Centuria Industrial REIT (CIP) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Centuria Industrial REIT Half Year '26 Results. [Operator Instructions] I'd now like to hand the conference over to Jesse Curtis, Head of Funds Management for Centuria Capital. Please go ahead.

Good morning. Thank you for joining Centuria Industrial REIT's half year 2026 results presentation. My name is Jesse Curtis, Head of Funds Management for Centuria Capital Group. Also presenting today is Grant Nichols, CIP Fund Manager and Head of Listed Funds; and Michael Ching, CIP Assistant Fund Manager. Also in the room today is Tim Mitchell, Centuria's Group Head of Investor Relations. Starting on Slide 3, I would like to commence today's presentation with an Acknowledgment of Country. We are 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 in each country, to their unique culture and to their elders, past and present. Turning to the domestic industrial sector. The Australian market continues to demonstrate strong structural momentum, supported by resilient population growth, sustained public infrastructure investment and resurging tenant activity. Couple this with constrained long-term national supply, this is underpinning the need for high-quality industrial space. CIP is well positioned to leverage these favorable conditions through our focus on well-connected and strategic assets in urban infill markets. In today's presentation, Grant and Michael will provide an overview of CIP's half year 2026 financial performance, analysis of the operational performance of the REIT, an update on our development projects and pipeline, an update on our data center projects and opportunities in this space, a summary of market conditions and conclude with an outlook and guidance statement. Moving now to Slide 4. Centuria Industrial REIT is managed by Centuria Capital Group. Centuria has over $21 billion of assets under management and CIP is the largest fund managed by Centuria. CIP unitholders benefit from deep real estate expertise across the Centuria Group, including a fully integrated property, facilities and asset management platform and in-house development capability. Synergies from being part of the group's wider industrial real estate portfolio, which exceeds $6 billion and strong alignment as Centuria is CIP's largest unitholder with a 16% co-investment, ensuring the management's interests are strongly aligned with yours as unitholders. On Slide 6. CIP's long-standing vision and strategy remains unchanged. We aspire to be Australia's leading domestic pure-play industrial REIT, primary focus on delivering income and capital growth to investors from a portfolio of high-quality industrial assets. Over the long term, we have executed on our strategy, differentiating CIP by growing a portfolio focused on Australian urban infill industrial assets that are relevant to our tenant customers, generating greater levels of tenant demand through cycles. We believe these assets deliver superior returns to unitholders through favorable demand dynamics in markets with persistently limited supply. And the value of the portfolio is not properly reflected by the current trading price. Results that Grant and Mike will present today reflect the benefits of this urban infill strategy, supported by the deep real estate capability of the broader Centuria team to drive value for unitholders. I will now pass over to Grant.

Thanks, Jess, and good morning, everyone. I'll start on Slide 7. CIP has reported a strong interim result for the 2026 financial year, delivering income growth underpinned by strong leasing activity and proactive capital management that has reinforced the CIP balance sheet. During the period, CIP completed approximately 144,000 square meters of leasing, representing about 11% of the portfolio GLA, resulting in average re-leasing spreads across our active portfolio of 44% and an increased occupancy to 95.7%. The volume of leasing is very encouraging as we witness across our portfolio and hear anecdotally across the market, improving levels of tenant inquiry. Pleasingly, we have inquiry across virtually all of our remaining vacant and potential pre-commitment space, and we're optimistic of further improved occupancy at full year-end. The completed leasing supported a $75 million valuation gain, the fourth consecutive period of valuation gain. While the stabilization of valuations indicate improving market confidence, they do not yet reflect the strong sales CIP has been achieving. In the first half, CIP sold yet another asset at a significant premium to book value. On the capital management front, CIP refinanced $450 million of debt on competitive terms with margins secured between 10 to 20 bps lower than previous terms, while the weighted average debt maturity was extended to 4 years. The REIT also settled $325 million of exchangeable notes at an increasingly attractive fixed annual coupon of 3.5%. Turning to Slide 8. The strong portfolio fundamentals and prudent capital management enabled CIP to upgrade its FFO guidance range during the period to $0.182 to $0.185 per unit, while reiterating distribution guidance of $0.168 per unit. Due to the significant under-renting that persists across the CIP portfolio, there is considerable earnings and valuation upside for CIP unitholders, which we've detailed on Slide 9. We [indiscernible] the CIP portfolio to be approximately 20% under-rented on average, and this is the under-renting that has yet to flow into earnings. If we look at CIP's lease expiry profile out to FY '29, we estimate about 60% of those leases expiring are under-rented, providing significant opportunity for future positive reversion. Further, the forecast downtime associated with current vacancy and FY '26 expiries are estimated to impede CIP's FY '26 FFO by almost $0.02 per unit. Given the improving leasing activity evident across the CIP portfolio, we are optimistic it is likely to be lower in future years, providing scope for a healthy earnings kick. In addition to the earnings and income upside, we believe CIP retains substantial valuation upside too. Since FY '23, CIP has divested around $270 million of noncore assets at an average premium to book value of 8%, including 42 Hoepner Road, which CIP sold for a 10% premium to book value in HY '26. The significant premium highlights the ongoing disconnect between CIP's portfolio value and its trading price, which is currently around a 20% discount to NTA. In an effort to bridge the disconnect between the trading price and value, CIP commenced a $60 million buyback in August with $36 million of units bought back during the period. When you couple the disconnect between CIP's divestment metrics and its trade price and the positive earnings upside that could be generated, we believe the value CIP is currently offering to be very compelling. I will now hand over to Michael to take you through the financial results and portfolio overview.

Thanks, Grant. Turning to Slide 11 and the financial results. Net property income for the half was $101.2 million, an increase of $5 million on the prior period. This reflects the continued strength in the underlying portfolio operational performance, which translated into a like-for-like net operating income growth of 5.1% for the half. Higher average cost of debt over the period increased CIP's total interest expense by $4 million to $32.2 million. We forecast CIP's average all-in cost of debt to be 4.9% for FY '26. CIP announced upgraded FFO guidance of between $0.182 to $0.185 per unit in FY '26 with distribution guidance of $0.168 per unit. Moving to capital management on Slide 12. During the half, CIP completed a significant refinancing program with approximately $450 million of debt refinanced on improved terms. Importantly, margins tightened by around 10 to 20 basis points compared to prior facilities, while the weighted average debt maturity was extended to approximately 4 years. This reflects the continued strong support CIP receives from its lending group. Additionally, a new $325 million exchangeable note was issued following the repurchase of the previous note. The new issuance lowered the all-in coupon to 3.5%, representing a substantial discount relative to the current marginal cost of debt. Furthermore, the initial conversion price was raised to $4, providing a premium to CIP's current net tangible assets. Post balance date, CIP reduced its overall facility limit by $150 million to maintain $408 million in undrawn debt capacity. Approximately 77% of debt is hedged, and we continue to actively manage interest rate exposure to balance earnings stability with some flexibility as the interest rate cycle evolves. Moving on to Slide 14. CIP continues to provide investors with exposure to Australia's largest listed domestic pure-play industrial REIT. The portfolio has been deliberately constructed around key structural demand drivers. 85% of assets are located in core urban infill markets, close to population centers, critical infrastructure where tenant demand is deepest and supply is most constrained. CIP's average tenancy size of approximately 7,800 square meters aligns with the most active segment of the leasing market, while the REIT's average asset size of around $39 million supports portfolio liquidity and transactional optionality. The portfolio composition continues to underpin CIP's ability to generate strong leasing outcomes through cycles, while also providing multiple avenues for future value creation through asset repositioning and select development. Slide 15 represents a case study on Melbourne, demonstrating the benefits of CIP's portfolio construction and Centuria's active management. Conditions in the broader Melbourne industrial market remain challenging with vacancy increasing to approximately 4.7% over the half; the highest nationally. Despite this backdrop, CIP executed approximately 80,000 square meters of leasing across its Melbourne assets, representing around 20% by area and increasing Melbourne portfolio occupancy to approximately 99%. Significant transactions include a new 10-year lease to Tesla at 346 Boundary Road in Derrimut, which secured a re-leasing spread exceeding 130%. The asset was earmarked for redevelopment in Q1 of FY '26. However, following strong leasing interest, management pivoted strategy, securing a global covenant and resulting in a $21 million uplift in value. Another noteworthy outcome was the successful leasing at 24 Stanley Drive in Somerton. This 24,000 square meter facility became vacant when the previous tenant unexpectedly entered liquidation. The team efficiently re-leased the premises with minimal downtime. These results highlight the benefits of CIP's in-house asset management capabilities as well as the continued portfolio construction, focusing on smaller functional assets in established infill locations. Looking at valuations on Slide 16. During the half, approximately half of the portfolio was externally revalued with the overall portfolio recording a like-for-like valuation uplift of $75 million. The weighted average capitalization rate remained broadly stable at 5.81%, marking the fourth consecutive reporting period of valuation growth. This slide illustrates that CIP's portfolio valuations are significantly below estimated replacement costs. Management estimates the current average portfolio to be approximately 45% lower than replacement cost estimates. Further, CIP continues to execute divestments at substantial premiums to book value, while currently trading at around a 20% discount to NTA. This persistent disconnect further supports management's view that the lifted trading price does not adequately reflect the quality or value of CIP's underlying portfolio. Moving to developments on Slide 17. A key feature of CIP's development strategy is flexibility. All of our pipeline projects are income-producing assets, allowing projects to be sequenced and delivered at optimal points in the cycle rather than being forced by mounting holding costs. This flexibility is highlighted by the recent lease to Tesla at Boundary Road in Derrimut with the site earmarked for development and about to be demolished. Management pivoted strategy, retaining the existing improvements under a new 10-year lease to Tesla that delivered a value uplift in excess of the expected redevelopment profit. In addition to flexibility, all identified development projects are located in infill markets, where supply is severely constrained, supporting feasibility and future rental outcomes. CIP has one current project under construction at 50 to 64 Mirage Road in Direk, South Australia, which is expected to complete in the second half of FY '26. There are 3 projects identified for commencement over the next 12 to 24 months, which requires approximately $130 million of incremental development spend. Management estimates that the capital required to fund this pipeline could be satisfied through limited ongoing noncore asset sales alone. I will now hand you over to Grant to talk through the data center opportunities for CIP.

Thanks, Michael. Turning to Slide 18. An increasingly valuable attribute of the CIP portfolio is its data center exposure. CIP continues to leverage its exposure to the Australian data center market, which has experienced substantial growth with demand now outpacing supply amid accelerated digital transformation and AI adoption. CRP currently manages over $450 million of operating data centers leased to blue-chip tenants. Further, CRP continues to assess its power bank and data center development potential across multiple sites. There is currently an undersupply of development sites within Australia that could provide an operational data center before 2030 due to power, water or planning constraints. In many instances, development sites are reliant on the construction of new power substations that are not yet funded. Consequently, development sites that could facilitate an operational data center before 2030 stand to achieve outsized returns as they capture the unsatisfied insatiable demand for data center space. In relation to CIP, we believe there are a number of sites within the existing portfolio that may facilitate an operational data center before 2030, and we continue to progress processes seeking power and planning outcomes. As detailed on Slide 19, during HY '26, significant progress has been made in assessing the data center potential across CIP's existing portfolio, highlighted by a DA submission for a new circa 40-megawatt data center adjacent to the existing Clayton data center in Victoria. Taking advantage of an underutilized section of the site area, CIP can create an additional data center development at the highly connected site without purchasing additional land or materially impacting Telstra's existing data center. Further to the existing portfolio, CIP has secured 2 additional strategic assets that continue to build the REIT's exposure to data centers. In Wellcamp, Queensland, CIP has acquired a Tier 3 certified 2.5-megawatt operational data center that is leased for 15 years. Located within the Toowoomba Technology Park, the carrier-neutral facility provides a further expansion opportunity to deploy significant data center facilities. In Yarraville, Victoria, CIP has acquired a 2-hectare site with low site cover in an established urban infill market. While it does not provide an immediate data center development opportunity, it is a strategic data center site within Melbourne's availability zones, providing an opportunity to leverage the existing network infrastructure. In the meantime, it is a highly desirable industrial location that will generate deep tenant demand. Looking at ESG highlights on Slide 20. Under Centuria's management, CIP has created a flexible and relevant sustainability framework, including a sustainability target of 0 Scope 2 emissions by 2028, targeting 5-star Green Star design for all future industrial developments, a continued partnership with Healthy Heads, an organization focused on mental health in the transport and logistics industries and continued assessment of how to maximize roof space through solar installations across CRP assets. Turning to an overview of Australian industrial markets on Slide 22. As already noted, we have seen an improvement in tenant inquiry across the CIP portfolio during the past few months and expect net absorption to materially improve in the calendar year 2026 compared to 2025. Despite the improving outlook for tenant demand, supply is becoming increasingly constrained. Economic rents remain cemented above prevailing market rents for the majority of development sites, impairing development feasibilities. Due to these challenges, many proposed developments are being [ served ]. Continuing to Slide 23. These conditions present an optimistic outlook for Australian industrial markets. Vacancy rates are expected to peak at what are still very healthy levels in 2026 before declining below 2% by 2030. This, in turn, will see incentives begin to contract, particularly in infill markets with limited supply, those markets consistent with the broader CIP portfolio. As a result, it is expected that the effective rental growth would trend sizably higher over the medium term. Moving to Slide 24 and CIP's FY '26 continued priorities. CRP is well positioned to harness the strong market fundamentals for Australian urban infill industrial markets. CRP continues to generate strong income growth and leasing spreads, capturing significant under-renting that is yet to be realized. We expect that this will begin to have a meaningful impact on CIP's FFO profile in the coming periods. Additionally, CIP's current discount to NTA represents excellent value considering the significant portion of value underpinned by land and the potential accretion that could be extracted by development or data center conversion. Concluding on Slide 25. For the remainder of FY '26 and beyond, our focus is on maximizing CIP's earnings and value growth potential while maintaining suitable balance sheet capacity. We are pleased to provide upgraded FY '26 FFO guidance of between $0.182 to $0.185 per unit and distribution guidance of $0.168 per unit. That concludes the formal part of the presentation. I will now hand back to the operator for any questions.

[Operator Instructions] Your first question today comes from Lauren Berry from Morgan Stanley.

First question, I just wanted to pick up on your comments around re-leasing spreads. You highlighted that spreads were materially higher if you exclude cold storage. Can you just talk a bit more about the dynamics in the cold storage leases at the moment, please?

So the leases that we did, so we excluded 3 leases from that 44% re-leasing spread. One was to our largest lease that we completed through the period, which was Fantastic Furniture in Fairfield. They exercised an option that had a capped increase. So we couldn't do too much about that, and that facility remains materially under-rented. The 2 cold storage leases that we completed was a portfolio lease transaction. It was a relatively short lease that we were renewing. So the rents were already fairly akin to where market rents were. So there was no material value add or leasing upside in those 2 leases. Overall, on cold storage, we think there is a lot of embedded rental growth to come through into cold storage. We are seeing very limited supply coming through into cold storage and nationally, vacancy rates are almost 0%. So we think there is certainly opportunity for cold storage growth. The other complicating factor for cold storage is competing with data centers. So when you're thinking about cold storage supply coming into Australia, they will be competing with data centers for sites with power, which will limit the ability to provide additional cold storage. So we think there is a very, very good opportunity for cold storage rental growth into the future.

And then just on the development pipeline, you've talked a lot about additional tenant inquiry picking up this half. What are your triggers to kick off the next 3 developments you've got in the 18 to 24 month bucket? And would you potentially consider any spec development at this stage?

So the 2 developments that we highlighted in the results pack, one at Wetherill Park and one at Cooper Plains in Queensland, they are quite different. At Weatherill Park is a circa 30,000 square meter development, and we will be seeking a precommitment before commencing that construction. At Coopers Plains, it is a much smaller development that we'll be targeting tenants in size ranging from 1,500 square meters to 3,000 square meters. We think there is a very, very deep pool of tenants seeking that solid accommodation in Queensland, and that's something that we will spec build. The other development that we are considering through the next 12 months is subject to tenant lease expiries. That won't expire until the very end of calendar year '26. So that is something that we will look at in due course. I think it is worth reiterating what Michael said about our development pipeline and just referring back to the Tesla lease. We did have 4 developments we were seeking to complete through the next 12 months. One of those developments has now been leased to Tesla. That flexibility that we have within our development pipeline, given it is all existing properties with existing improvements, I think that Tesla lease reiterates that we do have flexibility. And if we do get very strong leasing inquiry, we can pivot from a potential development to an existing lease. And in the instance of Tesla, as Michael mentioned, the lease that we put in place, the valuation upside exceeded the expected development profit we were going to get from that project.

And just last one from me. With the industrial leases, you flagged that you can fund that through a small amount of asset sales. You're now talking more about data center developments, which are a lot more capital intensive and you've also flagged you want to get stuff on the ground before 2030. How are you thinking about funding what could be potentially a much larger spend on those projects?

Yes. Thanks, Lauren. I think our focus at the moment is about extracting value. At the moment, there is nothing that we have to fund materially in relation to data centers because we have no approvals in place. So the focus at the moment is very much trying to secure an upside on the existing land that we have. And from there, we will consider what the options are. I think it is probably worth noting in regards to the data center that we have submitted a DA on that is effectively a data center that we haven't had to pay for. So it's effectively a free option on existing land. And I think that hasn't been -- well, it definitely hasn't been included in current net tangible assets. And it is really about us trying to extract value from that. Now if we get a DA and a power allocation for that site, as mentioned on the call, we think there is certainly an opportunity to get some very, very strong value out of that. And if it is materially accretive, we think we'll be able to find a funding solution for that.

Would one option be carving off that land and divesting it?

For that particular example, that would be somewhat difficult because if you were to subdivide that land, you would have an impact on things like setbacks. So at this stage, our ambition is to keep the land as one parcel because it does have an impact on what you can build on it.

Your next question comes from Cody Shield from UBS.

Just a quick question on the secured DC opportunities, those settling post balance date. Are you able to provide any detail on yields or rents for those opportunities? How should we be thinking about that?

So the 2 acquisitions we made recently, they definitely made on merit. The first acquisition, the operational data center up in Wellcamp, that was bought on about a 6% yield. As mentioned on the call, it's got a 15-year lease with some development opportunity. So we think that represents pretty good value at the moment. The -- sorry, the acquisition at Yarraville, that was acquired on an initial yield with a 2-year lease in place, slightly over 5%. That particular acquisition has got very low site count. So the improvements on that site represent about 24% of area. As mentioned on the call, that is a cracking site as an industrial site remaining in Melbourne, very, very much infill location. Whether or not for a data center or for an industrial development in the future, we think there is inherent value in that underlying land.

And maybe just to expand on Lauren's question a little bit around the funding piece. I mean, gearing has come up a tick. Where do you kind of see that settling over the next 12 to 18 months just in the context of valuation growth?

Yes. So the gearing uptick that we incurred through the half was somewhat expected given we were conducting the buyback. So the -- we are very cognizant of where gearing sits and where our debt covenant headroom is. As mentioned on the call, I think Michael pointed out, we have had no issues generating liquidity from our portfolio, and we'll continue to be cognizant of where our debt headroom remains. And if need be, we'll continue to trickle out asset sales that will facilitate gearing being managed.

Are you able to put a number to what you consider in terms of asset sales?

Not at this stage, mate. We do not highlight assets we would continue or consider for sale because it does somewhat inhibit our process in trying to find buyers for those assets.

Your next question comes from Richard Jones from JPMorgan.

Just clarifying the comments just around the portfolio under renting being circa 20% and then the comments around expiries out through FY '29. I'm surprised that only 60% of leases are under-rented. I was just wondering if you can put a bit more color around, I guess, the balance and whether the 20% number you quote is representative of those leases over the next 3 years or so.

Yes. It is pretty much on average, Richard. So that 60% that's expiring between now and FY '29 probably would average out at around that 20%. As we've mentioned in the past, there is skews to the level of under-renting. The under-renting in Sydney has been materially greater than pretty much every other city. So there is probably if you do get more lease expiry occurring within New South Wales in a given period, you could see those re-leasing spreads certainly be slightly higher than in other periods. But on average, across that circa 50% under-rented to FY '29, it does average out at about that 20% level.

Sorry, Grant, just to clarify, on 100% of the leases expiring, you'd expect a 20% uplift or on the 60% that are under rented, you'd expect a 20% uplift.

Yes. Sorry, thanks for asking that question. On the 100%, an average of about 20% under renting. So if you quarantine that 60%, it would be inflated more.

Yes. Okay. Makes sense. Just on the refi, I'm just interested in what your current all-in debt margin is and how that compares to the margin you got in the first half refi and just the capacity for potentially refinancing some of the other bank debt that sits with expiries perhaps 2, 3 years out, whether you can bring that forward?

Yes. So thanks for the question, Richard. For the refinancing we just did, we did a combination of 3-, 4- and 5-year debt terms. on average that would have been about 120 bps as an all-in margin for the duration. That probably compares to what was previously somewhere between 130 to 140 bps as an average margin across our portfolio. Now looking forward, we'll certainly continue to do refinancing as we think is necessary across our debt book. Obviously, you need to consider what upfront you'd be burning to consider doing a refi, but that is something that we would consider. We think there is still very, very strong demand for lending to CIP, and we think we can do some good refinancing into the future, but it really will depend on what the opportunities are and whether or not it's feasible.

And then just a final one, Grant. Do you expect to utilize, I think the $60 million buyback that you've spent $36 million of? Will you continue that?

So we were very active in undertaking the buyback through the first half. That probably doesn't change. We see excellent value in where CIP currently trades. So that is probably something we'll continue to consider.

Your next question comes from Andrew Dodds from Jefferies.

Just a follow-on from Jones' question earlier. How do you balance the intention of the buyback and considering that back in August, this was sort of presumed or completing it was sort of a part of guidance? And how do you sort of balance that with where gearing is at sort of above 36% today?

So completing the buyback from here, the circa $24 million that we still have to go within that $60 million amount will increase gearing on our estimates by about 0.5%. It's certainly not an incremental number. As mentioned earlier in relation to gearing, we are very cognizant of where gearing sits and what our debt covenant headroom remains. And we have got, in our view, ample opportunity to find liquidity across our portfolio if we think that gearing [ receive ] initiative.

And then just secondly, on leasing, the 144,000 square meters of leasing you did in the first half implies about 100,000 square meters done in the second quarter alone, which is a very positive outcome. Just sort of looking back and sort of marrying this up to the comments on the downtime and the earnings drag, I mean, what's kind of the biggest thing holding you guys back at the moment?

So I probably wouldn't think about it holding us back as we have revised earnings guidance that is pretty accretive from FY '25 to FY '26. I probably think of it more as the opportunity set that's in front of us. As mentioned, we are seeing very, very strong inquiry across our portfolio. At the moment, we are seeing much better inquiry for our space than we were seeing 12 months ago. And if you think about the first half, and we did incur a 5% NOI growth for that first half year-on-year, we did incur probably a much greater proportion of vacant space across our portfolio than we were competing with 12 months ago. So I think there is certainly opportunity for us to close that gap into the future, and that will hopefully give us further earnings growth into FY '27 and FY '28.

Your next question comes from Tom Bodor from Jarden.

Grant, just on the Telstra surrender on the data center, I just was interested, was there -- is there any reduction in rent there? And if so, how much is it?

Yes. There is a slight reduction in rent, Tom, but it's not material. We don't see that it will have a material impact on FFO. So yes, it's nice, in the scheme of things, the existing Telstra Data Center is pretty unimpacted by the potential redevelopment.

So like less than $1 million?

Yes.

And is there any indication from them that they may want to give more space up? Or is that it?

No. So it's not -- the way it worked is that Telstra have been reconfiguring that space over quite some time, and this is before our ownership, and they've got some very contemporary space they utilize fully. What we are taking back is some older buildings that were unutilized and probably no longer required by Telstra operations. So the way it will work is we will get that space back. Telstra will continue to utilize the data center as they currently do, and they will be fairly separate entities. So the 2 buildings won't really interrelate. It is not expected that Telstra will be a tenant of the new data center either.

So that's given back and [ they want to give ] back basically?

Correct.

And then just sort of on the data center opportunity. I presume you're looking at [ power shell ]. Is that right?

So our focus at the moment is on extracting value, and we haven't really thought too much beyond simply getting a tangible opportunity that we can put to market. So our focus at the moment is on getting planning, power and water allocations that will allow us to put something tangible to market. From there, we'll determine what the opportunity set is. You would assume that for an ongoing real estate vehicle, power shell would make the most sense. But at this stage, we are considering all options.

And then just a final one for me. How should we think about potential data center rents versus logistics rents?

Well, again, Tom, it really depends on what agreement is struck. You could do a land lease once you have got those allocations and the tenant could take all of the risk on the development, in which case you'd be getting a lower rent. But obviously, you wouldn't have to do -- incur any of the development risk, power shell through to turnkey, the rent doesn't materially change. What I would say is regardless of which circumstances you take, you would be getting a much stronger rent than what you would get for standard logistics.

Maybe asking another way, how should we think of the land value in the data center usage context versus logistics? Is it sort of should be thinking multiples like 3x? Is that sort of the best way to think about it?

Yes, I think that's probably a good way. If you just think about underlying land value, and again, this will be -- this will bounce around depending on how much power you get allocated and some other things in terms of your connectivity to potential users. But arguably, it could be anywhere from 2 to 5x.

Your next question comes from Murray Connellan from Moelis Australia.

I was hoping to just touch quickly, please, on the guidance range and some of the assumptions that would be in the bottom end versus the top end. I imagine it relates to the leasing up for some of the vacant space and the outcomes on some of the incoming -- or the upcoming expiries rather. But maybe if you could just give us a bit of a sort of high-level feel of what to expect towards the bottom end and top end of that 18.2% to 18.5%, please?

Yes, Murray, you're completely right. Pretty much the remaining variability on the guidance range all relates to leasing. Just in regards to interest, even if we had a 50 bps increase in interest rates today, that would only be FY '26 earnings by about $0.01 to $0.02 per unit. So yes, all the variability remains in leasing and predominantly those 2 big boxes that we've got at Bundamba and the remaining space in Fairfield. Now as mentioned on the call, pleasingly, we have got activity on both spaces. We've got multiple plays potentially looking at Fairfield. We've got a heads of agreement issued on Bundamba. Now nothing is done until it's done, but we're certainly pleased by the amount of activity that we're seeing.

Your next question comes from [ Claire McHugh from Green Street ].

Just a quick one from me on capital allocation. So you're doing a bit of everything in terms of the buyback, acquisitions, development and leverage is going up. I just wanted to ask, how do you view the most optimum use of your capital? Like would you rank the buyback highest just given the discount you're trading at? Or is it deleveraging? Like how are you thinking about the most optimum use of your capital?

Thanks, Claire. It's a good question. I think given where CIP is currently trading, we think the buyback is probably the most appropriate use of capital. It's certainly, in our view, a very compelling investment. Beyond that, there are certainly opportunities across our development pipeline that we think are accretive. For the majority of our development pipeline, we are seeking a minimum yield on cost of 6.5%. But in some instances, that yield on cost will be in excess of 7%. If we have the ability to sell assets that are yielding in the low 5s and replace that with developments that are yielding in excess of 7%, we think that is also very accretive. Now to reiterate the point I've made through the call in saying that and deploying capital, we are very cognizant of where gearing sits. We do not want to see it move materially higher, and we will continue to manage that gearing through selective asset sales to keep gearing at a manageable level.

And then just one other. Just in relation to Yarraville, I understand that data center is really just -- the data center plans is really just about creating optionality. But are you looking at other adjacencies such as [ ROS ]? I mean, I was recently in Melbourne, there's seemingly a lot of appetite in that space. But how are you looking at other adjacencies and the return -- the risk and return profile of those?

Yes. Look, I think it's something that we are considering. Centuria is investing both time and resources into our data center expertise. And depending on where we see value, we'll continue to look at investing.

[Operator Instructions] Your next question comes from Ben Brayshaw from Barrenjoey.

Grant, I was just wondering what you're seeing in the industrial market for construction costs, whether there's anything that you could point to based on recent projects you might have tended or discussions that you could be having with some of the builders.

Yes. Thanks, Ben. We haven't seen a material change in construction costs probably over the last 6 to 12 months. If anything, we are seeing probably more favorable conditions in that builders are happy to hold pricing and they are willing to work with you to find a solution if there are some development constraints that need to be worked around. So we haven't seen things materially change. Probably the only outlier is we still see a higher -- it's probably 10% to 15% higher in Brisbane construction costs than we are seeing in other parts of the country. In the other parts of the country that we are considering development, the proposed development costs are relatively consistent.

There are no further questions at this time. I'll now hand back to Mr. Nichols for any closing remarks.

Thank you, everyone, for joining today's presentation. If you have any follow-up questions, please don't hesitate to contact me or any of the team. That concludes the presentation. We thank you for your ongoing interest in CIP and wish you a very good day.

That does conclude our conference for today. Thank you for participating. You may now disconnect.