Why Office Leasing Matters for Centuria Office REIT (ASX:COF) and LDR Capital Property Fund (ASX:LED) Beyond the S&P/ASX 200

Centuria Office REIT (ASX:COF) signed 47 leases covering 39,821 square metres in FY26 and still cut its distribution guidance. LDR Capital Property Fund (ASX:LED), a far smaller trust, secured about 14,000 square metres of leases and heads of agreement in the second half and has told unitholders to expect no distributions for the September and December 2026 quarters.

The reason both trusts lowered payouts is the same underlying issue: signing office tenants costs money. Incentives, fit-outs and higher Debt costs absorb cash before it reaches unitholders, and how much they absorb is the clearest way to compare these two trusts outside the S&P/ASX 200.

Two office trusts at different stages

Both are externally managed real estate Investment trusts (REITs), meaning listed unit trusts that own property and pass rental income to investors, with a separate manager paid fees. Neither is in the S&P/ASX 200. Centuria Office REIT was reported by MarketScreener in March 2026 as having been dropped from the S&P/ASX 300.

Centuria Office REIT is managed by Centuria and, according to its FY26 results announcement released on 4 August 2026, owned 18 office Assets with a Book Value of A$1,842.0 million at 30 June 2026. About three-quarters of income comes from government entities, multinationals and ASX-listed companies.

LDR Capital Property Fund was called Elanor Commercial Property Fund (ASX:ECF) until February 2026, when LDR Capital replaced Elanor as investment manager and the name changed, as shown on its Market Index company page. Evolution Trustees is the responsible entity. After contracting four asset sales, it is left with three buildings: 50 Cavill Avenue on the Gold Coast, WorkZone West in Perth and Garema Court in Canberra, valued at $255.5 million.

What the FY26 numbers show

Centuria's funds from operations (FFO, a REIT measure of recurring Earnings that strips out valuation changes) fell to $66.9 million, or 11.2 cents per unit, from 11.8 cents. It paid 10.1 cents in distributions and posted a statutory profit of $55.2 million after a loss in FY25. Net tangible assets (NTA, the book value of assets less debts, per unit) were $1.66.

LDR Capital Property Fund's FY26 results announcement, released on 27 August 2026, showed a statutory net loss of $18.4 million, FFO of $28.2 million (6.9 cents per unit) and distributions of 6.5 cents. NTA was $0.58 per unit, and occupancy across the retained portfolio was 93.2 per cent.

Weighted average Lease expiry (WALE) measures how long current leases have left to run. Gearing is debt relative to total assets.

The real cost of signing a tenant

Centuria achieved average re-leasing spreads of 5 per cent, meaning new rents were about 5 per cent above the previous rents, with 14.4 per cent in Queensland. Its FY26 results presentation shows $10.5 million spent on leasing incentives and $7.1 million on maintenance capital expenditure.

LDR's FY26 results presentation is blunter. Portfolio FFO of $37.5 million shrank to adjusted funds from operations (AFFO, which deducts incentives and capital spending) of just $7.3 million after $12.8 million of lease incentives, $5.3 million of capex and a $2.8 million interest adjustment. WorkZone West alone absorbed about $20 million of incentives and landlord works for new tenants.

By our calculation, incentives equalled about 16 per cent of Centuria's FFO ($10.5 million ÷ $66.9 million), compared with about 34 per cent of LDR's portfolio FFO ($12.8 million ÷ $37.5 million). That gap helps explain why one trust trimmed its payout while the other paused it.

Distribution resets side by side

Centuria guided to FY27 FFO of 11.3 cents and distributions of 9.0 cents per unit. Management linked the lower payout to finance costs, which rose $2.5 million, after the FY26 Payout Ratio climbed to 90.1 per cent of FFO. A September quarter declaration of 2.25 cents, with a 30 September Record Date and 28 October payment date, matches that run rate.

LDR guided to FY27 AFFO and distributions of 1.5 cents per unit, paid as 0.75 cents in each of the March and June 2027 quarters, funded from property Cash Flow rather than debt. The manager said it would waive its investment management fees in the first half while no distributions are paid, and targets a payout of 80 to 100 per cent of AFFO.

By our calculation, Centuria's guidance is about 11 per cent below FY26 (9.0 ÷ 10.1), while LDR's is about 77 per cent lower (1.5 ÷ 6.5). Centuria's quoted 10.1 per cent Yield on FY27 guidance implies a unit price near 89 cents, roughly 46 per cent below NTA, though prices move daily.

Balance sheets and vacancies to monitor

Centuria refinanced $1 billion of debt, extending average expiry to 4.3 years with no Maturity until FY29, and hedged 76 per cent of borrowings. It also sold 9 Help Street, Chatswood, for $90 million, a 12.5 per cent premium to book value. Its main weakness is Victoria, where occupancy was 73 per cent, including vacancy at 818 Bourke Street in Docklands equal to 4.5 per cent of income. Leases worth 12.4 per cent of income expire in FY28 and 17.7 per cent in FY29.

LDR's debt is shorter. Its weighted average maturity was 1.4 years, hedging expired in August 2026, and the manager intends to refinance by December 2026. Asset sales totalling $105.4 million were due to settle by late September, cutting pro forma gearing to 29.3 per cent. Garema Court is 15.9 per cent vacant after a 10.1 per cent valuation fall in the half.

Where the comparison has limits

Centuria reports FFO and a payout ratio, while LDR's policy now centres on AFFO, so headline earnings figures are not directly comparable. LDR is also mid-transition: its three-building portfolio is far more concentrated, and management intends to redeploy sale proceeds into what it calls "essential properties", which could change the fund's character.

For Centuria, the indicators are Victorian occupancy, incentive spending and whether re-leasing spreads keep offsetting interest costs. For LDR, they are completion of the debt refinancing, the investor forum scheduled for 14 October 2026, and whether new acquisitions support its target distribution yield.