Category: Property

Business Strategy & Outlook

Goodman Group is one of the world’s premier developers and managers of industrial property projects and investments. The group was cofounded in Australia by Gregory Goodman who remains CEO, and now has projects and customers in Asia, Europe, and the Americas. A typical project involves obtaining a development site, signing tenants onto leases, and attracting investors who pay for the development and buy the completed project. Goodman typically retains a minority stake and continues to manage sites after completion, collecting development fees, leasing fees, management and performance fees, and a share of rent. The group’s development pipeline has grown substantially, driven by the race to build e-commerce capability, modernize supply chains, and build data centers. Most of the group’s development projects end up in Goodman managed investments, boosting the group’s assets under management enormously. This is to continue for the next few years as the race continues for the best logistics and data center sites, closest to transport links and the end consumer. Goodman should benefit from its expertise, and its legacy holdings of property, many of which are close to urban centres, and therefore more attractive than outlying greenfield industrial sites.

However, the remarkable returns eventually slow down to a more modest level. First, there is only so much existing property that can be sold and developed, before new sites need to be acquired, likely at substantially higher prices. Second, much greater competition in future is visible as many rivals are growing their presence in industrial property. GPT sold its stake in iconic office building 1 Farrer Place, with its rationale in part to rotate more capital into industrial property. Likewise, Dexus, Charter Hall, Mirvac, Stockland Growthpoint, and Cromwell are all eyeing opportunities on the sector, plus Goodman must content with major overseas players such as Prologis and others.

Financial Strengths 

Goodman Group is in strong financial health. Gearing (net debt/assets) on the company’s balance sheet was 8.5% as at June 30, 2022, which is at the low end of the group’s stated gearing range of 0-25%. Look-through gearing (incorporating debt within Goodman’s investment vehicles) was 19.6%, which is still modest considering the long leases to strong tenants, and valuable assets owned by the funds. Both measures of gearing are likely to creep up in the next few years as Goodman increases development work in progress. This is due to new projects in the pipeline commencing, plus larger scale projects that take longer to complete. However, Goodman has a high proportion of pre-commitments from strong tenants, reducing the risks around servicing debt. Most development spend will be funded by Goodman partnerships, limiting Goodman’s own outlay. The large number and variety of partnership vehicles limits the risk for Goodman Group. Should any one investment run into trouble, the risk is likely to be contained to that vehicle, though there could be reputational risks for Goodman.

Bulls Say

• Investment in industrial property is ramping up as retailers recognize the importance of e-commerce, and also move to add certainty and efficiency in their supply chains.
• Global capital is still chasing exposure to property, and particularly industrial property given strong rental growth at present.
• New fund inflows add to Goodman Group’s fee revenue. Although it is not risk-free, long lock-ins on its funds management vehicles bestow annuity-like characteristics to this revenue.

Company Description

Goodman Group develops and manages industrial property investments worldwide. Rather than taking all risks on its own balance sheet, most Goodman developments are on behalf of end-user tenants, and funds management clients. A typical deal involves purchasing land for a tenant who wants to occupy the site, and/or an investor who will own the asset via a Goodman investment vehicle. Goodman charges leasing fees for locking in tenants, and fees for managing the development. Completed projects reside in Goodman investment vehicles, and Goodman charges asset and investment management fees to investors, in return for collecting rent and managing the site. Goodman retains a minority stake in many projects, generating rental income and aligning its interests with its fund’s management clients.

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Business Strategy & Outlook

Charter Hall Retail REIT owns or partially owns an Australian portfolio of about 50 convenience-focused shopping centres, several hundred service stations leased to BP, and Ampol in Australia, Gull in New Zealand, and a distribution centre leased to Coles. More than half of rent comes from tenants who are unlikely to miss rental payments. Recent acquisitions and divestments have transformed Charter Hall Retail REIT’s portfolio. A AUD 177 million portfolio of shopping centres was sold in fiscal 2020. In July 2020, the REIT acquired a stake in a Coles distribution centre with 14 years remaining on the lease, with fixed annual rental increases of 2.75%. As at June 30, 2022, Coles and Woolworths were the largest tenants, representing 16% of income each, and Aldi another 2%. And BP represents about 12% of rental income, up from zero two years ago. Charter Hall Retail REIT actively manages its portfolio, and it’s difficult to precisely predict what type of other assets could enter the portfolio given management’s opportunistic strategy. That said, any future acquisitions will likely have attributes including long-weighted average lease expiries, and be related to convenience or non discretionary retail (as shown with the distribution centre and service station acquisitions).

Rent is Charter Hall Retail REIT’s dominant revenue driver. Unlike many other Australian REITs, it does not operate any meaningful funds management business, and is unlikely to do so given funds management opportunities are housed in the head stock Charter Hall. Essentially Charter Hall Retail REIT is an investment option within the overall Charter Hall suite of listed equities and funds.

Financial Strengths 

Charter Hall Retail REIT is in reasonable financial health. Equity raising in April and May 2020 bolstered the balance sheet, partly offset by acquisitions since then. Gearing reduced from nearly 35% in December 2020 to 33% in June 2022 (measured by look-through gearing, which is net debt/assets, including debt obligations in underlying vehicles, and on a pro forma basis to include the impact of the Gull service acquisition). This is toward the lower end of the look-through target portfolio range of 30% to 40%. More likely to see a little buffer to the group’s debt covenants, given asset declines are likely as interest rates rise. That would push up gearing even without further acquisitions. However, it looks comfortable overall, given the long leases and secure tenants over a large chunk of the portfolio. Higher debt costs could also be a headwind to earnings, and if interest rates rise fast and far enough it could result in declines in distributions in the short term. However, in the long run revenue growth will mitigate that effect.

Bulls Say

• Over half of revenue comes from tenants that can be considered to have a low likelihood of missing rent payments. Combined with long leases on anchor tenants, Charter Hall Retail REIT’s income is relatively resilient.
• There is still money on the sidelines looking for physical real estate, which means Charter Hall Retail REIT could likely sell assets if it needed to raise cash.
• Good anchor tenants generate foot traffic, and Charter Hall Retail REIT charges rent well below levels in high-end discretionary focused shopping malls, suggesting only modest vulnerability to e-commerce.

Company Description

Charter Hall Retail REIT owns and manages a portfolio of convenience focused retail properties, including neighborhood and sub regional shopping centres, service stations, and some retail logistics properties. The REIT is managed by Charter Hall, a listed, diversified fund manager and developer, which owns a minority stake in Charter Hall Retail REIT and frequently partners with it on acquisitions and developments. More than half of rental income comes from major tenants Woolworths, Coles, Wesfarmers, Aldi and BP (the latter occupies service station assets). The portfolio is more seasoned than some convenience rivals, with approximately 80% of supermarket tenants at or near thresholds for paying turnover-linked rent.

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Investment Thesis:

• Engineering and Services Business sale process is underway – this removes one downside risk to the stock.
• Balance sheet remains in solid position and even with the latest provision the Company has headroom available and is within its banking covenants. However, gearing is expected to rise to ~20% as development ramps up to FY23.
• Robust development outlook with demand for both commercial and residential especially with strong level of apartment pre-sales.
• Outlook for new infrastructure projects to be tendered in Australia in the next 2 years remains attractive.
• New management team will likely bring a fresh perspective and strategy.
• Proposed cost out program of $160m should be supported by earnings in a tough trading environment.
• Valuation appears undemanding.

Key Risks:

• Further provisions to the existing problem projects.
• New projects are mispriced from a risk perspective.
• Cut to dividends.
• Sudden increases in interest rates.
• Increase in apartments default rate.
• Any delays or execution problems in development and construction that sees margin being affected.
• Any net outflows from its investment management business.

Key Highlights:  

• Core operating earnings to improve from 2H22.
• FY22 returns for core operating segments revised with Investments ROIC of 7.5-8.5% (vs previous estimate of 5- 8%), Development ROIC of 2-4% (vs previous estimate of 2-5%), driven by $2bn of completions including significantly improved settlement volumes in Australian Communities and more than $4bn of commencements, and Construction EBITDA margin of 2-3% (unchanged from previous estimate) amid improved productivity as Covid-19 restrictions ease.
• Group ROE target of 8-11% to be achieved by FY24.
• FUM to grow >66.7% to >$70bn by FY26 as investments platform is upscaled via the launch of new funds.
• Core operating earnings to improve from 2H22.
• FY22 returns for core operating segments revised with Investments ROIC of 7.5-8.5% (vs previous estimate of 5- 8%), Development ROIC of 2-4% (vs previous estimate of 2-5%), driven by $2bn of completions including significantly improved settlement volumes in Australian Communities and more than $4bn of commencements, and Construction EBITDA margin of 2-3% (unchanged from previous estimate) amid improved productivity as Covid-19 restrictions ease.
• Group ROE target of 8-11% to be achieved by FY24.
• FUM to grow >66.7% to >$70bn by FY26 as investments platform is upscaled via the launch of new funds.
• Development completion target of >$8bn p.a., along with the ROIC of 10-13% by FY24.
• Financial position.  Liquidity position remained strong with $842m of cash and cash equivalents (down -49% over 2H21 primarily due to underlying operating cash outflow of $388m, reflecting the challenging operating conditions in conjunction with reduced new business activity) and $2.2bn in available undrawn debt, to support $112bn development pipeline.
• Net debt increased +144% over pcp to $1.7bn, leading to gearing increasing +700bps to 12%, remaining within the target range of 10-20%.
• Investment grade credit rating of Baa3/BBB- and stable outlook by Moody/Fitch.
• Continues to assess redeployment opportunities in the Investment segment. The Company sold 28% stake in the future asset management income stream from the US Military Housing portfolio for $170m on a multiple of 26x FY23 estimated NPAT, which is expected to contribute ~$110m to NPAT in 2H22, leading to management upgrading FY22 Investment ROIC outlook. Management continues to further assess redeployment opportunities within the Investments segment and is considering the divestment of a further 25% interest in the Retirement Living business.

Company Description:

Lend Lease Corporation (LLC) is a global property developer with three key segments in (1) Development: involves development of communities, inner city mixed use developments, apartments, retirement, retail, commercial assets and social infrastructure (with earnings derived from development margins, development management fees received from external co-investors and origination fees for infrastructure PPPs) (2) Construction: involves project management, design, and construction service, predominately in infrastructure, defence, mixed use, commercial and residential sectors (with earnings derived from project and construction management fees and construction margin); and (3) Investments: involves wholesale investment management platform, LLC’s interests in property and infrastructure co-investments, Retirement and US military housing (with earnings derived from funds management fees as well as capital growth and yield from co-investments and returns from LLC’s retirement portfolio and US military housing business). LLC operates predominately in Australia, but also in the UK and US and with a smaller contribution to earnings derived from the Asia Pacific.

(Source: Banyantree)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Investment Thesis

• Stable and sustainable distribution yield. 
• Trades on a ~6.4% premium to NTA. 
• Strong and experienced management team. 
• WES stake in BWP (24.75%) provides security against risk of non-renewal of leases by Bunnings.
• High quality property portfolio with long weighted average lease expiry, strong lease covenants, and high occupancy. 
• Low interest rate environment is encouraging for the housing industry and hardware sales however any sudden increase in interest rates provides risk to both revenue and debt financing costs. 
• Solid balance sheet with low gearing levels. 
• Risk of poor execution in redevelopment of assets vacated by Bunnings to other uses.

Key Risks

• Any slowdown in demand and net absorption for hardware space. 
• Persistent lower inflation (and deflation) affecting retailers. 
• Economic conditions affect property fundamentals such as values (cap rates and rental growth), vacancies, retail activity (and hence demand for space at big-box retail sites). 
• Risk of non-renewal of leases by Bunnings Group.

Key Highlights: Relative to the pcp and on a constant currency basis: 

• NPAT of $348.3m, which included $291.8m of unrealised gains in the fair value of investment properties. 
• Distributable amount of $57.9m was in line with the pcp. This equated to interim distribution of 9.02 cps, in line with the pcp. 
• BWP’s portfolio achieved like-for-like rental growth of 2.2%, weighted average lease expiry of 4.3 years and is 97.6% leased. BWP’s portfolio is valued at $2.9bn portfolio valuation as at 31 December 2021. This resulted in net tangible assets of $3.75 per unit, up 46 cents per unit, mainly due to net unrealised gains on revaluation of investment properties. 
• BWP maintained strong gearing (debt/total assets) of 15.5% and weighted average cost of debt of 3.2% per annum. 
• Property portfolio update. BWP’s property portfolio continues to retain solid operating metrics.
• During 1H22, BWP’s entire investment property portfolio was revalued (10 by independent valuers and remaining 63 properties subject to directors’ valuations). BWP’s weighted average capitalisation rate was 5.11% (versus 30 June 2021: 5.65%; 31 December 2020: 5.84%). BWP’s portfolio value increased by $280.6m to $2,916.7m (which captures capital expenditure of $2.3m and revaluation gains of $291.8m, after adjusting for the straight-lining of rent of $1.0m and less net proceeds from divestments of $14.5m (In July 2021, BWP finalised its sale for its Mindarie, Western Australia property for $14.5m and did not acquire any assets during 1H22).
• Occupancy and average lease expiry of 97.6% and 4.3 years (flat versus December 2021) respectively. 
• 47 leases were subject to annual fixed or CPI reviews during 1H22 with a weighted average increase in annual rent for 23 CPI reviews of 3.3% and the 24 fixed reviews was 3.4%. 
• Excluding rental income from properties acquired, upgraded or vacated and re-leased since the pcp, rental income increased by ~2.2% over the pcp, which betters 1.8% for the 12 months to 31 December 2020.

Company Description

BWP Trust (BWP) is a real estate investment trust focused on operating, owning, and divestments and acquisitions of large format retailing properties, in particular, Bunnings Warehouses, leased to Bunnings Group Ltd (‘Bunnings’). Bunnings is the leading retailer of home improvement products in Australia and New Zealand and is a major supplier to builders and trades people in the housing industry. BWP is managed by an external responsible entity, BWP Management Ltd who is paid an annual fee based on the gross assets of BWP. Both Bunnings and BWP Management Ltd are wholly-owned subsidiaries of Wesfarmers (WES), one of Australia’s largest listed companies. WES owns ~24.75% of BWP. Currently, BWP is the largest owner of Bunnings Warehouse sites, with a portfolio of ~80 stores. Eight properties have adjacent retail showrooms leases to other retailers. BWP also owns one stand-alone showroom property. The assets have a current value of ~$2.9bn, WALE of ~4 to 5 years, 97.5% occupancy rate.

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate. Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities. Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Investment Thesis:

• Ex Covid-19, stock trades on an attractive gross dividend yield.
• The concern for VCX is that cap rates and asset valuations need to be adjusted for weak domestic economic data points around the consumer.
• High quality property portfolio (high occupancy, stable rental growth etc.) with resilience to weakening retail sales environment through its portfolio repositioning.
• Decent development pipeline to power growth at decent initial yield and IRR.
• Retail environment remains challenging and expected to remain so over the next 12 months as households remain constrained by high debt levels & lack of wage growth despite stable unemployment in the eastern states.
• Strong specialty growth across retail categories, especially Luxury stores (+30.2% over the 12 months to 31 December 2019).

Key Risks:

• Corona virus affects consumer sentiment and retail stores, which affects VCX’s tenants.
• Increase in interest rates adversely affecting the Company’s cost of debt and consumer spending in the retail sector.
• Rise in unemployment, resulting in lower consumer retail spend and thereafter affecting rental growth and property valuations.
• Inability to mitigate consequences that arise from a weak retail environment.
• Weaker property fundamentals than expected.
• Tenancy risk/retailer bankruptcies resulting in higher vacancies across the asset portfolio (e.g. Dick Smith) and adverse effect on earnings.
• Development schedule delays and project cost blowouts.
• Any reduction in investor interest for bond-proxy stocks.

Key Highlights:

• Management provided earnings and distribution guidance in 1H22 which is positive considering VCX refused to do so at the FY21 results conference call with analysts. Management highlighted FY22 FFO per security expected to be in the range of 11.8-12.6 cents with AFFO per security expected to be in the range of 9.5-10.3 cents and Vicinity is targeting a full-year distribution payout range of 95-100% of AFFO. Management also noted “. The expected the impacts of COVID-19 on the business to continue over the coming months due to the emergence of Omicron in late December 2021. In January 2022, Omicron had a material impact on visitation particularly at the centres located on the east coast of Australia, however to see an upward trend in the first two weeks of February”.
• Relative to the pcp: Statutory NPAT of $650.2m, a significant improvement relative to 1H21 which saw statutory net loss after tax of $394.1m.
• Funds from operations (FFO) of $287.7m or 6.32cps, an improvement from 1H21 of $267.1m or 5.87cps. VCX reported an interim distribution of 4.7cps, reflecting a payout ratio of 84% of Adjusted FFO (AFFO). This was an improvement from 1H21: 3.4cps, payout ratio 62%.
• VCX retained a strong balance sheet (low gearing of 26.3% and liquidity of $1.8bn).
• VCX retained strong operating metrics: Occupancy maintained at 98.2%, due to resilient leasing activity (leasing 201 vacant stores during 1H22).
• On an MAT basis, total portfolio retail sales were +7.3% higher on strong growth in Victoria, up +17.0%, and up +4.5% in Covid-unimpacted states.
• According to VCX, collection of gross rental billings averaged 80% for 1H22, which is an improvement on the average cash collected for 1Q22. Net of estimated waivers in respect to 1H22 gross billings, cash collection averaged ~92% for the period.

Company Description:

Vicinity Centres Ltd (VCX) is a ASX listed REIT holding a quality retail portfolio and fully integrated asset management platform. VCX owns ~A$15.7 billion of retail assets. Some notable retail assets that Vicinity Centres owns or has an interest in: Chatswood Chase (NSW), Chadstone Shopping Centre (VIC), DFO South Wharf (VIC), Queens Plaza (QLD), Emporium Melbourne (VIC) and DFO Homebush (NSW). VCX is the result of the merger between Federation Centres and Novion Property Group.

(Source: Banyantree)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Investment Thesis:

• High quality property portfolio in childcare centres (85% of total) and medical centres (15%) with strong operating metrics (such as long weighted average lease expiries, triple net leases, and high-quality tenants) and outlook for childcare services and healthcare services (especially with aging population).
• Potential positive regulatory changes to childcare subsidies (i.e. increase in subsidies for childcare services from ~28 hours (or 3 days) to 4 days) and incentives for parents to work.
• Increasing macro trends of increased female labour participation rates as a key driver for ELC demand.
• Potential upside from its development pipeline in childcare centres.
• Solid balance sheet with low gearing.
• Strong and experienced management team. 
• Strong tenant profile.

Key Risks:

• Product recall.
• Trade wars escalate, leading to higher tariffs.
• Increase in competitive pressures.
• Adverse movements in AUD/USD.
• Emerging or developed market growth disappoints.
• Any worse or better prices for raw materials.

Key Highlights:

• Capital management. ANN has ample liquidity of ~$550m in cash and committed undrawn bank facilities, and conservative gearing profile (net debt/EBITDA of 1x vs 0.7x in pcp), despite net debt increasing +61.3% over pcp to $382.1m.
• The Board declared an interim dividend of US24.25cps, down -26.9% YoY, representing ~40% payout ratio.
• Cashflow. The Company delivered operating cash outflow of $22.1m (vs inflow of $12m in pcp) and cash conversion of 59.7% (after adjusting for short term incentives and insurance paid in half but relating to the full year), impacted by lower net receipts due to reduced profitability, higher working capital given lower payables as a result of timing and lower pricing from outsourced suppliers as well as payment of variable employee costs pertaining to FY21.
• 1H22 results summary. Sales increased +7.6% over pcp (+7.5% organic growth) to $1,009.2m as Healthcare GBU organic growth of +14.8% was partially offset by Industrial GBU organic sales decline of -2.9%.
• GPADE margins declined -860bps over pcp to 27.3% due to selling of high-cost Exam/SU inventory from outsourced suppliers at lower prices, Covid-19 related manufacturing disruptions and higher freight costs.
• EBIT declined -24.3% over pcp (-30.6% in CC) to $111m with margin declining -460bps to 11%, with decline in GPADE partially offset by reduced SG&A driven by continued cost discipline and lower variable employee costs.

Company Description:

Arena REIT (ARF) owns, develops and manages a portfolio of childcare properties and healthcare facilities. 

(Source: Banyantree)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Investment Thesis

• WPR currently trades at a discount to its NTA 
• Solid distribution yield. 
• On market buyback should be supportive of WPR’s share price levels. 
• As of FY21, quality $3.09bn asset portfolio (433 properties) with Weighted Average Lease Expiry (WALE) of 10.0 years. 
• Majority of assets on triple net leases, where the tenant is responsible for all property outgoings. 
• Waypoint REIT leases to Viva Energy who has an Alliance Agreement/Site Agreements with Coles Express and a brand License Agreement with Shell. 
• Potential expansion of property network by way of earnings accretive acquisitions. 
• Solid capital management with gearing with flexibility to make further acquisitions. 
• High barrier to entry; difficult to replicate asset portfolio.

Key Risks

• Tenant concentration risk. 
• Termination of the alliance agreement with Coles Express. 
• Competition by other branded service stations. 
• Increased cost of fuel supply putting pressure on tenants. 
• The sale of properties in the portfolio resulted in lower rental income. 
• Potential for excess supply of service stations thus affecting valuations and other property metrics of the portfolio.

Key Highlights: Relative to the pcp and on a constant currency basis: 

• Distributable Earnings of $61.4m, up +0.2%. 
• Statutory net profit of $213.8m, down -15.1%, due to lower net valuation gains on investment property partially offset by higher net valuation gains on derivatives. 
• Net tangible assets per security of $3.18, up +7.8% over 1H21-end of $2.95. WPR saw 71 investment properties (which equates to over one-sixth of the portfolio) independently valued in 1H22 with directors’ valuations performed on the balance. This resulted in a gross valuation uplift of $139.5m and the portfolio weighted average capitalisation rate (WACR) tightening to 5.02% at 1H22-end. 29 non-core assets exchanged or settled for $141.8m, in line with WPR’s carrying value at FY21-end. 
• WPR’s pro forma gearing of 26.1% declined from 27.3%. Pro forma weighted average debt maturity of 4.9 years, improved from 4.5 years. 
• Management confirmed the distribution for the three-month period ended 30 June2022 of 4.51 cents per security.

Company Description

Waypoint REIT Ltd (WPR) is an Australian listed REIT that owns a portfolio of service stations across all of Australia’s states and territories. It currently owns 469 service stations in its portfolio. Its service stations are leased on a long-term basis to Viva Energy Australia who has licence and brand agreements with Shell and Coles Express.

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Business Strategy & Outlook

Apartment Income REIT has significantly slimmed down the portfolio of multifamily buildings it owns over the past decade to just its best assets. The company invests in metropolitan markets with solid demographic trends that allow the company to maintain high occupancies and pass along consistent rent increases. Demand for apartments depends on economic conditions in their markets like job growth, income growth, decreasing homeownership rates, high relative cost of single-family housing, and attractive urban centers. Apartment Income’s portfolio is typically more suburban than its multifamily REIT peers, which has put it at a slight disadvantage over the past economic cycle but should favor growth in the company as millennials move from the urban centers out into the suburbs over the next few years. The company regularly recycles capital by selling noncore assets or markets and uses the proceeds to fuel targeted acquisitions with strong growth prospects, a strategy that has improved the company’s performance over the past few years. Apartment Income has significantly streamlined its portfolio and strategy over the past decade. 

While the company has decreased its portfolio from over 300 properties at the end of 2008 to 80 properties in the current portfolio, the company owns approximately the same number of assets over that time frame in the 8 markets it currently considers to be its core markets. The company’s exit from markets with lower growth prospects has increased the portfolio’s expected average growth. The company completed the sale of the last of its affordable living and asset management businesses in 2018, segments with limited growth prospects that the company has been trying to exit for years. In 2020, Apartment Income spun off its development pipeline and lease-up portfolio into its own company so that the remaining company could focus on the highest-quality assets. These efforts have brought Apartment Income’s portfolio closer to its peers in terms of both asset quality and market exposure. While the company still has a differentiated portfolio from its peers, it is to have similar internal and external growth opportunities.

Financial Strengths

Apartment Income is in decent financial shape from a liquidity and a solvency perspective. Debt maturities in the near term should be manageable through a combination of refinancing, asset sale proceeds, and free cash flow. The company should be able to access the capital markets when acquisition and development opportunities arise. 2023 net debt/EBITDA and EBITDA/interest to be roughly 7.2 and 3.8 times, respectively, both of which represent leverage levels higher than to see for the company. However, the company will generate solid EBITDA growth and maintain discipline in capital allocation decisions and should improve these leverage metrics over time. As a REIT, Apartment Income is required to pay out 90% of its income as dividends to shareholders, which limits its ability to retain its cash flow. However, the company’s current run-rate dividend is easily covered by the company’s cash flow from operating activities, providing Apartment Income plenty of flexibility to make capital allocation and investment decisions. The company’s credit rating is to remain stable through steady rental income growth in its existing portfolio and the stabilization of the company’s current developments, which should allow the company to continue to access the debt market in combination with equity issuance and asset dispositions to fund its debt maturities, acquisitions, and new development activity.

Bulls Say

• Apartment Income’s diversified portfolio of mainly suburban and infill assets should see less impact from supply, which is more concentrated in urban, luxury markets.
• Positive demographic and economic trends will fuel strong demand for apartment rentals, including the millennial generation, which is beginning to move to the suburbs but still lack the necessary capital to purchase a home. 
• While supply growth may be near a peak now, rising construction prices and higher lending standards will reduce construction starts and reduce supply growth in the future.

Company Description

Apartment Investment and Management Co. owns a portfolio of 84 apartment communities with over 26,000 units. The company focuses on owning large, high-quality properties in the urban and suburban submarkets of Boston, Denver, Los Angeles, Miami, Philadelphia, San Diego, San Francisco, and Washington, D.C.

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Business Strategy & Outlook

Equity Residential has repositioned its portfolio over the past decade to focus on owning and operating high-quality multifamily buildings in urban, coastal markets with demographics that allow the company to maintain high occupancies and drive strong rent growth. The company has sold out of inland and southern markets and increased its operations in high-growth core markets: Los Angeles, San Diego, San Francisco, Washington, D.C., New York, Boston, and Seattle. These markets exhibit traits that create demand for apartments, like job growth, income growth, decreasing homeownership rates, high relative cost of single-family housing, and attractive urban centers that draw younger people. The company regularly recycles capital by selling non core assets or exiting markets and using the proceeds for its development pipeline or acquisitions with strong growth prospects, a strategy that has produced strong returns. While Equity Residential has repositioned its portfolio into markets with strong demand drivers, it looks cautious on its long-term growth prospects, given that many markets have historically seen high supply growth. 

The urban, luxury end of the apartment market where Equity Residential traditionally operates has seen the highest amount of new supply, competing directly with the company’s portfolio. Additionally, the pandemic has caused many millennials to consider moves to the suburbs, either into suburban apartments or their own single-family homes, though demand for new urban apartments has remained resilient. Equity Residential has created significant shareholder value through development, though rising interest rates may cut into the expected return on new projects. However, high inflation has driven revenue significantly higher as apartment leases are generally only a year long, allowing Equity Residential to push rate growth that has matched inflation. While revenue growth is to decelerate as inflation growth is brought under control and also expect a period of higher than normal expense growth, the company’s funds from operations per share are already above pre pandemic levels and are continued same-store growth to push FFO even higher.

Financial Strengths

Equity Residential is in good financial shape from a liquidity and solvency perspective. The company seeks to maintain a solid but flexible balance sheet, which will serve stakeholders well. Near-term debt maturities should be manageable through a combination of refinancing, asset sales, and free cash flow. The company should be able to access the capital markets when acquisition and development opportunities arise. The2023 net debt/EBITDA and EBITDA/interest to be roughly 4.0 and 6.8 times, respectively, both of which are within the company’s targeted range and are reasonable levels. As a REIT, Equity Residential is required to pay out 90% of its income as dividends to shareholders, which limits its ability to retain its cash flow. However, the company’s current run-rate dividend is easily covered by cash flow from operating activities, providing plenty of flexibility to make capital allocation and investment decisions. The company’s credit rating to remain stable through steady rental income growth in its existing portfolio and the stabilization of its current developments, which should allow Equity Residential to continue to access the debt market in combination with equity issuance and asset dispositions to fund its debt maturities, acquisitions, and new development activity.

Bulls Say

• Equity Residential’s portfolio of high-quality assets should see relatively consistent levels of demand long term from high-income earners and will likely see just a small hit to fundamentals during the current pandemic as most residents have not experienced job losses. 
• Equity Residential has a history of finding accretive development opportunities to bolster its growth prospects. 
• While current supply deliveries are near peak levels, rising construction costs and tighter lending standards should lead to lower supply growth.

Company Description

Equity Residential owns a portfolio of 310 apartment communities with around 80,000 units and is developing three additional properties with 1,136 units. The company focuses on owning large, high-quality properties in the urban and suburban submarkets of Southern California, San Francisco, Washington, D.C., New York, Seattle, and Boston.

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Business Strategy & Outlook

Essex Property Trust is the most geographically focused multifamily real estate investment trust, with a portfolio of high-quality multifamily buildings positioned entirely on the West Coast: Los Angeles, San Diego, San Francisco, San Jose, and Seattle. These markets should experience strong, long-term demographic trends like job growth, income growth, decreasing homeownership rates, high relative cost of single-family housing, and attractive urban centers that draw younger populations, which allows the company to maintain high occupancies and drive rent growth above the U.S. average. The company’s markets to see job and income growth above national average, which should continue to support above average net operating income growth. The company’s solid internal operating outlook should be supplemented by its small but opportunistic development pipeline to create value for shareholders. 

While Essex’s portfolio focuses on markets with strong demand drivers, the pandemic caused many millennials to consider moving to the suburbs, either into suburban apartments or their own single-family homes, though demand for new urban apartments has remained relatively resilient. Additionally, the concentration of the Essex portfolio in tech-oriented West Coast markets leaves it exposed to the risk of a downturn and a resulting job/ income loss in the technology sector. High inflation has recently driven revenue significantly higher as apartment leases are generally only a year long, allowing Essex to push rate growth that has matched inflation. While revenue growth is to decelerate as inflation growth is brought under control and also expect a period of higher than normal expense growth, the company’s funds from operations per share are already above prepandemic levels and to continue same-store growth to push FFO even higher.

Financial Strengths

Essex Property Trust is in good financial shape from a liquidity and a solvency perspective. The company seeks to maintain a solid but flexible balance sheet, which will serve stakeholders well. Near-term debt maturities should be manageable through a combination of refinancing, asset sales, and free cash flow. The company should be able to access the capital markets when acquisition and development opportunities arise. The 2023 net debt/EBITDA and EBITDA/interest to be roughly 4.7 and 6.4 times, respectively, both of which are within the company’s targeted range and are, reasonable levels. As a REIT, Essex is required to pay out 90% of its income as dividends to shareholders, which limits its ability to retain its cash flow. However, the company’s current run-rate dividend is easily covered by the company’s cash flow from operating activities, providing Essex plenty of flexibility to make capital allocation and investment decisions. The company’s credit rating is to remain stable through steady rental income growth in its existing portfolio and the stabilization of the company’s current developments, which should allow the company to continue to access the debt market in combination with equity issuance and asset dispositions to fund its debt maturities, acquisitions, and new development activity.

Bulls Say

• Essex’s portfolio benefits from strong job and income growth and limited supply growth in its attractive West Coast markets. 
• Essex’s high-quality assets should see relatively consistent long-term demand from high-income earners and will likely see just a small hit to fundamentals during the current pandemic, as most residents have not experienced job losses. 
• Supply growth should be kept in check as rising construction costs and tighter lending standards should reduce the number of projects that are started.

Company Description

Essex Property Trust owns a portfolio of 253 apartment communities with over 62,000 units and is developing three additional properties with 571 units. The company focuses on owning large, high-quality properties on the West Coast in the urban and suburban submarkets of Southern California, Northern California, and Seattle.

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

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