Category: Property

Investment Thesis

• WPR currently trades at a discount to its NTA and the valuations 
•  Solid distribution yield. 
• 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 resulting 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: 

• Statutory net profit of $443.6m, up +58.5%, driven by 40bp of cap rate compression across the portfolio. 
• Distributable Earnings of $122.6m, up +3.5%. Distributable Earnings per security of 15.80 cents, up +4.25% (versus 15.15 cents in FY20).
•  Net tangible assets per security at FY21-end of $2.95, up +18.5% versus $2.49 in the pcp. 
• 159 properties (or over one-third of the portfolio) were independently valued with directors’ valuations for the remaining assets, resulting in a gross valuation uplift of $320.1m and portfolio weighted average capitalisation rate (WACR) tightening from 5.56% at FY20-end to 5.16% at FY21-end. 
• 40 non-core assets were divested for $137.1m, or a +10.5% premium to prevailing book value.
• Weighted average lease expiry of 10.0 years, with five leases renewed during the year for an overall +3.5% increase in rent. 
• WPR’s balance sheet remains strong with gearing of 30.1% is within the 30-40% target gearing range, with $59.6m of liquidity currently available and no debt expiring until 2024. WPR’s $200.0m Australian medium term note issuance and $285.0m of bank debt refinanced, extending weighted average debt maturity from 4.3 years to 5.0 years at FY21-end. 73% of debt hedged at FY21-end with a weighted average hedge maturity of 3.6 years. 
• WPR completed $173.3m of capital management initiatives including buy-back of 15.3m stapled securities for $41.1m (average price of $2.68 per security), a $132.2m return of capital (17cps) and a security consolidation approved by securityholders. 

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.

(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.

Business Strategy & Outlook

Kilroy Realty is a REIT that owns, develops, acquires, and manages premier office, life science, and mixed-use real estate properties in Los Angeles, San Diego, San Francisco Bay Area, Seattle, and Austin. It owns over 115 properties consisting of approximately 15 million square feet. The company has positioned itself to benefit from the burgeoning life sciences sector with material exposure in its current portfolio and future development pipeline. Management’s focus on ESG as it aligns its office portfolio to meet the sustainability requirements of its clients is impressive. Kilroy’s management has been able to successfully time the boom in technological employment occurring in the largest metropolitan areas along the West Coast. The company’s strategy is to achieve long-term sustainable growth by developing and owning the highest quality real estate in technology and life science market clusters. The quality of their portfolio is evident from the fact that its average age is just 11 years compared with 30 years for peers. Economic uncertainty emanating from pandemic recovery and the remote work dynamic created a challenging environment for office owners. Employees are still hesitant at returning to the office as office utilization remains around 45% of the pre-pandemic level. The vacancy rates in Los Angeles and San Francisco office markets were recorded at 20.8% and 21.9% respectively in first-quarter 2022. 

The current vacancy rate in both these cities is substantially higher than the vacancy rates during the height of the global financial crisis. The net absorption rate in West Coast markets remains negative to marginally positive as of first-quarter 2022 and rental growth figures are disappointing especially given the inflationary environment. Having said this, there’s an increasing number of companies requiring their employees to return to the office. In the long run, remote work and hybrid remote work solutions will gain increasing acceptance, but offices will continue to be the centerpiece of workplace strategy and will play an essential role in facilitating collaboration, harnessing innovation, and maintaining the company culture.

Financial Strengths

Kilroy Realty is in sound financial health. The company’s total debt was $4.1 billion as of the end of the first quarter in 2022, resulting in a debt/EBITDA ratio of 6.6 times. It can be pointed out that the debt/EBITDA ratio should trend lower over the next few years as fundamentals recover and EBITDA sees healthy growth. The weighted average interest rate on the company’s debt was 3.70% and the weighted average maturity period was 7.0 years. The maturity schedule of the company’s debt shows that there are no major debt maturities until the end of 2024 and the maturities are adequately spread. In an increasing interest rate environment 100% of the company’s debt is fixed-rate debt. The leverage used by the company to fund its capital structure is appropriate given the high-quality office portfolio. The fixed-charge coverage ratio, which is a ratio of EBITDA divided by all fixed expenses (including interest expenses), was 3.5 times and the interest coverage ratio was 8.4 times as of the end of the first quarter of 2022. As a real estate investment trust, Kilroy Realty is required to pay out at least 90% of its income as dividends to shareholders. The FAD payout ratio which is a ratio of dividends to funds available for distribution was reported at 67.0% for the year 2021. This shows that the company is generating sufficient cash to cover its fixed expenses and payout dividends. The company is also in a comfortable position with respect to liquidity as it has a robust liquidity position of around $1.4 billion including the cash on the balance sheet and the revolving credit facility. This gives the firm enough flexibility to fund its operations, pay dividends, pursue inorganic growth, and invest in organic development opportunities.

Bulls Say

• Kilroy’s focus on technology and life science market clusters should benefit the firm in the long run as there’s buoyant growth in these areas. In addition to this, the company’s high-quality office buildings with good amenities should benefit from the flight to quality trend.
• Kilroy’s management team has demonstrated that it is able to successfully recycle capital and pursue growth over the past business cycle.
• Regulatory barriers to construction in West Coast cities such as Los Angeles and San Francisco mean Kilroy will continue to benefit from muted supply.    

Company Description

Kilroy Realty is a premier owner and landlord of approximately 15 million square feet of office space across Los Angeles, San Diego, the San Francisco Bay Area, and greater Seattle. The company operates as a real estate investment trust.

(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

Cromwell Property Group is an Australian property company that currently generates most of its income from rent on properties it owns, and a lesser amount from property funds management. The latter includes property management services, investment management, and property acquisitions and development, in collaboration with customers. The group tends to own co-investment stakes in funds or properties that it manages for clients, particularly in its wholesale business. This provides a degree of alignment with clients, as well as providing another indirect source of rental income. Cromwell yearns to grow its funds management business, and is exploring options to dispose of property assets, and instead act as fund manager of those assets. Directly held property investments account for more than half of group revenue, nearly all of this being offices. The office portfolio has significant exposure to less supply-constrained areas such as fringe central business districts, or CBDs, or suburban sites in Sydney, or less built-up capital cities such as Canberra, Adelaide, or Brisbane.

Relative to its largest rivals, this makes Cromwell more exposed to economic and property market conditions. Increasing CBD supply and cautious businesses could particularly hurt tenant demand in suburban and fringe locations. Reassuringly, Cromwell has solid tenants in many sites, with government accounting for circa half of Australian rent, and a decade-long lease to Qantas a big chunk of its Australian rent. A minority of earnings is from funds management activities, but this segment is likely to grow as Cromwell sells property assets and increases its focus on funds management. This segment generates a high return on equity because while it relinquishes rental income, it frees up capital for use elsewhere, while still generating management fees. A portion of revenue comes from indirect property holdings, mostly Cromwell’s stake in the Cromwell European REIT, listed in Singapore.

Financial Strengths

Cromwell targets gearing of 30%-40%. This is aggressive given Cromwell’s portfolio is largely in secondary locations. Group gearing (net debt/assets) as at June 2022 was in the mid-40s, and gearing on balance sheet was just below the top of the target range. Cromwell points out that gearing should reduce once various assets are sold, but this is subject to appropriate prices being achieved. Other assets up for sale include an Italian logistics portfolio and its LDK retirement living business. That makes us nervous given the group’s substantial investments in Europe. There’s a long-term cost of debt of 6.5%, significantly above current levels. Interest-rate risk is hedged but with a weighted average term of just 2.1 years. The group has a manageable AUD 200 million of debt expiries in fiscal 2023, but has AUD 800 million of expiries in 2024. Cromwell doesn’t have a large buffer to the 60% gearing limit specified in its banking covenants. The latter is boosted by the additional earnings from holding the Polish retail assets. Gearing ratios would rise if asset prices fell, which is possible given a spike in interest rates in early 2022, and the effects of hybrid-working yet to be fully felt in office markets. The group has a pipeline of developments, and may make further debt-funded acquisitions, which could also push up gearing. This can be offset by divestments and growing earnings from its funds management business. Cromwell reduced its targeted gearing ratio in 2019, having previously stated a target range of 35%-55%. Gearing needs to reduce meaningfully, likely through further asset sales.

Bulls Say

• Cromwell’s portfolio avoids highly priced office assets in core CBD markets, opting instead for cheaper assets in secondary locations that it views as having greater potential for price upside or development.
• Cromwell’s solid tenant profile means income on its directly held portfolio is more secure than most of its REIT rivals. 
• A recovery in population growth could help shore up the value of Cromwell’s assets due to urban infill, with better quality sites achieving more rent bargaining power, and some low-quality sites potentially switching to higher value uses.

Company Description

Cromwell Property Group is an internally managed Australian real estate investment trust. It owns an Australian portfolio of (mostly office) properties and also develops and manages properties on behalf of third-party investors. The group is exploring opportunities to sell some assets, particularly in Europe, and to spin out its office portfolio into a separate REIT, leaving the Cromwell business to focus more on funds management. The timetable is uncertain given higher interest rates are a headwind for property sales.

(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 Long Wale REIT’s, or CLW’s, portfolio is high-quality. Liquor retailer and pub operator Endeavour Group is the largest tenant at 18% of passing income. At least four fifths of passing income comes from tenants as unlikely to miss a rent payment, including Endeavour Group, government agencies, Telstra, BP, Inghams, Coles, Metcash, Arnotts, Bunnings, Westpac, and Linfox. External fund manager Charter Hall has a strong track record and good relationships with tenants. But continued acquisitions may have diluted CLW’s portfolio, particularly as long-WALE assets have been in high demand, and thereby came with a hefty price tag. CLW has been acquisitive, buying properties and other REITs, using debt, and issuing new equity. It issued circa AUD 386 million of new equity in fiscal 2019 to fund acquisitions, including various offices, a bus terminal in Eagle Farm, Brisbane, and several agricultural logistics properties from Inghams on a sale-and-leaseback arrangement. 

In fiscal 2020 it issued AUD 850 million of equity to purchase telco exchanges, a Brisbane office building, Telstra’s Melbourne headquarters, and BP service stations in Australia. In fiscal 2021 it issued AUD 626 million of equity, using the proceeds to purchase Telstra exchanges, a portfolio of offices, and BP sites in New Zealand, taking its BP portfolio to circa AUD 500 million in Australia and New Zealand. CLW has issued substantial new equity every year since its 2016 listing, with the number of securities on issue tripling from circa 208 million in June 2017 to 720 million at March 2022. Higher interest rates are likely to slow the group’s expansion and weigh on earnings, given the group’s relatively high gearing.

Financial Strengths

CLW is in reasonable financial health. Interest cover is a solid 5.4 times, compared with a covenant of two times. To breach that, earnings would have to fall by more than 60%, other things equal, unlikely given revenue is underpinned by long leases. A breach arising from increased finance costs is also unlikely, as it would require finance costs to roughly triple. That sounds like a massive increase, and while it can be viewed as extremely unlikely, it’s not impossible considering a low average cost of debt of 2.8% as at 30 June, 2022. However, under that scenario management would likely respond, for example, by selling assets. Admittedly though under that scenario, asset sales would probably be at much lower prices than present, given the higher property capitalization rates that would be implied by substantially higher interest rates. Reassuringly, CLW has debt locked in with an average maturity of 5.2 years, and maturities are well staggered, with no outsize expiries until fiscal 2027. About 75% of existing debt is fixed or hedged, which limits the impact of interest rate moves on finance costs, at least in the near term. The group has additional debt and covenants pertaining to underlying joint venture vehicles. Loan-to-valuation ratios there are reasonable, with the largest exposure being a debt facility that funds the BP Australia portfolio, with an LVR of 39%, versus a covenant of 60%. That implies the asset values would have to fall by one third for a breach. All that said, a rise in interest rates could increase finance costs, and pressure valuations on CLW’s long-lease assets. That means gearing could elevate at the same moment that buying opportunities might arise in property markets, limiting opportunity to buy assets during downturns, or limiting income growth.

Bulls Say

• With markets pricing in substantial interest rate rises, listed long-duration assets are looking better value than in recent history.
• Long WALE REIT has very long leases to strong tenants.
• Charter Hall’s scale and track record of managing sale-and-leasebacks puts CLW in a strong position to acquire similar assets in future.

Company Description

Charter Hall Long WALE REIT is a diversified property trust, with assets in Australia and New Zealand. Occupancy is near 100%, and weighted average lease length is a long 12.0 years (as at June 30, 2022). More than half the REIT’s leases are triple-net, where tenants pay rates, maintenance and most outgoings. The REIT’s circa AUD 7 billion portfolio of 550 properties spans offices, industrial, retail, social infrastructure, and agricultural logistics assets, with more than three quarters of the portfolio on Australia’s eastern seaboard. Leases are evenly spread between CPI-linked (6.3% average rent increase expected in 2023) and fixed uplifts (average 3.1% uplift expected). The tenant profile is strong, with almost all occupiers being government, multinational or national businesses.

(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

Dexus is a diversified Australian REIT that generates income from charging rent; managing property for clients; funds management, which typically includes property management and investment management services; and development and trading. Rent is the biggest revenue driver with the office and industrial divisions accounting for over 90% of funds from operations, or FFO. High-quality offices in Sydney dominate, with Dexus having interests in many trophy assets including Sydney’s Australia Square, 1 Farrer Place, and 1 Bligh Street. It also owns or manages a seasoned industrial portfolio, including the massive Dexus Industrial Estate in one of Australia’s fastest-growing industrial precincts, Truganina, Victoria. It also has a small retail portfolio, mostly retail sites attached to offices, and a small healthcare portfolio. Dexus has sold stakes in office, industrial and healthcare assets into funds management vehicles that it manages.

Funds management is the smallest but fastest-growing portion of revenue, and more developments are being rotated into funds management vehicles, adding capital efficiency and management fees. It accounted for about 6% of revenue in fiscal 2019, and the funds management grows by about a third by the end of the discrete 10-year forecast period. The high-quality portfolio should see Dexus perform better than most, with about 90% of its office portfolio either premium or A-grade by Property Council of Australia guidelines. Dexus’ portfolio has held up relatively well in major downturns compared with rivals with lower-quality portfolios. It’s hard to imagine a worse scenario for an office property than that experienced in 2020-21. In those years, Dexus reduced rents somewhat on the small portion of leases that expired, but occupancy remained high.

Financial Strengths

Dexus is in solid financial health, with look-through gearing of 26.9%, below the group’s targeted range of 30%-40%. The group has substantial buffers to its banking covenants. However, gearing is likely to rise as Dexus commences development projects. Gearing ratios are also likely to rise as asset prices fall, given remarkably low capitalization rates of 4%-5% being seen on CBD office transactions in fiscal 2022, and bond markets pricing in meaningfully higher interest rates. The group has a large pipeline of developments, and could make debt-funded acquisitions during the downturn, or a buyback, which could also push up gearing. This can be offset by divestments, including rotating some assets into its funds management vehicles, thereby taking them off the group balance sheet. On balance though, it still can be expected gearing to rise from current levels. Dexus’ reasonably conservative management team looks comfortable, and the health of other financial metrics. Interest cover is 6.0 times on a look-through basis, compared with covenant of 2 times. Interest rate sensitivity is modest, with about two thirds of debt being hedged, and debt maturities are staggered. If inflation intensifies, further rate rises could increase the cost of rolling over maturing debt facilities and put pressure on Dexus’ earnings and distributions in the near term. However, it can be consistently assumed a long-term cost of debt of 5.8%, significantly above current levels.

Bulls Say

• Dexus owns a high-grade office property portfolio and a solid industrial portfolio, and it will likely benefit from an ongoing demand for quality property from the likes of pension funds, sovereign wealth funds and other offshore investors.
• Population growth boosts Dexus’ assets with high-quality sites achieving more rent bargaining power, and some low-quality sites potentially switching to higher-value uses.
• Lower credit spreads and improving rental collections as office precincts recover could offset potential interest-rate rises.

Company Description

Dexus is a major Australian property owner, developer, and manager. It owns a large, high-grade office portfolio and a smaller industrial portfolio in Australia. It also manages properties on behalf of third-party investors. Dexus was formed by the merger of Deutsche Office, Industrial and Diversified Trusts. Management is internal, as opposed to external, as it is for some peers.

(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

Tenants prefer energy-efficient offices, and this favours large office REITs that own modern buildings. The best-placed office names are Charter Hall, Charter Hall Long WALE REIT, Dexus, GPT and Mirvac—they screen as significantly undervalued, and their office portfolios are among the most energy-efficient in Australia. The “Urban Developer—New Workplace” conference on Sept. 29 endorsed the importance of environmental credentials. Jones Lang LaSalle Australia observed that Melbourne vacancy is in the midteens for prime offices, but is only about 7% for buildings with high (5-6 star) NABERS Energy ratings. Tenants moving offices are said to be increasing their energy ratings by an average of 0.4 stars—some are increasing by as much as 3 stars, to get into 5.5- and 6-star buildings. Among the office REITs, at the top of the NABERS Energy ratings is GPT (average of 5.8 stars), followed by Mirvac (5.3), Charter Hall Long WALE REIT (5.3), Growthpoint (5.2), Charter Hall (5.1), Cromwell (5.1), Dexus (5.0), Stockland (5.0), and Abacus (4.7). NABERS Water ratings are also good, starting with Mirvac (5.3), Growthpoint (5.1), Charter Hall Long WALE REIT (5.1), Charter Hall (4.8), Dexus (4.7), Stockland (4.7), Abacus (4.5), and Cromwell (3.9). GPT didn’t disclose an average for its portfolio, but the group’s individual buildings have very high ratings, many above 5.0 and nearly all above 4.5. The increasing focus on energy efficiency supports and it makes no change to office forecasts or valuations at this time. The fair value estimates for office names are: Mirvac (AUD 3.10), Growthpoint (AUD 3.95), Charter Hall Long WALE REIT (AUD 5.10), Charter Hall Group (AUD 15.85), Dexus (AUD 10.80), Stockland (AUD 4.30), Abacus (AUD 3.30), and Cromwell (AUD 0.95). It ascribe no moats to any of these office stocks, apart from Dexus and Charter Hall, who earn narrow moats partly due to their funds management businesses.

Financial Strengths

The Abacus balance sheet is in reasonable shape, after a circa AUD 400 million equity raise in December 2020 bolstered the group’s cash reserves. It has a low cost of debt, averaging 2% in fiscal 2022. Look-through gearing as at June 30, 2022 was 29%. Gearing was 34% as measured according to its bank covenants (net bank debt divided by total assets minus cash). Abacus’ banking covenants specify a gearing limit of 50%, implying assets could fall in value by about a third before a covenant breach (noting that the gearing calculation specified in the covenants is higher than Abacus’ own definition). The fiscal 2022 interest cover of 5 times against a covenant limit of 2 times. That’s also a large buffer, and one wouldn’t expect that to be breached even if income declined due to upcoming lease expiries. However, it is gearing to rise back toward the group’s maximum targeted gearing of 35%, given the frantic pace of storage acquisitions and development, and potential development projects in its office portfolio. One can view that as high as one can estimate storage will account for about half of group assets, a sector that has minimal leases and weaker tenants than typical in a commercial property portfolio. Abacus has no debt expiring until fiscal 2024, when AUD 66 million expires, so one doesn’t see imminent threats. However, given the group’s high debt/EBITDA ratio of more than 6 times, refinancing could be a risk if interest rates rose substantially, or economic conditions deteriorated.

Bulls Say

• Storage demand should recover as economic activity improves, driving up occupancy and revenue per available square metre. 
• While many of Abacus’ assets are in secondary locations, this means they have greater potential upside if urban infill pushes sites to a higher and better use.
• Abacus has substantial expiries looming in its office portfolio. However, it may choose to redevelop the assets, adding value, and leasing the renewed buildings amid an economy that has recovered from coronavirus.

Company Description

Abacus Property Group is a diversified property group, with interests ranging from storage, office, retail, property lending, and residential development. However, Abacus is striving for a simpler and more conservative business, primarily as an owner of self-storage and office assets. It remains an active acquirer and developer of self-storage assets. Abacus is a stapled security comprising a share in each of Abacus Group Holdings and Abacus Group Projects and a unit in each of Abacus Trust and Abacus Income Trust, which can only be traded together.

(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

Mirvac trades as a stapled security, comprising one share in the corporation and one unit in Mirvac Property Trust. About 80% of earnings come from a passive commercial property portfolio housed within Mirvac Property Trust. Earnings from the rent-collecting business are usually stable and predictable, while most of the remainder comes from a residential development business that can be lucrative but more cyclical. Mirvac’s REIT status results in low company tax because trusts pass income and tax liabilities through to the end investor. Mirvac pays slightly more tax than some passive real estate investment trusts, because of the development business within the Mirvac corporation. Mirvac is gradually reweighting its business in several ways. It is allocating most of its capital toward passive rent collecting. Within that, it is allocating more to industrial and mixed-use commercial, trimming retail exposure, and refocusing its retail portfolio on urban areas. The residential development side has been weighted to houses and land lots recently, but a recovery is expected in apartment demand in coming years.

Mirvac is rolling out build-to-rent residential projects, though this is only a small portion of the portfolio at present. Initial projects have seen strong take-up from residents, however, it remains to be seen whether the sector can move beyond a niche offering. Mirvac’s current crop of projects completed or in development look well placed because of an acute shortage of housing and rising rents in inner urban areas. Mirvac’s first project, LIV Indigo in Sydney, was 98% leased by June 2022. LIV Munro in Melbourne is due for completion in November 2022 and other projects in Melbourne and Brisbane are scheduled to complete in 2024. The concept looks viable with low interest rates and low yields on commercial property, and few build-to-rent rivals, but should those conditions reverse, other business lines may look more attractive.

Financial Strengths

Mirvac is in reasonable financial health, with gearing (net debt/assets) of 21%, based on its June 30, 2022, accounts. This is at the low end of the group’s targeted range of 20%-30%. The group’s average cost of debt was 3.4% over fiscal 2022, and it is expected to grind higher in the wake of interest-rate rises. Even so, the group’s weighted average debt maturity is about six years, debt maturities are modest until fiscal 2025 and more than half of debt is hedged. This gives it flexibility, which could come in handy in acquiring new sites for the residential land bank or office portfolio during any downturn. Gearing will rise based on further acquisitions and development, and asset devaluations in its commercial property portfolio. However, Mirvac will remain prudent on committing to new developments, which should prevent gearing rising excessively until the economic outlook is clearer. Caution is appropriate, given that the extended boom in property has pushed up asset prices, which could make gearing appear to be lower than it really is. Moreover, pressure on earnings is likely, and dividend cuts remain a risk if the group decides it needs to preserve cash.

Bulls Say

• Vicinity is arguably the REIT most exposed to an economic and health recovery. Vicinity’s operating performance will likely outperform other REITs as conditions normalise.
• Vicinity has the strongest balance sheet of the large and high-end mall operators listed in Australia, so the risk of another dilutive equity raising is low.
• Vicinity has substantial development opportunities, including the Bankstown and Box Hill town centres, Chatswood Chase upgrade, and several development opportunities at its flagship Chadstone asset.

Company Description

Mirvac is one of Australia’s largest residential developers, particularly apartments. Residential development earnings are volatile, generating about a fifth of EBIT in fiscal 2022, despite 88% of the group’s invested capital being allocated to passive property ownership. Over the 10-year discrete forecast period it is not expected that the residential development will exceed the lofty peaks seen in 2017, when Mirvac settled 3,400 residential lots, however, a modest growth over time as Mirvac gains market share. About 80% of Mirvac’s earnings come from a predictable commercial property portfolio, more than half of which is office and another fourth in retail, a small industrial portfolio, and a fledgling build-to-rent residential portfolio.

(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

Vicinity Centres’ portfolio includes a wide variety of Australian retail property assets. Its largest asset is Chadstone, which makes about AUD 3 billion of the AUD 14 billion portfolio. CBD assets make up about 15% of the portfolio, including Sydney’s QVB, Strand Arcade, The Galleries, Brisbane’s Queen’s Plaza and Myer Centre, Melbourne’s Myer Bourke St and Emporium. Vicinity also owns factory outlet centres, and suburban and country shopping centres, such as Carlingford and Warriewood in Sydney, Buranda and Gympie in Queensland, Mornington Central and Broadmeadows Central in Melbourne, and WA centres in Karratha, Mandurah, and Rockingham. Most of Vicinity Centres’ revenue is rent from malls. The balance is mostly property management, development and leasing fees for third-party investors who hold assets jointly with Vicinity Centres. It also has ancillary income from car parking, advertising, and one-off assets such as hotels. The group’s mixed-use strategy has added value, developing apartments, offices, and hotels above or neighbouring its centres. However, the strategy to be less lucrative in the near to medium term due to pressure on house prices, office values, and tourism.

Vicinity has a number of development opportunities, many of them mixed use, involving offices, hotels and apartments. Many developments that hadn’t commenced construction were delayed by the pandemic, but Vicinity is now looking to gradually reactivate the development pipeline. Projects include an office tower on the footprint of the Chadstone mall, fully leased to Officeworks, office towers at Bankstown Central, and a redevelopment at Victoria Gardens. It also has major town centre development plans at Box Hill, and redevelopment opportunities at Chatswood Chase. The long-dated and modular pipeline gives Vicinity Centres flexibility to allocate development capital depending on demand for retail, office, apartment, hotel and other.

Financial Strengths

Vicinity Centres is in better financial health than most of its rivals after it raised more than AUD 1 billion in additional equity capital in June 2020. Gearing (net debt/assets) as of June. 30, 2022 was 25.1%, at the low end of its stated 25%-35% target. The gearing to rise gradually, and with that given Vicinity’s high-quality portfolio and income underpinned by leases. While physical asset values record their first significant increase in a while, at the December 2020 half-year results, interest rate rises could halt that momentum. There’s no anticipation that asset value declines as large as the negative 11.4% decline in fiscal 2020. However, further devaluations could push up gearing modestly. Development projects will likely push gearing up higher. Vicinity is yet to commit to decisions on several large projects though it is progressing with planning approval and some large decisions are close. It’s hard to imagine many worse scenarios for a mall operator than a pandemic, but Vicinity maintained a consistently high occupancy rate at its malls through 2020 and 2021. Operating earnings before interest are usually relatively secure and predictable over the medium term, with only 3%-4% of rental income related to tenant sales turnover. As the economy recovers the occupancy is to remain high, with the swing factor being rents.

Bulls Say

• Vicinity is arguably the REIT most exposed to an economic and health recovery. Vicinity’s operating performance will likely outperform other REITs as conditions normalise.
• Vicinity has the strongest balance sheet of the large and high-end mall operators listed in Australia, so the risk of another dilutive equity raising is low.
• Vicinity has substantial development opportunities, including the Bankstown and Box Hill town centres, Chatswood Chase upgrade, and several development opportunities at its flagship Chadstone asset.

Company Description

Vicinity was created after the merger of Federation Centres and Novion in June 2015, creating one of Australia’s largest retail REITs. Its directly and indirectly owned assets have a book value of about AUD 14 billion. The assets are skewed to large, high-end shopping centres, with about half in major regional malls, a fifth in subregional, 15% in CBD locations, 13% in outlet centres, and 1% in neighbourhood malls.

(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.