Centuria/CNI/COF/office

This note is about Centuria, but is something of a replicant of the COF (Centuria Office) note we wrote, as we go through the CNI earnings call Q&A.

The below comments on office caught our eye.

As did this bit. The US is bad, but it is materially more supplied, per capita, that Australian office.

Now, office REITs are deeply out of favour. COF, DXS, and those with office exposures (CHC, SGP, MGR, GPT, LLC) are very much “contrarian” plays, in our book. We aren’t quite brave enough to go for anything with a whiff of stretched gearing, and so we use DXS (where gearing is reasonable, in our view) as our REIT of choice to play the office landlord thematic.

But the above comments do match what we’ve been hearing from CNI/COF/DXS/SGP, and that’s the following: office net absorption has been okay, occupancy rates are staying high, there’s a flight to quality, there has been a supply reaction (whole bunch of projects from FY25-27 have been pulled) and that combined with strong population growth and a vague “return to office” mandate things could look quite a bit better over the next few years.

If you throw in a moderation in yields (interest rates stabilise) things could go even better.

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