Centuria Industrial REIT (CIP) Earnings Call Transcript & Summary

Thank you all for standing by, and welcome to the Centuria Industrial REIT Half Year '22 Results Presentation. [Operator Instructions] I'd now like to hand the conference over to Mr. Jesse Curtis, Fund Manager at Centuria Industrial REIT. Thank you. Please go ahead.

Good morning. I'm delighted to present CIP's First Half Financial Year 2022 Results Presentation today. I am Jesse Curtis, Centuria Industrial REIT's Fund Manager. I would like to commence today's presentation with an acknowledgment of country. I am joining you from the lands of the Gadigal people of the Eora Nation. Centuria manages property throughout Australia and New Zealand and pays its respects to the traditional owners of the land in each country to the unique culture and to their elders past and present. It's been a busy start to the year for CIP. We've achieved significant leasing across the portfolio and increased occupancy to support long-term income. CIP has also continued to build its exposure to urban infill industrial assets having executed on strategic acquisitions, providing value-add opportunities and improving portfolio quality. The half year strong performance resulted in the portfolio growing to $3.9 billion across over 80 high-quality industrial assets and being able to deliver an FFO guidance upgrade for financial year '22. CIP remains Australia's largest domestic pure-play industrial REIT. It provides a high-quality portfolio of Australian industrial assets diversified by geography, industrial subsector and tenant profile. With high occupancy, a long WALE and a strong balance sheet, CIP is well positioned to deliver reliable income streams and capital growth to unitholders. Earlier today, we published various documents on the ASX, including this results presentation, which I'll step you through now. Today, I will provide an overview of CIP's half year portfolio activities and a financial year '22 outlook, along with earnings guidance. At the conclusion of the presentation, we will offer the opportunity for questions. Let's begin on Slide 4. CIP is an externally managed REIT that forms part of the largest Centuria Capital Group family, a leading Australasian real estate fund manager operating under the ASX ticket code, CNI, and is included in the S&P/ASX 200 Index. With more than $20 billion of assets under management, Centuria Capital Group specializes in real estate markets, including decentralized offices, urban infill industrial assets, cost-efficient health care property, daily needs retail, large-format retail and agriculture across Australia and New Zealand. It also provides nonbank financing for Australian property markets through Centuria Bass Credit. Its suite of investment products include listed and unlisted real estate funds across debt and equity markets. Additionally, it provides investment bond options with its life [ goals ] product range. CIP accounts for around 20% of Centuria Capital's total assets under management and is the platform's largest industrial real estate fund. This half year 2022 results period marks 5 years since Centuria assumed management of CIP. Slide 5 highlights under Centuria's management CIP's proven track record of creating value and enhancing portfolio metrics. The industrial portfolio has grown to $3.9 billion, achieving meaningful scale and major index inclusions, notably being included in the S&P/ASX 200 Index and the FTSE/EPRA NAREIT Global Developed Index. Tenant asset quality has also substantially improved with occupancy now in excess of 99% and a long portfolio of WALE. Since we began managing the REIT in 2017, CIP has delivered 12% average annual growth in net tangible assets, while the balance sheet has been strengthened substantially. Return on equity has also been strong, averaging 23% per annum over the 5-year period. Looking to Slide 6. Major portfolio transactions through targeted and strategic acquisitions under Centuria's management have delivered CIP unitholders with significant value. These acquisitions transformed the portfolio and align with long-term market trends, which continue to benefit CIP unitholders. Notable transactions to mention include the acquisition of the Telstra Data Centre delivering 34% value uplift while strengthening the ongoing income streams of the REIT and $1.1 billion of urban infill assets that have risen by 18% in value and continue to provide exposure to rental growth in the market. Centuria Capital Group remains CIP's largest unitholder, holding 16%, and has been a strong supporter in CIP's evolution to becoming Australia's largest ASX-listed, domestic, pure-play industrial REIT. To Slide 7. CIP's strategy remains unchanged, aiming to deliver reliable income and capital growth from a high-quality portfolio of Australian industrial assets located in urban infill locations. Our consistent vision is to remain as Australia's leading domestic pure-play industrial REIT. Turning now to Slide 9, which outlines CIP's strategy execution. CIP delivered a strong half year performance as the Centuria team continued to execute the REIT strategy. Our team's active management approach continued to drive leasing success with terms agreed over more than 109,000 square meters during the half, including new leasing and resolving major near-term expiries, driving occupancy to a high 99.2% and WALE of 8.9 years. Leasing success and investment demand for industrial assets resulted in a valuation uplift of more than $280 million during the half, with NTA increasing 10%. Portfolio scale increased with 21 high-quality urban infill industrial acquisitions secured for $680 million, growing the scale of CIP's portfolio and increasing exposure to the high-performing eastern seaboard markets. The REIT's gearing at 30.5% continue to trend at the lower end of the target gearing range. CIP also completed its inaugural bond issuance, successfully raising $350 million. With ample headroom to debt covenants, staggered debt maturities and a more diversified lender base, the strength of CIP balance sheet is reinforced. 12-month return on equity to the end of the half was an impressive 46.5%. Looking forward to the balance of financial year '22, we are pleased to provide upgraded guidance with CIP forecasting funds from operation of no less than $0.182 per year, up from $0.181 per year at the beginning of financial year '22. Distributions are forecast at $0.173 per unit. Slide 10 details CIP's key metrics. The portfolio as of 31 December was valued at $3.9 billion, with strong income streams supporting high occupancy of over 99% and a long WALE of 8.9 years. Net tangible assets also increased 10% to $4.21 per year. Based on the closing share price on 31 January, CIP offers an attractive forecast distribution yield of 4.6%. Turning to the financial results on Slide 12. Total revenue increased as a result of acquisitions and leasing completed during the first half of FY '22. Like-for-like income was up 2.9%, mainly driven by strong leasing activity and fixed rental increases embedded within our leases. Operating expenses increased on the back of portfolio growth and new acquisitions. Half year financial year '22 FFO of $53.9 million was delivered equivalent to $0.091 per unit. As a result of CIP's strong half performance, full year financial year '22 FFO guidance has been upgraded to no less than $0.182 per unit. Distributions for the half were paid in line with FY '22 guidance. Moving to capital management on Slide 13. During the half, CIP's balance sheet was further strengthened. CIP was assigned a Baa2 stable outlook credit rating by Moody's. CIP also completed a $350 million medium-term note issuance. The issuance further strengthens CIP's balance sheet by increasing debt duration and broadens its range of capital sources. Approximately $300 million of new equity was also raised during the period. These capital management initiatives further improved portfolio quality, enabling key urban infill acquisitions and providing the ongoing opportunity to capitalize on prospective transactions. Following these initiatives and valuation gains reported gearing at 31 December was 30.5% at the lower end of the target gearing range of 30% to 40%. Weighted average debt maturity increased to 4.8 years. CIP remains well supported by a diversified lender base, and our serviceability remains strong with significant headroom to debt covenants. Now to Slide 15, which shows a snapshot of CIP's portfolio composition and the geographic spread of our assets. The portfolio spans 80 majority freehold, high-quality industrial assets. We maintain critical mass in each of our core markets with a 90% weighting to strong performing eastern seaboard markets and 82% of the portfolio located within urban infill markets. Taking a closer look at portfolio leasing and WALE on Slide 16. CIP experienced another significant period of leasing activity with approximately 109,000 square meters leased driving occupancy to a high 99.2%. Impressively, over the 26 leasing deals completed, average rental growth of 10% was achieved from prior passing rents, demonstrating favorable leasing conditions in industrial markets and quality of CIP portfolio. Major near-term expiries successfully secured include renewal of Opal Packaging, over 19,000 square meters of manufacturing facility in Bibra Lake Western Australia for a new 10-year term; renewal of Real Pet Food Company, over 26,000 square meters at manufacturing and distribution facility in Ingleburn, New South Wales for a new 15-year triple net lease. Major new listings was achieved with 13,000 square meters space leased at our Edinburgh property in South Australia. CIP's WALE continues to sit high at 8.9 years. Looking forward, the portfolio offers the near-term opportunity to capture rental growth with 32% of income expiring over the next 4 years. However, the income and expiry profile still remains low risk with high tenant retention, and over the next 4 years, no more than 12.5% of the portfolio expiring in 1 year, providing limited concentration risk. This result reinforces the strength of the market and the lease capability of CIP's team. This leasing success has extended to our value-add projects detailed on Slide 17. With a long WALE and high occupancy, CIP continues to focus on opportunities to leverage Centuria's management capabilities through selective value-add initiatives to reposition and refurbish assets to drive outsized value for investors. Our approach is to identify and execute opportunities within existing assets, leveraging tenant demand for urban infill markets to increase income streams and realize valuation uplift across the portfolio. Recently completed projects include 2 newly acquired assets. First, 160 Newton Road, Wetherill Park in New South Wales. Acquired in July '21, we undertook a refurbishment program and achieved a leasing outcome where the existing tenant expanded, increasing the WALE and achieving a 21% valuation uplift within the 6-month period. Next was 48-54 Kewdale Road, Welshpool in Western Australia. Acquired in September 2021, 32% of the asset was expiring within 6 months. Following its refurbishment, we secured a new lease over the space, expanding the WALE to 3.7 years and achieving a 6% valuation uplift within 3 months. Our current active projects include our Bella Vista asset, which has refurbishment works underway and terms agreed with a major international e-commerce brand; and our recently acquired Port Melbourne assets. These assets are well served to capitalize on demand from last-mile uses for urban infill facilities. Moving to Slide 18 and our developments. Selective development activities provides CIP the opportunity to increase brand-new, sustainable assets into the portfolio to secure long-term reliable income from high-quality customers. These assets are future-proofed and built to the highest standard and include the latest sustainability initiatives. Centuria hasn't experienced industrial development team to deliver these projects to CIP. CIP has also completed its first 5-star Green Star industrial development in Bundamba and is also undertaking another 5-star Green Star development of a multiunit estate in Dandenong South, which is due to practical completion in August this year. The development is currently supported by a coupon on funds deployed and a 2-year rent guarantee on completion. Already 2 of the 6 tenants are pre-committed and above [ underwrite wins ]. CIP has a number of projects in the pipeline, including the recently acquired Campbellfield site. CIP also owns a number of sites that provide development potential over various time horizons and has continued to amalgamate adjoining assets to create further development sites of scale. Looking now at CIP's acquisitions on Slide 19. Transactions in the first half of FY '22 have continued to complement the scale and quality of CIP's portfolio. Our focus on urban infill assets increased CIP's exposure to industrial markets with limited land supply and competition. These markets are forecast to outperform in terms of tenant demand and rental growth. $680 million of high-quality urban infill industrial assets across 21 transactions were executed at an average capitalization rate of 4.26%, representing an attractive spread to prevailing market pricing. Key acquisitions include 56-88 Lisbon Street, Fairfield, a 60,000 square meter super prime distribution center on an 8-hectare site in the geographic and population center of Sydney for $200.2 million; 3 adjoining sites in Wetherill Park, New South Wales, consolidating a 5.3 hectare land holding in the land-constrained infill Sydney market for $82.5 million; and 17 high-quality urban infill logistics assets for a combined $397.4 million. 95% of the acquisitions were in the tightly-held eastern seaboard markets of Sydney, Melbourne and Brisbane with 56% weighted to the tightly-held and ready-to-acquire Sydney market. CIP also recycled capital with the divestment of 99 Quill Way Henderson in Western Australia for a 16% premium to 30 June book value. 100% of the acquisitions were either secured off-market or via select campaigns, illustrating Centuria's strong market relationships and ability to secure attractive attraction (sic) [ acquisition ] opportunities in a highly competitive environment. Leading on from acquisitions, Slide 20 details our site consolidation strategy. To complement growth in the portfolio, CIP has focused on creating scale in core urban infill markets. The focus is paying off with 9 acquisitions this half adjoining existing CIP assets, which is almost half the transactions in the period. This strategy is beneficial to unitholders as it provides future development sites of scale to meet the growing demand from e-commerce users while maintaining income and access to rental growth. It also provides diversity across tenancy size and type to facilitate higher portfolio retention. In Wetherill Park, 3 adjoining sites have been acquired to create a 5.3-hectare land holding in an infill last-mile Sydney market. In particular, these assets were acquired at close to land value and provide future development potential, while maintaining income from quality buildings. In Derrimut, since 2020, CIP has acquired 8 assets to build a scale portfolio in 2 key locations within the market. The Derrimut portfolio now provides assets ranging from 3,000 square meters to 14,000 square meters and diverse subsector customers in cold storage, distribution centers and transport logistics, providing a highly desirable [ state-of-life ] diversified exposure. CIP will continue to pursue this strategy and favored markets to deliver long-term value and income to unitholders. Slide 21 outlines our customer base. CIP's key focus is on ensuring ongoing, reliable income streams. CIP's income remains dependable with 43% derived from CIP's top 10 blue chip customers. Given our strong customer relationships, most of these top 10 customers have multiple sites within the portfolio and have long leases. This group alone has an average WALE of over 14 years. Half year '22 introduced a number of new and high-quality tenant customers through leasing and acquisitions, and the portfolio is now supported by 155 tenant customers, adding to the resilience of CIP's income streams. Turning to valuations on Slide 22. Net tangible assets or NTA continued to grow to $4.21, a 10% increase during the half. The growth in NTA was predominantly driven by revaluation gains of $281 million on a like-for-like basis. Valuation uplift was driven by competition and investment demand for industrial and logistics assets with elevated transaction volumes setting new benchmarks for major asset and portfolio sales. Pleasingly, major leasing across the portfolio was a key driver of valuation uplift with approximately 25% directly attributable to leasing outcomes. Of particular note was the renewal of Real Pet Food at Ingleburn and Opal Packaging in Bibra Lake. CIP's weighted average capitalization rate now sits at 4.91% (sic) [ 4.19% ]. Looking into sustainability on Slide 23. CIP benefits from Centuria Capital Group's threefold sustainability framework defined by conscious of climate change, valued stakeholders and responsible business principles, with each aligned to either an environment, social or governance team. In October 2021, Centuria published its first sustainability report including ESG initiatives undertaken by CIP, including initial disclosures aligned to the task force and climate-related financial disclosure, disclosures aligned to global reporting initiative, sustainability reporting standards and delivery of Centuria's second Modern Slavery Statement. It is important to note that CIP is externally managed by Centuria, meaning the REIT does not employ personnel, which is a consideration when assessing sustainability. Specific to the environment, on Slide 24, throughout half year '22, CIP participated in the NABERS warehouse and cold storage accelerate program, designing the next generation of sustainable industrial assets. And have seen an additional 1 megawatt of solar installed across the portfolio, reducing total emissions across our value chain. Having already completed one of Australia's first 5-star Green Star industrial developments under the new ratings' guidelines, CIP is on track to also achieve a 5-star rating on its new development in Dandenong South. On to Slide 26. Since commencing half year '22, CIP has made a strong start and acquired 4 urban infill assets with $93.2 million, increasing CIP's portfolio to 84 high-quality industrial assets skewed to urban infill locations and a portfolio value of over $4 billion. To conclude on Slide 26. Australian industrial property remains a highly favored asset class. Tenant demand remains unabated, driving national industrial vacancy rates to record lows. With demand for industrial space expected to remain elevated, thanks to consumer shifts to e-commerce and onshoring to maintain supply chain resilience, we continue to see limited supply within these urban infill markets. And on the back of this, we expect to see industrial rents continue to rise. Coupled with sustained global investment demand for quality Australian industrial assets, upward pressure continues to be applied on asset values. As Australia's largest domestic pure-play industrial REIT, CIP has delivered an exceptional half year '22 result. During the half, CIP executed this strategy delivering on leasing and value-add projects to drive occupancy to over 99% and crystallizing rental growth on key leasing outcomes. Acquisitions continue to complement the portfolio with the addition of $680 million of transactions, providing increased exposure to urban infill markets on the eastern seaboard to capture the forecast rental growth and bolster CIP's value-add pipeline. Valuation gains drove NTA to $4.21 per security, and together with acquisitions, grew the portfolio to $4 billion while maintaining a suitable capital structure. CIP's position has been reinforced as a major owner of industrial property, having grown the fund scale and investor relevance. With an active approach to management and dedicated industrial team, the portfolio is well positioned to leverage the scale as investor appetite and tenant demand continues. Let's move to our final slide on guidance. Looking to the balance of the year ahead, CIP started the year in a strong position, and we'll continue to focus on our strategy to deliver reliable income streams and capital growth to investors. With the strong performance of the portfolio, CIP upgrades forecast FFO guidance to no less than $0.182 per unit, an increase from $0.181 per unit at the commencement of financial year '22. Distributions are forecast at $0.173 per unit, reflecting a 4.6% distribution yield, absent any unforeseen events. Thank you for listening. And at this point, I'll open the call to any questions.

[Operator Instructions] Our first question comes from Richard Jones of JPMorgan.

Just interested, as we head into the second half, the full benefit of the occupancy gains and the debt refinance, are they likely to be a stronger contributor to growth than what was experienced through the first half numbers?

Yes. I think there's 2 things to think about in relation going forward. A lot of the leasing that we saw and the higher occupancy is back ended or will come through a point of time in the second half of the financial year. In addition, you'll note that our cost of debt for the first half of the year was rather low at 1.8%. That's going to look to normalize at more like 2.6% as we've rolled off shorter-term facilities and rolled into the longer-term bond. So you're going to see acquisitions and leasing start to provide positive impacts to the second half of the year, but our debt costs will be higher.

Okay. So the debt cost is an average and then what spot is higher at the moment. Is it in sort of that mid-2% range post the bonds?

Yes, correct.

Sorry, I just don't know whether I cut you off there. So just looking at future acquisitions, can you talk about how you balance kind of NTA or NAV growth, which you've obviously been able to deliver exceptional growth over the last sort of 3 years versus earnings growth, which has obviously not been as strong? Just how you think about balancing those 2.

Yes. I think you look at our gearing today, and we're sitting at 30.5%. So that is the very lowest point in our gearing range. So one of the levers is obviously to look at debt funding any future acquisitions. We've also completed a large number of shorter WALE urban infill acquisitions, which we believe are going to provide good value-add pipeline to the portfolio moving forward. Acquisitions we've completed over the half have average WALE of 4.4 years. So you can expect to start to see this rental growth that we're seeing in the market start to be realized, as we start to deal with those lease expiries and complete the value-add pipeline as well as any developments that we've got coming through the book.

Our next question comes from Tom Bodor at UBS.

I think a similar sort of line of questions for me is just wanted to understand how you reconcile that like-for-like income growth of 2.9%, which slowed from 3.5% last financial year despite very strong leasing spreads on renewals.

Yes. I think the first thing to think about is timing. So some of the deals won't have hit in the last half, and they'll continue to hit in the next half and also into FY '23 as well. Other drivers of our strong positive reversion on those leases was there are a number of assets that weren't included in our like-for-like. So we achieved strong results at Bella Vista, Cooper Plains and Welshpool that all sit outside of our like-for-like. We've also got a number of smaller assets that have also offset that where rents have come back slightly. So one of our assets, for instance, at the beginning of this financial year saw a slight negative reversion on that and rebasing.

Okay. So that leasing was done in the prior period. Was it the one of our assets?

Correct, and then lease commenced in July of this year -- sorry, last year...

And then the other question I had was just how you're sort of thinking about accessing this rental upside just given now that occupancy is pretty high, and there's minimal near-term lease expiry and a pretty long WALE.

Yes. I mean we've got 30 -- over 30% of the portfolio expires over the next 4 years, as I stepped through in the presentation. So our exposure to positive reversion is going to be on that expiry profile in any of those upcoming years. Alternatively, if we bring forward leasing of some of those vacancies as well, you might see that start to come through earlier. But we're also still going to remain active on the transactions front, and that's going to continue to drive additional income streams through either deploying our funds into developments as we have in Dandenong and Campbellfield as well as our value-add projects such as Wetherill Park and Bella Vista.

Okay. And then just one final one, just around the debt restructuring of $3.2 million. Can you just talk to what that related to?

The debt restructuring?

Yes. So in the FFO to start [indiscernible], that was a $3.2 million charge around debt restructuring.

The charge around debt restructuring was in relation to the [ quality issued ] and write-offs.

Our next question comes from Sholto Maconochie at Jefferies.

Just a couple of follow-ons from the earlier questions from Jones and Tom. The lower WALE, I take it was because of the acquisitions backdated. There were lower WALE assets that you -- to get that reversion. Is that correct?

There's going to be a natural roll-off of leases as you go forward. But yes, there have been an element of the acquisitions coming through being lower WALE than our average WALE.

And then just when you look at life to expiry from Tom's question, you look at life to expiry, obviously, 31%, but the near term is pretty low when you got 0.8% this year -- 0.2% this year, 5.6% next year, so it's more backdated. So how -- you've obviously got the developments and things like that, but how do you sort of capture bigger growth? Because is it -- I'm trying to understand. What's -- do you have any inflation-linked leases in your portfolio?

We do. So there's going to be 2 real main drivers -- 3 main drivers that are going to drive rental growth in the mid-term. One, we've got the Telstra asset, which accounts for approximately 11% to 12% of income, and we've seen historic inflation in the last -- rent review we did was about 3% on that list. You've then obviously got the expiries that are going to come through the book naturally. So for the balance of this year, 2%, 5.6% year after. You're then looking at also the developments and value-add projects that are coming through as well. So we'll complete on our Dandenong development in August, and we've got a number of others in the pipeline to maybe over different time prices.

And then on the -- is the Telstra lease got a floor? Is it like -- is it a go CPI? Or is this fixed and has reviews? How does the lease work on that again?

It's CPI-linked, and the rent can't go backwards, and it's rebased every year. So you capture every increase in CPI.

Okay. Great. And then I said you've got fixed rent reviews to 79% across the portfolio. What's the average fixed rate review of that 79%?

2.8%.

Okay, 2.8% Okay. And then just confirming on the debt. I think you said to Jones, 2.6% is probably normalized rate for second half because of the bond issue. So we should put that in because it was more an end of period. Is that correct?

Correct.

And then just if you look at the -- so for the full year, because you had the back-ended leasing, like-for-like came off, what are you targeting for the full -- did you get the benefit second half for the like-for-like? Are you sort of targeting at 3.5% in line with last year?

I think it's going to be close to 2.5% to 3%.

2.5% to 3%, okay. Cool. And just finally, given you've hit close to $4 billion, if you look at this back, you're buying stuff on $4 billion. If you've got $290 million of liquidity, you buy stuff on $4 billion, you've got $2.5 billion costs, so that gives you $1.5 billion plus 50 basis point at 0.9. Is there anything talk by the manager to lower the fee when assets go by $4 billion to 50 basis points? I know it might not be your domain, but has there been talk of that given the cap rates have come down so much?

We think that the current management fees are in line with market, probably a little bit below market. And I think the other thing you've got to remember about our fees is we don't charge acquisition fees, we don't charge divestment fees, and we don't charge performance fees. It's a flat thing.

Okay. Okay. That's probably why the NTA growth -- okay. Okay. That's great.

Our next question comes from Andy MacFarlane at Jarden.

Just a quick one for me. Given how strong the market has been -- clearly been -- at least to your view, it might increase asset by 21%. Can you give any thought to disposing assets where you think maybe wondering the period, but where you think their actual mark-to-market is stronger than what you really believe the outlook is?

We've had a history of divesting assets where we felt they were complementary to the portfolio anymore. During this half, we divested 99 Quill Way over in Perth for a 16% premium to book. We've previously divested our Boondall asset in Queensland, also at a premium to book on the back of leasing outcomes. We're continuing to review the portfolio and where there's an opportunity to achieve mispriced or favorable pricing. We'll look to divest those assets.

Our next question comes from Lauren Berry at Morgan Stanley.

Just a question on the leasing spreads, you did 10% in the half. Could you just give a bit more color around what the spreads were like in each state?

Yes, sure. So I'll give you the spreads of where we saw new deals and renewals to start with. New deals, we saw an 18% positive spread to new deals, and about a 5% premium to renewals coming through over that. The majority of the leasing came from our New South Wales portfolio with a small portion being our VIC portfolio and then our WA portfolio, with all states delivering positive reversion across all of them.

Cool. And what about incentives, how they've been tracking since the last couple of months?

Yes. Incentives have been trending down. So we're averaging incentives around 13% on new deals.

Cool. And can I just ask a bit more about the debt deal that you did in the half, where you restructured the swap, and it looks like it's going to increase the rate in 3 years' time? Could you just explain that one a little bit further?

Sure. So we raised $350 million through a 6-year bond, and that WACR was 3.02%. We swapped that back to variable and then entered into a 3-year swap. So that reduced -- for the next 3 years, the all-in debt cost is 2.4%. We'll obviously adopt a floating rate at a point in time in 3 years, and our structure there is reflective of our view or probably a neutral view around where interest rates are heading.

Okay. Right. So it just swaps back to floating. It doesn't go to a different fixed rate after that. Okay. Cool. And can I just ask about your view on the acquisition pipeline over the next 6 to 12 months. We've had a pretty significant interest rate increase in bond yields. Does this change your view on your acquisition strategy or the portfolio anyway?

I think our acquisition strategy remains consistent. We've had a focus on urban infill assets with shorter WALEs over the last 12 to 24 months with the view that we saw pretty significant rental growth starting to come through the market, and being leveraged to that was one of our key objectives. Most of -- in fact, all of our deals over this last 6 months, and the majority of deals we do, do are off-market, and majority of these deals are targeted. So we have a very, very strong industrial transactions team within the business. We have very strong relationships within the market, and we're seeing deals that potentially other competitors aren't through our targeted approach and our strategy around being able to consolidate these sites. So I think we still see value in the market. We still see mispricing to our benefit to be able to extract value out of our acquisition opportunities, and I've talked about it a lot in the presentation, but Wetherill Park is a good example of that. We're all in on that land across those 3 acquisitions for $1,600 a square meter, and you're seeing prevailing market pricing for Sydney land prices at close to $1,500 a square meter. So we're seeing good arbitrage where you can get good quality buildings at near or close to land value in certain markets.

[Operator Instructions] Our next question comes from Caleb Wheatley at Macquarie.

Just wanted to go back to the comments around guidance. So obviously, a positive upgrading there. But after reaffirming post the equity raise and a couple of debt-funded acquisitions. I'd be keen to hear about what you're thinking in terms of competition of guidance, any assumptions and particularly relating to rent relief over the second half, driving that $0.182 per share number.

Sure. Rent relief is going to be a very, very minor and COVID-related relief is going to continue to be a very minor part of our book. The industrial tenant base has continued to remain resilient, and we've continued to collect in excess of 99% of our rent. Looking at what's factored into the balance of the year of guidance, there are no acquisitions factored in for the balance of the year. There are 0.8% of leasing assumptions that had various start dates. We're still carrying a small amount of vacancies, so there's some provisions in there to achieve leasing outcomes on those as well as the higher debt costs, which I mentioned earlier.

Yes, sure. Is that sort of, I guess, offsetting a lot of a debt-funded acquisitions in some ways? It's looking like on a per share basis at least an even split first half, second half. Is it fair to say that those 2 impacts of watching each other at least for this financial period?

Yes, that's a fair assessment.

Fantastic. Final one for me was just on the active portfolio, and you mentioned the potential for rental upside there, obviously, a WALE of 5.1 years. So just any color you can provide around, I guess, the embedded level of under-renting on that active portion of the portfolio? And what time horizon can investors realistically expect that upside to come through?

Yes. I think the best way to reflect that is without WALEs. So the natural opportunity to capture rental reversion is at the expiry of a lease or expiry of the contract we signed with tenants. So our weighted average lease expire in graph that we got on Slide 16 is your best guide.

Sure. And any comments around, I guess, embedded upside potentially now is it's been a focus on some recent acquisitions? But can you speak to where maybe the portfolio is relative to the broader market?

Yes. At an overall level, the portfolio is very marginally over-rented, but that's driven primarily by 4 assets within Queensland. When you quarantine those assets out the portfolio is under-rented, and the markets with the biggest exposure to that under-renting is New South Wales and Victoria.

Thank you, everyone. We have no further questions. So Jesse, I'll hand back to you for closing comments.

Excellent. Thank you, operator. And thank you, everyone, for dialing in today, and thank you also for your support of Centuria Industrial REIT. If you have any follow-up questions, please don't hesitate to contact either myself or Tim Mitchell, our Group Head of Investor Relations, and we look forward to discussing our half year results over the next few weeks. Thank you.