Centuria Office REIT (COF)
Hello James and crew - Happy New Year. Following on from the excellent report this morning on Charter Hall Long WALE REIT (CLW) could I please get your thoughts on COF. Regards Geoff
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Answer
Hi Geoff,
Centuria Office REIT is a pure-play Australian office landlord, owning a portfolio of predominantly A-grade and high-quality B-grade office assets, with a focus on government and blue-chip tenants. The trust positions itself in the more defensive end of the office market, emphasising long WALEs, income certainty and active asset management rather than CBD trophy assets.
From an MM lens, COF is best viewed as a yield vehicle with embedded office risk, not a growth story. The appeal is the headline distribution , but that comes with exposure to structural headwinds, particularly facing their B grade office exposures which remain challenged. One of the key themes post Covid is that A Grade has been a lot more resilient than B grade and refurbishing B grade is so expensive at the moment. This is putting pressure on valuations – something we think will persist.
COF’s balance sheet and tenant quality provide some protection, yet asset values and funding costs remain the swing factors. In a stabilising rate environment, the trust offers income support and potential for valuation relief, but upside is capped unless confidence in the office market materially improves. If buying straight office exposure, we prefer Dexus (DXS), however, for lower risk, buying a more diversified player like CLW makes more sense to us.
