What’s happening with the ASX REITs after FY24 results?

August 21, 2024
4:38 pm
Stock Piper Team

The financial year 2024 (FY24) has brought significant changes and challenges for Australian Real Estate Investment Trusts (REITs). As the fiscal year wrapped up, investors eagerly examined the results to understand what lies ahead for these investment vehicles. Among the notable players in the sector, Centuria Office REIT (ASX: COF) and Arena REIT (ASX: ARF) stand out, each with their own unique stories and performance metrics.

Centuria Office REIT (ASX: COF)

Centuria Office REIT, specialising in office properties across major Australian cities, has had a mixed year. The lingering effects of the COVID-19 pandemic continued to influence the commercial real estate market, with fluctuating office occupancy rates and evolving work-from-home trends posing challenges.

Centuria reported funds from operations (FFO) of $82.2 million, equating to 13.8 cents per unit, in line with its guidance. Distributions also met expectations at 12 cents per security. However, the REIT's net tangible assets (NTA) stood at $1.80 per unit, down from $2.20 per unit last year. Its weighted average debt expiry (WADE) expanded to 4.1 years, providing some financial breathing room, with no debt expiring until FY28.

COF Fund Manager Belinda Cheung highlighted efforts to strengthen the balance sheet through asset divestments and refinancing but acknowledged the tough macroeconomic environment. Despite the challenges, Centuria executed significant leasing activity and capital management, focusing on addressing vacancies and near-term expiries to provide reliable income streams for unitholders. Looking ahead, Centuria has set its FY25 FFO guidance at 11.8 cents per unit, equating to a distribution yield of around 7% at the time of writing.

Arena REIT (ASX: ARF)

Arena REIT, known for its focus on healthcare and childcare properties, has fared relatively well in FY24. These sectors have shown resilience and steady demand, contributing to Arena’s stable performance. Arena's nett operating profit increased 4.7% to $62 million as a result of completed development projects and increased rent reviews. This translated to earnings per security (EPS) of 17.65 cents, up 3.2% on FY23. Arena also announced a distribution per security (DPS) of 17.4 cents for the full year, a 3.6% increase from the previous year. Management reaffirmed its FY25 distribution guidance of 18.25 cents per security, targeting year-on-year growth of 4.9%.

Despite a statutory net profit decline of 22.5% due to lower revaluation gains on some of its properties, Arena's total assets grew by 3% to $1.62 billion. CEO Rob de Vos highlighted these points in his comments, noting that strong macroeconomic drivers continue to support growth in the demand for essential community services across Australia. Arena's disciplined origination, capital management, and asset management expertise have positioned the business well to sustainably deliver on its purpose and investment objective of providing predictable distributions to security holders with the prospect of growth.

Charter Hall Long WALE REIT (ASX: CLW)

Up 7%, this ASX 200 REIT tops a good month with solid FY24 results. Key takeaways from the year include operating earnings pulled to $188 million, or 26 cents per share (cps). Distributions totalled 26 cps, while net tangible assets (NTA) were valued at $4.66 per security. Despite posting a statutory loss of $510.9 million, reflecting a net valuation decrease, the REIT achieved like-for-like Net Property Income (NPI) growth of 4.7% on the prior year, with a portfolio weighted average lease expiry (WALE) of 10.5 years.

During FY24, the ASX 200 REIT executed a series of divestments aimed at reducing lease expiry risks and "curating the portfolio" for future growth. Key divestments included $96.2 million in Long WALE retail assets and $225.3 million in Agri-Logistics assets, among others. The portfolio now comprises 540 properties, with an occupancy rate of 99.9% and a long WALE of 10.5 years.

Despite these achievements, the portfolio's gross asset value saw a net decrease of $626 million due to an increase in the portfolio's capitalisation rate from 4.8% to 5.4% during the year. The capitalisation rate is the term used to measure the return on investment of real estate assets. At the end of the financial year, the ASX 200 REIT's 540 properties were 99.9% occupied.

Market Outlook

While Centuria Office REIT faced headwinds in a challenging environment, Arena REIT and Charter Hall Long WALE REIT managed to post steady growth. This demonstrates how ASX REITs can present differing opportunities despite being in the same sector of real estate. Arena is up 9% this past year, while Centuria is down more than 15%. Meanwhile, Charter Hall Long WALE REIT saw a 7% increase, reflecting solid performance and strategic portfolio management.

The FY24 results for Centuria Office REIT, Arena REIT, and Charter Hall Long WALE REIT highlight the diverse dynamics within the ASX REIT sector. While Centuria navigates the challenges of the office market with strategic initiatives and stable occupancy, Arena continues to leverage the steady demand in the healthcare and childcare sectors, and Charter Hall Long WALE REIT benefits from a well-curated, long-term lease portfolio. For investors, understanding these nuances and broader market trends will be crucial to making informed decisions in the ever-evolving real estate landscape.