The Centuria Industrial REIT (ASX: CIP) share price is under the spotlight after the ASX 200 (ASX: XJO) dividend share announced a strategic partnership and portfolio valuation.
Partnership
Centuria Industrial REIT has formed a partnership with an investment vehicle sponsored by Morgan Stanley Real Estate Investing to acquire a 50% interest in a portfolio of eight existing CIP assets, realising $181 million at a divestment yield of 4.7%.
The transaction will allow the real estate investment trust (REIT) to improve its balance sheet by reducing debt and gearing (debt level), while retaining exposure to these “high-quality strategic assets.”
The pro forma (calculated) gearing of the ASX 200 dividend share will reduce from 33.2% at 30 June 2022 to 31.2%.
Jesse Curtis, the fund manager of the REIT, said:
The formation of this partnership combined with portfolio valuations demonstrate the resilience of CIP’s portfolio and the continued demand for high-quality industrial assets within urban infill markets in which CIP operates. This strategic partnership further strengthens CIP’s balance sheet by reducing gearing and interest costs.
Occupier demand for industrial property remains strong with low vacancy and limited supply continuing to drive rental
growth across industrial markets. While capitalisation rates have widened, this has been substantially offset by the value
of CIP’s leasing success and growth in market rent with the portfolio value reducing modestly.
Interest rate hedged
Centuria Industrial REIT said that it has entered into a $300 million forward-date interest rate swap, increasing its interest rate hedging to around 79%, while maintaining a weighted average hedge maturity of 2.1 years as at December 2022.
This means that the REIT has more visibility about what interest it will be paying over the next couple of years.
Is it a cheap ASX 200 dividend share?
After completing an external valuation on 28 investment properties, representing 55% of the portfolio by value, and the rest subject to internal or director valuations, its portfolio value reduced $72 million (or 1.9%) from June 2022 values.
The weighted average capitalisation rate (WACR), essentially the net operating income as a percentage of the property value – a rental yield, increased by 47 basis points (0.47%) to 4.66%.
Portfolio leasing and rental growth largely offset the capitalisation rate expansion.
It’s expecting to pay a distribution of 16 cents per unit in FY23, which is a forward distribution yield of 5%. I think it’s a solid yield.
The pro forma (calculated) net tangible assets (NTA) per unit is $4.11, so the share price is at a 20% discount to this. It’s difficult to say how much further the NTA will reduce in the coming period, with higher interest rates but quickly-growing rent.
I think it’s a solid dividend idea, though it wouldn’t be my favourite ASX 200 dividend share.
