The Centuria office REIT trading update.
No inflation hedge to be found here.
You can eyeball the point, late last year, at which everyone thought “oh no, we aren’t all going back to the office” after all.
We don’t think office is dead, and do own DXS in our direct equity portfolios. However, that’s enough exposure for us, and the trade is looking far less certain than it did 12 months ago, with rolling COVID and increased acceptance of WFH.
The onus is on REITs to create a truly enjoyable working environment, and that’s difficult to do with old assets that require lots of capex. COF’s average age of its assets is 17 years, 90% are prime, and thus is probably good enough long run to be okay.
But for anything less, you’d be worried.
Restated, I agree with most of managements’ framing here (the below slide).
Deals are being done, it’s just a question of price, and that price has downward pressure; a tug of war b/w occupancy and rental outcomes. But population growth, status quo (e.g. employers still agitate for direct observation, returning to office etc) means prime won’t be a ghost town equivalent.
In the interim, just watch out for the highly geared, predominantly unhedged names.
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