9 Help Street in Chatswood for $90 million, a 12.5% premium to book value. COF said the disposal generated a 12.3% internal rate of return and a 109% capital uplift during ownership, with proceeds used to repay debt. A further asset, 154 Melbourne Street in South Brisbane, was held for sale at a carrying value of $88.3 million at 30 June.
Occupancy and Valuations Remain the Main Tests
The report’s recovery narrative is real but not complete. Like-for-like valuations recorded an $18 million gain, and management described FY26 as the second consecutive year of positive valuation movements. Yet the portfolio’s fair value remains a Level 3 estimate, and the sensitivity analysis shows a 25-basis-point rise in capitalisation rates would reduce investment property value by about $61.2 million, while a comparable fall would add about $65.7 million.
COF is also targeting zero Scope 2 emissions by 2028, with 51% of the portfolio electrified, 1.6 megawatts of solar installed and an energy rating of 5.1 stars under the NABERS Sustainable Portfolios Index. Those initiatives may support the appeal of the buildings to government and corporate tenants, but the near-term investment case still turns on filling vacant space, converting rental growth into recurring earnings and maintaining funding flexibility. The 9.0 cents FY27 distribution target puts that conversion under a sharper spotlight.
Bottom Line?
COF enters FY27 with better debt duration and leasing momentum, but the lower distribution guidance makes occupancy recovery and recurring FFO growth the crucial next milestones.
Questions in the middle?
- Can occupancy rise meaningfully from 91% without requiring larger leasing incentives?
- Will the 9.0 cents FY27 distribution target prove conservative or signal pressure on cash earnings?
- How sensitive will portfolio values remain if capitalisation rates move higher?