FY23 Results are in and honestly I'm surprised at how close some of my initial modelling was for FY23.
I'd give management a B+ for FY23. They have partially repented for the acquisition spree they went on in the Covid melt up over the 2021/22 period.
The issue of convertible notes was extremely savvy. I honestly don't know who would buy these things but CIP has absolutely fleeced them IMO.
The divestment below was also a good outcome for unit holders. Again, not sure what the counter party is doing.
FY24 Guidance was for FFO and DPU to remain stable compared to FY23.
I still think this is overvalued on a risk adjusted basis compared to C2FHA and possibly the manager - CNI.
Will keep a close eye out.
Valuations down 2% on prior book values. Not really much useful information in the latest announcement for the purposes of valuing CIP, apart from management fees dropping by 2%......
Most of the decline was due to the two super long WALE assets, which were held as nosebleed valuations throughout the last 18 months.
Not enough information for me to change my valuation. Will await FY23 results.
also worth noting DXI reported similar valuation declines. I actually think Dexus is the superior manager (based on my surface level observations).
CIP has been on a rampage in 2023 and I've sold out as of yesterday.
The current valuation just doesn't give you a high enough return based on the distributable income that this will spit out.
In my opinion the market is assuming that the terminal cash rate is closer to 0% than current levels and that LFL rental income can increase by 5% into perpetuity.
The market could be right, but I don't think it's weighting it's probabilities very well.
If I assume 5% rental growth and dial cost of debt back down to around 3% I get FY27 distributions close to 25c per unit. Which would equate to a yield of around 7% based on todays price, which seems about right. Only problem is that this needs to be discounted back to todays value. Sure, you'd get distributions in the meantime, but are they an adequate return on your investment?
Market too optimistic for mine.
Guidance of $0.17 FFO and $0.16 DPU for next year. Interest cost and the issuance of new units are the two factors I underestimated.
I've tried to reverse engineer the guidance provided. The guidance incorporates an assumption that the BBSW will average 3% for FY23. This is conservative in my opinion.
I've forecasted income by doubling the income generated in the second half of FY22 and then increasing that figure by 3.5% (LFL income was 3.4%) for the year just passed.
I've revised my valuation making the following assumptions:
Given NTA is reported at $4.24 , there is obvious upside if some properties can be sold at/near book value and funds can be used to reduce debt/recycled into higher returning assets/buy back units.
Better late than never. Todays announcement is a good one. They've managed to divest assets at a yield below CIP's marginal cost of debt.
They also seem to have kept effective control of the assets as well, which is a positive. Hopefully management stay somewhat disciplined. Wouldn't mind seeing a few more divestments.
• Strategic partnership formed with an investment vehicle sponsored by Morgan Stanley Real Estate Investing to acquire a c.50% interest in a portfolio of eight existing CIP assets realising $181m1 , reflects a 4.7% divestment yield
• Sale proceeds to reduce debt and strengthen balance sheet • HY23 portfolio valuations: 47bps portfolio capitalisation expansion to 4.66%, 1.9% reduction in valuations2 o Rental growth substantially offsetting capitalisation rate movement
• 31% proforma gearing3 reduced from 33.2% at 30 June 2022, $4.11 per unit proforma NTA3
• 79% of debt funding interest rates now hedged4
• Reaffirmed FY23 FFO guidance of 17.0cpu and distribution guidance of 16.0cpu
Centuria (CNI) has a little-known listed bond on issue - C2FHA.
Some surface level info:
The security pays a floating coupon of BBSW + 4.25% (Currently close to 7%).
Security: Secured over assets held in a certain subsidiary. Currently circa 35% (although there is more leverage on look through basis). Covenant is 65%.
The guarantor's (CNI) balance sheet gearing is circa 15% and ICR is over 6 times, with FFO expected to increase YOY.
Whilst it's possible that on an absolute return basis, CIP and COF will be a superior investment out to 2026, I think C2FHA represents good value on a risk adjusted basis.
I hold CIP and GMG in my super, predominantly as passive exposure to the increase in logistics as the world does an ever increasing amount of Ecommerce.
Reading the CIP annual report, I was surprised to see that they also have 17% exposure to Data centres. Somehow I had missed that.
My question to Peregrine among others, is how do you see increasing interest rates affecting performance? The factors I see that might influence this are, in order of importance:
Lastly, and a little left field, is the issue of solar installations on the roofs. The payback period has reduced to about 6 years using purely cost vs energy generation. However, with the rise of ESG credentialling and ESG funds, companies will be preferentialling looking to use facilities that tick the box. These will attract a premium rent.
The other option is leasing out the rooftops to specialist solar companies. A friend who lives in Singapore does this for a living.
So it is much like having a mobile tower or advertising on your roof: another investment stream. Industrial properties have a lot of flat space exposed to the sun...
Have been hoping for a cheaper entry point for a few months now. But recent announcement means I will probably have to come to a decision.
Seems to be well run, not too demanding valuation for a REIT and reasonably leveraged. All the occupancy and WALE numbers are solid. I'll have to do some research around cold storage.
I was primarily interested as a way to get cheap exposure to the increase in ecommerce: warehousing and delivery. All these Kogans, Amazons and the like are going to need somewhere to sort all those boxes out. Seems that isnt the way they have chosen to go.... Maybe Amcor would be a better option: they're going to need a lot of boxes!