Good morning. And thank you for dialing into Centuria Industrial REIT's half year financial year '23 results.

I am Jessie Curtis, CIP's Fund Manager. Joining me presenting today is CIP's Assistant Fund Manager, Michael Ching.

Additionally, Centuria Head of Funds Management, Ross Lees and Group Head of Investor Relations, Tim Mitchell, are also present. I would like to commence today's presentation with an acknowledgment of country.

I'm 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 their unique culture and to their elders, past, present and emerging.

It's been a successful half for CIP, having executed significant leasing transactions and delivered value-add projects, which captured strong industrial real estate tailwinds. Tenant demand continues to outpace supply of industrial space, driving vacancy to record lows and accelerating rental growth naturally.

Subsequently, the REIT benefited from strong, double-digit rental growth on prior passing rents. CIP's balance sheet was further strengthened during the half, led by strategic transactions that reduced gearing to the bottom end of our target range.

As a result of CIP's strong performance, we reaffirm financial year '23 FFO guidance of $0.17 per unit and distribution guidance of $0.16 per unit. Inflation and the interest rate environment has continued to create uncertainty.

However, in reaffirming CIP's guidance, we have considered the interest rate movements to date, together with forecast interest rate movements alongside the operational performance of the REIT. We will continue to monitor economic conditions as they pertain to CIP's guidance.

Earlier today, we published various documents on the ASX, including this results presentation, which we will step you through now. This presentation provides an overview of CIP's portfolio activities for the first half of financial year '23 and an outlook for the second half.

The opportunity for some questions will be provided at the conclusion of the presentation. Let's begin on Slide 4.

CIP is an externally managed REIT that forms part of the Centuria Capital Group family, a real estate fund manager operating under the ASX ticker code, CNI. Centuria is a strong supporter of CIP and provides significant benefits from the group's long and successful track record in property funds management.

Slide 5 outlines CIP's unchanged strategy to deliver reliable income and capital growth from a high-quality portfolio of industrial assets across Australia. Our consistent vision is to remain as Australia's leading domestic pure-play industrial REIT.

Slide 6 details CIP's key metrics. The portfolio as at 31 December was valued at $3.9 billion, with 88 high-quality industrial assets, high occupancy of 99% and a WALE of 8.1 years.

Gearing is also now reduced to 31.6%. Turning to Slide 7, which outlines CIP's half year '23 summary and strategy execution.

The strong industrial market continued to provide CIP the opportunity to extract rental growth from leasing and value-add projects with re-leasing spreads further accelerating across the half to 19%. The portfolio continues to be well positioned with 83% of CIP's industrial assets located within urban infill markets, where demand for industrial space remains the highest.

To that end, 30% of the portfolio expires or developments are delivered by financial year '25, and 20% of the portfolio is linked to CPI reviews, providing strong top line rental income growth. Market rental growth and leasing success also provided buoyancy devaluations, substantially offsetting capitalization rate expansion.

Proactive capital management through strategic transactions fortified the balance sheet. Divestment proceeds were generated from direct-to-market divestments and the formation of a new investment partnership.

Gearing [indiscernible] [ about ] 30% to 40% target gearing range while maintaining a diverse and staggered debt profile. The addition of interest rate hedging also increased the proportion of CIP's fixed debt.

As mentioned earlier, CIP reaffirms financial year '23 FFO [indiscernible] and distribution guidance, with distributions expected to be paid in equal quarterly installments. This translates to a distribution yield of 4.8%.

Whilst economic conditions remain uncertain, we will continue to monitor guidance for the balance of the year. That said, the industrial market nationally remains strong, and we anticipate CIP will deliver like-for-like net property income growth over financial year '23.

I will now hand you over to Assistant Fund Manager, Michael Ching, to take you through the portfolio overview and financial results.

Thanks, Jesse. Slide 9 shows a snapshot of CIP's portfolio composition and [indiscernible] as Australia's largest listed pure-play industrial REIT.

CIP continues to provide investors with exposure to 100% industrial-only portfolio of assets with 98% of assets under freehold ownership. The portfolio remains geographically diverse with a favorable 90% [ freehold rating ].

CIP's portfolio comprises 2 strategically constructed sub portfolios, both providing unique characteristics to deliver return to unitholders, which I will detail in the next 2 slides. Turning to Slide 10.

The first [ sub-portfolio ] is our active portfolio. This portfolio provides us the opportunity to utilize our active asset management capabilities through leasing, value-add strategies and development with the aim of improving total returns in the short-to-medium term.

CIP's portfolio's average WALE is currently 4.4 years with approximately [ 30% ] of leases expiring by 2025. This provides opportunities to mark-to-market [ rents ] on these assets capitalizing on the significant rent growth that we are seeing in CIP's portfolio and across [indiscernible] markets.

The active portfolio represents 80% of CIP's total portfolio with a weighted average capitalization rate of 4.8%. [indiscernible] investment value is substantially underpinned by land value, and with an average size cover of 43% provides the opportunity for value-add repositioning, [indiscernible] [ higher and better use development ].

Moving to Slide 11. Our long WALE [indiscernible] accounts for 20% of CIP's total portfolio and consists of 2 substantial assets with the lease expiry of greater than [ 15 units ].

With a WALE of 27 years and lease to iconic blue chip customers, these assets provide long-term, stickier, reliable income streams. Importantly, 60% of the [indiscernible] CPI linked, which provides a natural hedge in a high inflationary environment.

As a reference, the Telstra Data Centre lease provided a 6.1% rent review in FY '22. Both our long WALE assets are leased under triple net lease structures, meaning the tenant [ is fully responsible ] for operating and capital expenditure of the assets.

This eliminates any cash flow leakage from this asset. The income security from this long WALE portfolio [indiscernible] [ income ballast ] to support distribution while providing CIP with the opportunity to execute our active portfolio strategy.

Moving to the half year '23 financial results on Slide 13. CIP delivered funds from operations of $54.1 million or $0.085 per unit for the first half of the FY '23.

Gross property income increased by $14.8 million to $110.5 million reflecting the growth in the portfolio and strong leasing outcomes over the prior year. The $1.6 million of other income recorded in the half primarily related to the coupon income received on our Southside Industrial Estate development in Dandenong South.

As foreshadowed in our results released in August, the rapid rise in interest rates increased CIP's total interest cost by $13.6 million to $23 million for the 6 months to December 2022. Looking at capital management in more detail on Slide 14.

During the half, we undertook several initiatives to further strengthen our balance sheet. We realized $215 million of liquidity through strategic transactions, which reduced gearing to 31.6% as of December.

This is at the lower end of our target range of 30% to 40%. $300 million on new interest rate swaps were entered into during the period, increasing CIP's hedging profile to 77% and maintaining an average hedge maturity of 2 years.

We continue to monitor and further strengthen our balance sheet [indiscernible] market uncertainties. Gearing at 31.6% and an interest cover ratio of 3.8x also provides ample headroom to our debt covenant.

With only $50 million of debt maturing in FY '23 and over $400 million of available liquidity, CIP's balance sheet remains robust and continues to be well supported by its financiers. I will now hand you back to Jessie to talk you through the operational performance over the half.

Thanks, Michael. As mentioned, we completed a number of strategic transactions during the half.

A new strategic partnership was established with a circa 50% interest in 8 assets being divested by CIP. The vehicle, known as Centuria Prime Logistics Partnership was initiated with an investment vehicle sponsored by Morgan Stanley Real Estate Investing.

Importantly, [indiscernible] exposure to these highly desirable assets as a 50% owner in the partnership. Additionally, CIP secured the direct market divestment of 30 Clay Place of $34.5 million, generating a significant [ into book ] and maximizing value.

Combined, the transactions were sold on an average yield of 4.5%. Under Centuria's management, CIP has a long track record of capital management and improving portfolio quality through divestments, having completed over $325 million of transactions across 14 individual assets.

These transactions and our capital recycling track record clearly demonstrates the ongoing demand for quality industrial assets, the value created under Centuria management and the liquidity available to CIP under various structures. Let's take a closer look at portfolio leasing in WALE on Slide 17.

During the half, CIP continued to see market rents rise as subsequent [indiscernible] saw re-leasing spreads across the portfolio accelerate. 19% re-leasing spreads over the prior passing rents were achieved over the 88,500 square meters of leasing.

Our leasing success included 40,500 square meters of leasing at our Southside Industrial development in Dandenong South, which brought the asset to 100% precommitted 5 months prior to completion. And the early renewal of 22,400 square meters at 82 Rodeo Road, Gregory Hills.

This asset was acquired in November 2021 with a short 4-year WALE. A new lease was agreed to extend the term and achieved a substantial uplift in rent earlier than the original 2025 lease expiry.

Looking forward, the portfolio offers near-term opportunity [indiscernible] continued rise in market rents with 30% of income marking to market over the next 3 years. Slide 18 outlines our blue chip customer [indiscernible].

CIP's key focus is to ensure ongoing reliable income streams, and this income stream is demonstrated with 87% of [indiscernible] derived from tenant customers who are listed multinational or national companies. During the period, CIP continued to leverage its network using scale to assist customers to expand their businesses by offering multiple sites throughout Australia, reducing downtime on our vacancies and increasing retention.

This was most recently demonstrated at our Dandenong South development, with 42% of the lettable area was leased to existing customer relationships. On to Slide 19.

CIP continues to deliver on a pipeline of value-add projects to drive returns for investors. Recently completed projects include 92 Cosgrove Road in Enfield, New South Wales where our refurbishment program resulted in a new lease with no downtime and a 47% premium to prior passing rent.

Active projects include 616 Boundary Road, Richlands in Queensland where works continue and a strong [ pre-lease ] [indiscernible]. 30 Fulton Drive in Derrimut.

The asset was acquired in November 2021 and planning is underway to reposition and expand the asset by 2,000 square meters to maximize value. Moving to Slide 20 and our development pipeline.

Development activities provide CIP the opportunity to create modern, sustainable assets that improve portfolio quality and attract high-quality income streams. Pleasingly, our Dandenong South development was successfully completed on time and fully leased ahead of completion.

We have over 57,000 [indiscernible] of development space currently under construction across 2 projects: 1 in Campbellfield, Victoria; the other at Canning Vale, WA. Both developments are progressing as planned with strong leasing interest.

Slide 21 explains our long-standing site consolidation strategy. During the half, CIP acquired an additional asset in Derrimut for $12.35 million.

The asset holds a short WALE and provides significant upside on rent. Our Derrimut sub-portfolio has grown to 11 assets across nearly 25 hectares of land and office tenancies ranging from 3,000 to 14,000 square meters.

Derrimut provides just one of several examples of [indiscernible] portfolio, where we have been able to aggregate large land holdings in core urban infill markets. This consolidation strategy is beneficial to unitholders as it provides optionality for future development sites of scale to meet the growing demand from industrial users while maintaining income and access to rental growth.

It also provides critical mass and diversity across tenancy size and type to facilitate lower downtime, leveraging CIP's networking effect. Turning to valuations on Slide 22.

CIP externally valued 28 investment properties, representing circa 55% of portfolio value as of 31 December 2022. The portfolio weighted average capitalization rate expanded 47 basis points to 4.66%.

This resulted in a 1.9% decrease on a like-for-like basis. This reduction was primarily concentrated on CIP's long WALE sub-portfolio.

Valuations across the remainder of CIP's active portfolio remained broadly flat due to strong market rental growth offsetting capitalization rate expansion. Following the valuations, CIP's net tangible assets of $4.08.

Moving to sustainability [indiscernible] on Slide 23. CIP, as an externally managed REIT has no [ star ] and is solely a portfolio of assets.

The REIT is managed by Centuria Capital Group and aligns itself to Centuria's sustainability framework. A number of key ESG initiatives were implemented during the half, including [indiscernible] contractors setting out Centuria's minimum standards.

Additionally, social initiatives produced excellent results, with 94% of Centuria's employees being proud to work at the company and our workplace diversity increased with 45% of our workforce being female. Specifically to CIP, our Responsible Entity Board has 50% female representation.

Over to Slide 24, which illustrates a few sustainability case studies specific to CIP. During the half, CIP [ achieved ] 4.5-star NABERS rating on its Gregory Hills asset, following participation in the NABERS [ Accelerate program ] for Warehouses and Cold Stores.

Additionally, a 3.7-megawatt solar panel installation program is underway in partnership with key tenant customers, Woolworths Group and Arnott's Group. For CIP's current development pipeline, we are targeting a 5-star Green Star rating.

Moving now to Slide 26. Globally, industrial real estate continues to benefit from strong tailwinds.

E-commerce and a tenant focus on securing supply chain resilience are driving strong demand. Despite having extremely low vacancy rates, Australia still provides relatively affordable industrial rental rates in comparison to established markets in America, the U.K.

and Southeast Asia. With continued tenant demand and limited supply, this demonstrates a long runway of rental growth for [indiscernible] [ to converge ] with other markets around the world.

Looking locally on Slide 27. Industrial rents have [indiscernible] across all major industrial markets as national vacancy hits another record low.

Despite the evolving economic conditions, we are yet to see a material pullback in [ tenancy ] demand. Tenants still remain focused on supply chain resilience and securing safety stock with onshoring of operations [indiscernible] continuing trend.

Proximity to the customer is also paramount. And this is driving significant demand of an infill industrial space as tenant customers look to minimize delivery times and reduce the costs associated with rising transportation.

Supply of new space continues to be constrained due to labor shortages, wet weather, supply chain disruption and limited industrial zoned land. Add to this, sub-1% vacancy and a large amount of tenant demand is not being met.

In fact, over the next 3 years, at least an additional 3 million square meters of space is required to meet current forecast demand. These market conditions continue to provide numerous opportunities for CIP to capitalize on further rental reversions within its portfolio.

Concluding now on Slide 28. We will continue to monitor and consider domestic and global economic conditions throughout the remainder of financial year '23.

Notwithstanding, as presented today, the operating environment for industrial remains strong. As Australia's largest domestic pure-play industrial REIT, CIP has delivered a strong result in the first half of FY '23 and we remain focused on executing our strategy to create value for our unitholders.

Leasing success drove strong re-leasing spreads and value-add projects continue to deliver to the benefit of unitholders. Strategic transactions generated divestment proceeds, which bolstered CIP's balance sheet.

The capitalization rate for the portfolio widened. However, due to strong leasing outcomes and growth in market rents, valuations only saw a minor decline.

As a result, CIP [ reaffirms ] FFO guidance of $0.17 per unit and distribution guidance of $0.16 per unit for financial year '23. Thank you for listening.

At this point, I will open the call to any questions.

A couple of questions. What was the like-for-like?

I saw it was 2.9% in 1 half '22 and 3.4% in FY '22. Was it for this half, the like-for-like NOI growth?

Like-for-like [indiscernible] was 3%. It's probably a little lower for the half than we would have expected, and that's as a result of us strategically [indiscernible] on in the portfolio that was underperforming and really recycling that tenant to provide a higher-quality tenant in the portfolio.

Over the course of the year, we expect that to normalize to closer to 4% on a full [indiscernible] basis.

Okay. So to see probably a bit of downtime when you move that tenant out.

Okay. And then just on the -- if you look at the Appendix D in the [ presentation ], what did the rent free abatement go up by about $1.9 million in the year?

Why was that up so much in the half?

That was as a result of the leasing from the prior half, which would have flowed through now to the -- the portfolio is large as well.

Yes, large portfolio, okay. And then on -- has there been any pullback.

Obviously, you had a not a lot of lease expiries to address pretty high occupancy. Have you seen any pullback in demand or are people a bit more cautious in this environment at all in the market for leasing?

No. The leasing market remains really, really strong.

The last 12 months for 2022, we saw a record 5 million square meters of gross take-up, that's about 2 million square meters more [indiscernible] average. We're particularly seeing the strongest amount of tenant demand in the urban infill markets.

And that's really based around tenants wanting to be as close as [ humanly possible to ] their customer base or their distribution network to save on transportation costs. When you look at the forward supply cycle, we're already starting to see a lot of that supply that was going to be delivered in FY '23 or calendar year '23 now getting pushed to '24 as a result of a large amount of wet weather we've been seeing, continued supply chain disruptions, labor availability and also slow servicing of industrial zoned land.

That's creating additional competition from tenants, which has obviously driven the high amount of rental growth [indiscernible]. And we're anticipating we'll continue to see in the 12 months ahead.

Yes. Understood.

And then just on the debt, I think it was 3.3. What are you assuming in the second half?

I think your BBSW at 3.4-ish, maybe 3.5 average. What are you assuming for your cost of debt in the second half?

Yes. I anticipate that our full year all-in cost of debt is going to be in the mid-3s.

Okay. Cost of the mid-3, okay.

And I think that's everything for me.

Maybe just a couple of follow-ups from Sholto on the leasing front. It seems like there's a big commentary now from retailers and particularly around inventory potentially looking to unwind a little bit for the post-COVID.

Just wondering if you could provide any additional color on [ any particular moment ], particularly around the kind of retail or e-commerce tenants, what that might mean. So maybe some other categories that you focus on remixing the portfolio going forward?

Yes. I think what we're seeing in our market in particular is the historic underinvestment on last-mile warehousing infrastructure.

So what we haven't seen until more recently was customers like Amazon, for instance, who have really started to bolster their last-mile delivery stations. And that's where we've seen significant amount of the leasing volume come from.

About 59% of leasing volume within over the last 12 months has come from be it e-commerce users, retailers or transport and logistics providers who are looking to bolster their last-mile presence. And that's the portion of the market that we're seeing the most competition and the least amount of supply.

So I think it's less of a case around having more storage, but it's just where that storage is placed. And given our portfolio is 83% last-mile focused, that's been the area of market we've been focusing on.

It sounds like your discussions with retailers is still much the longer-term plan as opposed to maybe hitting pause given what might be more challenging 12 to 18 months? Is that -- is that a fair conclusion based on your discussions?

Yes. I think Amazon is a good anecdote for this.

At the moment, they've got a 350,000 square meters in Australia. They've got [ breached ] in the market today to double their footprint [indiscernible].

As you might have seen late last year, they only just guaranteed last-mile next-day delivery in Sydney and Melbourne. They're going to move towards the same-day delivery model.

They're also going to roll that out in Brisbane, Perth and Adelaide. So we're seeing significant investment in there, just 1 example of tenant we talk to on a regular basis that are showing a significant amount of interest in growing their footprint, particularly in that last-mile infill space.

Right. That's really helpful.

And just a second one on leasing. What do you think the mark-to-market of the portfolio is now?

Or are we getting circa 20% spread on new leases? Where do you think the market is compared to your portfolio?

As of the most recent external valuations and external valuers assessment of our portfolio, their pricing our portfolio is being 10% under-rented. But you look at what we're achieving on the re-leasing spreads at closer to '19, and I think that's a fair reflection of where we see the near-term mark-to-market on our portfolio as of today.

Great. And just a final one for me.

Just around the balance sheet now, you've obviously done a bit of recycling towards the back end of the last calendar year, a bit of discussion around the market potentially that some of the private operators come under some duress maybe this year off the back of some high interest expenses. How are you thinking about either potentially further deleveraging or [ alternatively ], is there now potentially an opportunity for CIP to go out and maybe take advantage of any distress but where to come up in the market?

Yes. I think we -- as you saw, we used the opportunity last year to bring down our gearing to the low end of our target range.

And we're still comfortable with that target range of 30% to 40%. So it does provide some ability for us to be able [indiscernible] in the market.

I'd expect you'd probably see us recycling assets to put that into something a little more accretive rather than using gearing headroom in the near term on those acquisitions.

Similar and related question on rent growth or under-renting, but I wanted to sort of ask that around the valuations. On Slide 22, you talked about an 11% increase in market rent within the valuation.

I'd just be interested to understand if you say the valuation is reflecting market rents or they're under-renting.

[indiscernible] We only valued 28 of our assets or 55% of value. So external values haven't had the opportunity to look at the mark-to-market on the remainder of our portfolio, which we will do in subsequent periods.

I think the 11% growth, again, is reflective of whether we've been able to assess the market out and best read I can give you on where we sort of see that under-renting position from a management perspective is the re-leasing spreads that we're achieving at that 19% plus.

Because they're suggesting that the valuations are still under sort of high single digit.

I'd suggest so, yes, based on what we're achieving on our re-leasing.

I mean when you have an externally [ valid R&D ] portfolio, is it you've taken the cap rate up but not reflected that higher market rents, is that sort of accurate or is it sort of [indiscernible]?

In some cases, on those directors' valuations, we've taken some additional market rent to offset the capitalization rate expansion. But our view is that the market is moving so quickly.

A lot of these valuations get completed in October and November. And we're now nearly 4 months past that period.

And with -- in some markets, 30% and 40% rental growth coming through. And that sort of higher growth anticipated to come in the year ahead.

I'm expecting there's going to be a mismatch between an external valuation done at a point in time and where we strike leasing deals on our upcoming expiries.

That's clear. And then finally, I just wanted to ask about the solar you're installing in partnership, I think, with Woolworths and 1 other tenant.

I just wanted to understand who bears the capital cost of that and who gets the saving from the energy costs? Or is it mixed across your different assets?

There are different structures we operate with, but specific to the Woolworths and Arnott's deals, both of those deals are the solar is being funded by the tenant and then the tenant will get the operational and cost savings benefit as a result of that installation. And so we provide the roof space and the cooperation with those tenants in order to help them achieve their sustainability goals, which also reduces the carbon footprint of our assets.

When you think about industrial, we have very limited operational control over the assets. They're generally single tenants.

The tenants will often pay the electricity bills directly themselves. So we feel the best way to make a meaningful sustainability impact is to go in partnership with our tenants.

And do you get any benefits sort of in terms of extra rent on the roof space? Or is it just doing the right thing from a sustainability perspective?

It's a case by case, Tom.

Just interested whether there's any uplift in the expected yield on cost on the 2 fund-throughs and the Canning Vale development given uplift in rents that you're seeing.

Yes, there has been. So if you recall, 12 months ago, we bought the Canning Vale -- the Campbellfield development, we were estimating at that point in time yield on cost of around 4.5%.

We've actually seen that yield on cost accelerate to about 6% now based on where we're seeing market rents in the north of Melbourne. And then a similar story with our Canning Vale development, when we purchased that land, we're estimating a 5.75% yield on cost, that's now accelerated to probably being in excess of 6.5% on that.

In most of these cases, we've substantially derisked the construction costs. So we're not subject to variability across that line.

And so we're really taking a lot of the leasing risk to the upside at the moment with where rents are heading on those. So they could land better, but our best forecast at the moment is 6% to 6.5%.

Okay. And South Gippsland Highway as well?

So that project was completed, and that was delivered on a yield on cost of 5%.

Okay. And just on the early renewal at Gregory Hills, can you just talk through the rationale from the tenant's perspective as to why they did that?

Yes. The tenant has a lot of embedded infrastructure within that tenant.

They've invested heavily in fit-out, racking and automation at that site. They intend to invest further in that site and came to us to discuss a lease renewal.

We were open to doing that, providing we're able to attract that higher rent or the higher market rents in today. What we're finding is similar to the comments I made in the presentation, a lot of tenants are making big investments and long-term investments in their warehouses at the moment to maintain that supply chain resilience.

And that often means automation, sortation or a high degree of fit-out. And so that's giving us good leverage in the lease renewal discussions, particularly if we want to strike early renewals.

But just one quick one for me and a follow-up to Richard's. If you were pricing a deal today, so [ REIT ] yields on cost, so noting, obviously, your costs have been fixed and service, your rents going up, if you were to reprice the cost today and to reprice the development yield on costs what would that look like, i.e., what you expect the yield on cost to stabilize to be today?

And how much costs still increasing at the moment?

I think when we look at what our hurdle rates would be to either do development or acquisitions, we're considering what the incremental cost of debt is today. And if you look at BBSW and [ put ] that in with where margins currently sitting, it's in the early 5% range.

Where we're delivering our developments at 6% plus is probably where we would expect that to land. I mean there's still a lot of challenges in delivering developments.

There's still supply chain issues. There's still wet weather to contend with in certain markets.

There's delays on infrastructure on certain other developments. But we're also mainly infill or brownfield developer as well.

So for our projects, I'd say, north of 6% would be where we'd want to be seeing returns.

Got it. And you are [ including inflation ] on the construction cost there?

Yes. I mean construction has moderated a little over the last few months, but it's still a significantly elevated levels compared to 12 or even 2 years ago.

Just wanted to touch on a comment you made in that you're continuing to monitor guidance in what's a bit of an uncertain environment. Are you able to just comment on what are the big swing factors that you're watching there, please?

Yes, look, I think we're sitting here on the 31st of January, and we're yet to see what the movements that the Central Bank or the RBA does over the next 6 months. So that's something that we're going to be watching very, very closely, of course, as we look to continue to monitor guidance.

We're also monitoring the property portfolio. And in reality, there's probably risk to the upside on where we had from a top line rental income perspective.

So we're monitoring both of those factors as we consider the next 6 months.

So in terms of the RBA rate rises, are you thinking like 2 more? Is that what you've got in the guidance?

I mean I'm seeing probably the same forecast you are, Lauren and everyone is kind of in the same boat where we're unsure where the RBA may head in the next while, we're not sure where any data that's appointed to inform those decisions will head. We'll continue to monitor that.

But as of today, we're comfortable with where our forecast sit in order to reaffirm guidance.

Got it. Okay.

And just on the Telstra Data Centre, it looks like it got about an 11% decrease in valuation despite having a CPI-linked rental increases. Are you able to just talk about some of the assumptions that were made for that asset specifically?

Yes. So that asset was externally valued by third-party valuer to come up with those.

What we saw -- the biggest move on that asset was the 87.5 basis point expansion cap rate. And that's, in a valuers' opinion, reflective of the market value for that asset.

I think this asset still has a very strong rationale in our portfolio. It's got good CPI rent reviews, which were a good driver of growth and the asset also sits well above our acquisition price that we paid in 2020.

Okay. Got it.

And just last one for me. Maybe just fast forwarding 12 months or so, but the ICR had a bit of a deterioration to 3.8 this period.

You've got a couple of hedges rolling off. I imagine it would probably get lower in the next 12 months or so.

Can you just talk about how you're thinking about managing the balance sheet around that metric, please?

Yes. So over the last 6 months, we've done a few things to further bolster the balance sheet.

We obviously had $215 million [ total ] divestments, which substantially reduce the amount of debt we're holding. We also put $300 million worth of swaps in place, which have given us a lot more reliability in terms of where our cost of debt hedged with a 77% hedging across that.

For the balance of this year, we've got very few hedges that roll off looking into next year. Again, we're going to continue to monitor where the market moves.

There's possibly some more hedging that we'll look to do over the next 6 to 12 months. But we'll continue to monitor the market, continue to manage the balance sheet in order to stay within our covenants.

But right now, we've got plenty of headroom to those covenants.

Just a couple from me. Firstly, just from your conversations with tenants and it's kind of a continuation of some of the earlier questions.

But have you got a feel for the utilization of space?

Yes, the utilization is extremely high of these [ sheds ] at the moment. I think that's been redemonstrated in the fact that we've seen so much gross take-up over the past 12 months.

And in major markets of Sydney, Melbourne and Brisbane, not a single one of those markets has vacancy greater than 1%. So we're still seeing really, really strong pricing tension when it comes to tenants bidding assets up from a rent perspective in order to get that [ foot ] on them, particularly from infill perspective.

What we're also seeing, and I've mentioned this a bit earlier, but construction completions are being delayed. And that is creating further tension in the market where tenants maybe had space that they needed to occupy this year, maybe isn't getting delivered until '24 or '25 at this point.

So that's throwing more demand back into the stabilized market where developments aren't meeting that future supply. So every occupier we talk to is not worried about low utilization of this year.

They've got extremely high utilization. And they're making further investments in their [ sheds ] to sweat them a little bit harder, whether that be additional automation, whether that be sortation, robotics, that sort of stuff we're working with tenants and I got the example [ several days ] before, where we're working with tenants like that to either extend their leases to give them a sufficient amount of time to amortize that heavy investment as a result of them being able to be more efficient [ in this shed ].

And then just -- I mean, clearly, the market rent growth story remains robust. I'd just be interested in your view on cap rate movements over the next 6 months.

Yes. I think there's a few things to consider on the cap rate.

There's obviously cost of debt and where the 10-year bond settles over the next period. That's obviously going to have an impact on where cap rates head.

But I think the more important factor to be thinking about is actually market rental growth. So on average, a 7% rise in market rents will offset about a 25-point widening in cap rates.

And again, in some infill markets, we're seeing 30% and 40% year-on-year growth. So we think there is a good portion of value protection that will come from continued rise in market rents.

That will offset any further if we do see further cap rate expansion.

Yes. I'm sorry, that 30% to 40% growth you've said -- or you're talking about in infill market.

Have you actually captured any revision at that type of level?

Yes. One of the examples that we gave in the past was our renewal at 82 Cosgrove Road, Enfield.

We completed some relatively minor refurbishing works on that property. And we [ just saved 7% ] premium to the prior passing rents on that particular asset.

And that asset basically sits on the geographic center of Sydney. So there are a number of examples across our portfolio where we're seeing those -- the bookends are probably 5% to 50% in terms of re-leasing spreads that filled up that 20% or that 19% we quoted.

Thank you for your ongoing support of Centuria Industrial REIT. If you have any questions, please feel free to contact either myself, Michael Ching or Tim Mitchell in our team.

We look forward to discussing these in our one-on-ones over the next few weeks.