Why did this $1.1 billion ASX 300 share just sink 9%?

This high-profile REIT looks to be coming under pressure amid a more challenging outlook for FY23.

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Key points

  • Centuria Office REIT shares slide 9% 
  • The ASX 300 share looks to be coming under pressure following revised guidance 
  • Statutory net profit leapt 50% year-on-year to $115 million 

The Centuria Office REIT (ASX: COF) share price is taking a tumble today.

The real estate investment trust (REIT) owns a portfolio of assets in core office markets across Australia's major cities.

The S&P/ASX 300 Index (ASX: XKO) share closed yesterday trading for $1.86 and is currently trading for $1.69, down 9.1%.

This comes following the release of the company's full year results for the financial year ending 30 June (FY22) and revised guidance for FY23.

What happened during FY22?

  • Statutory net profit of $115 million, up 50% from FY21
  • Funds from operations (FFO) up 2.7% year-on-year to $104.9 million
  • Achieved 98.2% average rent collection throughout FY22
  • $99 million of distributions paid, or 16.6 cents per share

What else happened during the year?

Centuria reported it refinanced $257.5 million in debt during the year. The ASX share's debt maturity increased to 3.7 years, with no debt expiry until the 2025 financial year. It also increased its debt headroom by $130.5 million.

Gearing as at 30 June stood at 33.8%, with 55.9% of that debt hedged.

The REIT's portfolio is comprised of 23 office assets valued at $2.3 billion.

Over the 12 months, the ASX share sold one asset for $20.9 million and acquired three new assets, worth $313.7 million.

The average building age in the portfolio dropped to 16 years, with 90% of the offices labelled A-Grade assets.

Occupancy levels increased to 94.7% year-on-year as more people returned to office work. The portfolio's weighted average lease expiry remained unchanged at 4.2 years. The ASX share said 79% of its rental income comes from government, multinational corporations and listed entities.

What did management say?

Commenting on the results, Grant Nichols, COF fund manager said:

COF has generated solid results in FY22, delivering an increased net profit while providing FFO and distributions consistent with guidance despite the impacts of rising interest rates. The most pleasing aspect of the results was the significant amount of leasing that COF continued to execute, with over 40,000sqm leased during FY22…

Australia's strong employment rate and rising return to office corporate policies, provide encouraging tailwinds for tenant demand in FY23.

What's next?

The ASX 300 share looks to be facing some headwinds today from its outlook of a more challenging year ahead.

Nichols noted that "prevailing inflation, and subsequent rising interest rates, have impacted our FY23 FFO guidance".

"We recognise that a rising interest rate environment creates some future uncertainty, but we remain optimistic for Australian office markets," he added.

The company's FY23 guidance for FFO is 15.8 cents per share with a distribution guidance of 14.1 cents per share, a yield of 7.7% based on recent trading prices.

How has this ASX 300 share been performing?

Over the past 12 months, the Centuria Office REIT is down 32%. This compares to a full year loss of 7% posted by the ASX 300.

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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