Category: Property

An investment property is like any other investment: the goal is to generate a profit. In real estate, this is achieved through income or through a profitable resale. The way in which a property is used has a significant impact on its value. Investors sometimes conduct studies to determine the best and most profitable use of a property.

At LaVerne Capital, we recognize that the requirements of each of our clients are exclusive. We make sure your approach is planned & structured.

Categories
Property

SCA Property Group (SCP) reported solid and in line FY22 results

Investment Thesis

  • Lackluster FY23 distribution guidance.
  • SCP’s share price is trading on par to its NTA.
  • Sustainable distribution yield.
  • Strong and experienced management team.
  • Retail properties continue to be a softening broader market in Australia.
  • Current low interest rate environment fosters growth and demand in the retail industry.
  • Improving trends in supermarket sales growth, with strong performance from Woolworths.
  • Robust development outlook and potential upside from development pipeline and new acquisitions. 
  • Increasing exposure to anchor and non-discretionary customers, providing sustainable and longer-term cashflows and rental income.
  • SCP’s portfolio occupancy rate is 98.3%; it has in excess of 1,300 tenants. The bulk of gross rent comes from Woolworths and Wesfarmers, and of the remaining portion, there is a heavy weighting towards non-discretionary categories.

Key Risks

  • Potential further Covid-19 impacts may result in rental earnings and valuation declines.
  • Likely increases in interest rates or deterioration in credit/capital markets in coming years. This narrows the interest rate-dividend yield differential.
  • Digital trend of online shopping reduces demand for retail spaces especially with the entrance of Amazon in the Australian market. Hence, this may also affect valuations of assets.  
  • Any deterioration in property fundamentals especially delays with developments, declining asset values, retailer bankruptcies and rising vacancies.  
  • Lower sales growth for WES/Coles and WOW because of Costco and Aldi taking market share.

Key Highlights: 

Relative to the pcp and on a constant currency basis:  Net Profit After Tax of $487.1m, up +5.2%. Funds from Operations (FFO) of $192.7m, up +21.2%, or FFO per unit of 17.40cpu, up +17.9%. Adjusted Funds from Operations (AFFO) of $169.5m, up +24.8%, or AFFO per unit of 15.30 cpu, up +21.3%.

  • SCP declared distributions of 15.20 cpu, up +22.6% and represents a payout ratio of 99.8% of AFFO.
  • Gearing of 28.3% at 30 June 2022, is down from 31.3% at 30 June 2021 mainly due to valuation uplift. Gearing remains below the lower end of target range of 30-40% (with management highlighting they prefer to remain below 35% at this point in the cycle).
  • SCP’s average cost of debt is 2.5% (versus 2.4% in FY21), with 69.6% of debt fixed or hedged at FY22-end (versus 50.8% at FY21-end). Subsequently, management noted the percentage of debt fixed or hedged was increased to 81%. SCP has no debt maturities until June 2024.
  • Property portfolio value of $4,460.9m, up $460.9m since FY21-end driven by $421.0m valuation uplift and acquisitions of $347.5m, offset by divestments of $307.6m. SCP’s net tangible assets of $2.81 per unit at FY22-end, is up +11.5% from $2.52 at FY21-end due to the investment property valuation increase.
  • Property Portfolio Highlights. Relative to the pcp:  The value of investment properties increased to $4,460.9m during FY22 (from $4,000.0m at FY21-end), due to acquisitions of $347.5m and valuation increase of $421.0m, offset divestments of $307.6m. Total portfolio weighted average capitalisation rate is now 5.43% (versus 5.90% at FY21-end), with sub-regional centres compressing to 5.87% (from 6.35% at FY21-end), neighbourhood centres compressing to 5.28% (from 5.77% at FY21-end) and freestanding centre compressing to 4.63% (5.50% at FY21-end). 
  •  Total comparable store MAT sales are 10.0% higher than pre-Covid. 
  •  Portfolio occupancy of 98.1% by GLA was slightly up from 97.4%, with specialty vacancy of 5.0% of GLA (compared to 5.1% at FY21-end), driven by re-leasing of former Gateway Target vacancy (with a new grocer/deli) and acquisitions with higher occupancy levels. SCP saw leasing spreads increase to 2.0% in FY22, versus (0.4%) in FY21, including 3.3% in 2H22. (4) SCP completed seven acquisitions totalling $347.5m (excluding transaction costs) in FY22. In July 2022, SCP acquired five convenience-based shopping centres from Primewest for $180.0m (excluding transaction costs). (5) SCP’s “SURF 3” fund was wound up in FY22, seeing an internal rate of return of 11% per annum for unitholders. SCP launched a new fund with GIC (‘SCA Metro Fund’) in April 2022; 80% GIC owned, and 20% SCP owned, who will also be the Property Manager and Investment Manager. The Fund has an initial target fund size of $750m. SCP divested seven seed assets to the fund for $284.5m, and post reporting date, the Fund acquired a neighbourhood shopping centre at Beecroft in metropolitan Sydney (NSW) for $65.0m, which brings gross asset value to $349.5m.

Company Description

SCA Property Group (SCP) owns a diversified shopping centres portfolio located throughout Australia. The portfolio is currently valued at $4,426.4 million. SCA Property Group predominantly focuses on convenience retailing through its ownership and management of a quality portfolio of neighborhood and sub-regional shopping centres and freestanding retail assets. 

(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.

Categories
Property

Goodman Group GMG remains well positioned to capture market rental growth driven by its high-quality portfolio of industrial assets

Investment Thesis

  • GMG’s high-quality investment portfolio which is globally diversified and gives exposure to developed and emerging markets.
  • Strong property fundamentals which should see valuation uplifts. 
  • With more than 50% of earnings derived offshore it is expected GMG to benefit from FX translation and a prolonged period of lower rates.
  • Transitioning to longer and larger projects in development
  • Strong performances in Partnerships such as Cornerstone.
  • GMG’s solid balance sheet providing firepower and access to expertise to move on opportunities in key gateway cities with demand for logistics space (and supply constraints) and diversify risk by partnering (i.e. growth in funding its development pipeline) or co-investment in its funds and or make accretive acquisition opportunities. 
  • Expectations of continual and prolonged lower interest rate environment globally (albeit potential rate hikes in the US) should benefit GMG’s three key segments in Investments, Development and Management.

Key Risks

  • Any negative changes to cap rates, net property income.
  • Any changes to interest rates/credit markets.
  • Any development issues such as delays.
  • Adverse movements in multiple currencies for GMG such as BRL, USD, EUR, JPY, NZD, HKD and GBP.
  • Any downward revaluations.
  • Poor execution of M&A or development pipeline.
  • Key man risk in CEO Greg Goodman.

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

  • Property Investment saw underlying property fundamentals remain strong leading to like-for-like net property income growth of +3.9%, occupancy increasing +60bps YoY to 98.7% with WALE improving +0.4 years to 5.2 years and continued strong leasing activity with 4.5 million sqm leased, equating to $551.9m of annual rental property income
  • Development saw work in progress increase +28% YoY to $13.6bn, with 62% pre-committed (at completion projects were 99% leased on average) and a forecast yield on cost of 6.6%.
  • Management saw external AUM grow +27% YoY to $68.7bn driven by $6bn in development completions and revaluations. Partnerships continued to perform well with total returns averaging 21.4% and retained significant financial flexibility with $18.1bn available in equity commitments, cash and debt.

Company Description

Goodman Group Ltd (GMG) own, manage, develop industrial, warehouse and business park property in Australia, Europe, Asia and Americas. GMG actively seeks to recycle capital with development properties providing stock for ownership by either the trust or third-party managed funds, with fees generated at each stage of the process.

(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.

Categories
Property

Charter Hall Social Infrastructure REIT (CQE) reported as expected FY22 earnings results

Stock market information

Investment Thesis:

  • CQE trades on a ~6.7% discount current NTA, which is not justified.
  • Solid dividend yield.
  • Quality assets with strong property fundamentals such as 100% occupancy and WALE of 14.3 years.
  • Majority of leases are triple-net leases.
  • CQE is a play on (1) population growth; (2) increasing awareness of early childhood education; (3) increasing the number of families with both parents working and hence demand for childcare services. CQE has increased its portfolio weighting towards social infrastructure assets.
  • CQE’s tenants possess strong financials 
  • Strong history of delivering continuing shareholder return and dividends.
  • Solid balance sheet position.
  • Strong tailwinds for childcare assets and social infrastructure assets.

Key Risks:

  • Regulatory risks.
  • Deteriorating property fundamentals.
  • Concentrated tenancy risk, especially around Goodstart Early Learning.
  • Sentiment towards REITs as bond proxy stocks impacted by expected cash rate hikes.
  • Broader reintroduction of stringent lockdowns across Australia due to Covid-19. 

Key Highlights: FY22 Results Highlights. Relative to the pcp:  Statutory profit of $358.5m, up $184.4m relative to the pcp. 

  • Operating earnings of $62.9m, was up +8.4%. Operating earnings of 17.3cpu, up +8.1%. 
  • The REIT declared distribution of 17.2 cpu, up +9.6%. 
  • Gross assets of $2.1bn, up 35.0% since June 2021. Net Tangible Assets of $4.08 per unit up +25.5% since June 2021. 
  • CQE has a weighted average debt maturity of 3.9 years and no debt maturity until January 2025. As at 30 June 2022, including contractual commitments, CQE’s balance sheet gearing is 29.8% and look-through gearing is 30.7%. CQE’s available investment capacity is $160m, comprising undrawn debt facilities. 
  • Property Portfolio Highlights. CQE’s property portfolio saw a valuation uplift of $269.43m or +19.4%. This resulted in the passing yield across the property portfolio firming to 4.7%. Overall, CQE property portfolio was up +38.8% to $1.97bn via both acquisition and valuation activities during FY22.
  •  CQE made $232.7m of social infrastructure assets acquisitions including 234 childcare assets, 25 healthcare assets and a 50% interest in a recently completed TAFE Queensland education campus. 
  • CQE completed 6 childcare development assets with a total value of $42.3m. 
  • CQE’s property portfolio retained a long WALE of 14.3 years, 100% occupancy, and solid lease expiry profile with less than 5% of leases expiring within the next five years. According to management, 75% of leases are on fixed rent reviews (average 3.0%) and the balance CPI-linked; and 44% of rental income subject to market rent reviews within the next 5 years. CQE retained strong tenant customers including Goodstart Early Learning, G8 Education, Only About Children, Mater Misericordiae, Busy Bees, Healius and both state and local Governments.
  • Property Portfolio 

Company Description:

Charter Hall Social Infrastructure REIT (formerly Charterhall Education Trust) (ASX: CQE) is an ASX listed Real Estate Investment Trust (REIT). It is the largest Australian property trust investing in early learning properties within Australia and New Zealand but recently widen its mandate to also invest in social infrastructure properties.

(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.

Categories
Property

VCX currently trades at -15.7% discount to its NTA; management provided a strong FY23 guidance

Above view of chef engineer in shirt and tie explaining sketch to manual workers in industry

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

  • “Vicinity expects FY23 FFO per security to be in the range of 13.0 to 13.6 cents, AFFO per security to be in the range of 10.9 to 11.5cents and full-year distribution to be within Vicinity’s target range of 95-100% of AFFO. Adjusting for waivers and provisions written back in FY22, the FFO per security guidance for FY23 represents between 10% and 15% growth, which is expected to be driven by continued growth in rental and ancillary income and strengthening cash collections, partially offset by higher net interest costs”
  • The Board declared a final distribution 5.7cps, which brings full year distribution to 10.4cps, which equates to payout ratio of 95.3% of AFFO, within Vicinity’s target payout range.
  • VCX continues to execute on its $2.9bn retail and mixed-use development pipeline of projects which are expected to complete between FY23 and FY27, with ~85% of the development spend focused on six major mixed-use opportunities including Chadstone, Box Hill Central and Victoria Gardens in Victoria, Chatswood Chase Sydney and Bankstown Central in NSW and Buranda Village in Queensland. During FY22, VCX commenced Chadstone’s new Entertainment and Leisure precinct, expected to complete by FY23-end; remixed and upgraded the retail precinct in Box Hill Central South; commenced the fresh food and mini majors’ precincts at Bankstown Central; completed upgrades at Mornington Central.

Company Description

Vicinity Centres Ltd (VCX) is an 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), QueensPlaza (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.

Categories
Property

GPT saw 1H22 FFO increase +8% yoy, despite the ongoing impacts of Covid-19 pandemic

Restaurant interior in Rome, Italia

Investment Thesis:

  • Improving underlying conditions, although some uncertainty remains. 
  • Solid portfolio across Retail, Office and Logistics but short-term risk around valuations and property fundamentals due to Covid-19.
  • Diversified with Funds Management business generating income.
  • Balance sheet strength with gearing ratio at 28.2%, well within target range of 25-35%.
  • Strong tenant demand for the GPT east coast assets. 

Key Risks:

  • Breach of debt covenants.
  • Inability to repay debt maturities as they fall due.
  • Deterioration in property fundamentals, especially delays with developments.
  • Environment of expected interest rate hikes. 
  • Downward asset revaluations.
  • Retailer bankruptcies and rising vacancies.
  • Outflow of funds in the Funds Management business reducing GPT’s income.
  • Tenant defaults as the economic landscape changes.

Key Highlights: FY22 outlook – FFO guidance upgraded to higher end of prior range. Management expects: FFO of ~32.4cps, up +12.4% y/y vs prior guidance of 31.7-32.4cps. 

  • Distribution of 25cps, up +7.8% y/y.
  • Cost of debt to increase y/y with further increase in FY23 driven by increase in cash rate from RBA. 
  • Retail sales growth to moderate, which combined with fixed rental increases and positive leasing demand should keep good momentum across the retail portfolio. 
  • Office leasing volumes to improve. 
  • Logistics portfolio to benefit from strong rental growth, partially offset by increased development costs amid escalation in construction costs.
  • Capital management. Distribution per security of 12.7 cents, down -4.5% y/y largely as a result of an increase in leasing incentives, equating to a 100% payout of operating FCF, up +10bps y/y. 
  • Ample liquidity of $1,124m, up +20.3% over 2H21, held in cash and undrawn bank facilities.
  • Strong balance sheet with gearing of 27.3%, down -90bps y/y and towards the lower end of management’s gearing range of 25-35% and investment grade credit ratings of A (negative)/A2 (stable) by S&P/Moody’s.
  • Debt profile remains 71% hedged. To address the impact of rising interest rates, management increased hedging levels substantially in late July, resulting in the Group being 71% hedged on drawn debt for the next 2.5 years at an average rate of 2.8% (fixed hedge rate for FY22 at 1.7% and increases in FY23 to 2.6% for 80% of current debt). Management expects all-in cost of debt to be in the low 3% range in FY22 and increase to the low to mid 4% range in FY23 with a high level of hedge protection in place. 
  • 1H22 results summary. Funds from Operations (FFO) increased +8% y/y to $326.5m, driven by a +3% y/y increase in Retail, +10.7% y/y increase in Office, +20.8% y/y increase in Logistics and +15.1% increase in Funds Management, partially offset by +22.1% y/y increase in finance costs amid higher debt from acquisitions and developments and +13.8% y/y increase in corporate overheads due to higher technology and reorganisation costs and FFO per security increased +9% y/y to 17.04 cents. 
  • NPAT declined -30.3% y/y to $529.7m primarily due to investment property valuation increases of $219.5m, down -53.5% y/y. 
  • Net Tangible Assets (NTA) increased +2.8% over 2H21 to $6.26 per security, driven by revaluation gains for both the Logistics and Retail portfolios primarily due to rental growth and development completions. 
  • 12-month total return was 10.8%, reflecting an FFO yield of 5.2% and a capital return of 5.6%. 
  • Operating cashflow declined -6% y/y to $271.8m and FCF declined -4.6% y/y to $243.3m, driven by a higher amount of lease incentives paid in Office. 

Company Description:

GPT Group (GPT) owns and manages a portfolio of high-quality Australian property assets, these include Office, Business Parks and Prime Shopping Centres. Whilst the core business is focused around the Retail, Office and Logistics, it also has a Funds Management (FM) business that generates income for the company through funds management, property management and development management fees. GPT’s FM business has the following funds, GPT Wholesale Office Fund (GWOF – A$6.1b) launched in July 2006, GPT Wholesale Shopping Centre Fund (GWSCF – A$3.9b) launched in March 2007 and GPT Metro Office fund (GMF – A$400m) launched in 2014.

(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.

Categories
Property

BWP reported as expected and in line FY22 results, as usual, BWP’s total income of $153.3m, was up 0.7% on pcp

Property investment, savings money for buy new home concepts. A man hand holding coin over small residence house, stack of coins and money bag with blurred real estate. A sustainable investment.

Investment Thesis:

  • Stable and sustainable distribution yield.
  • 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. 

FY22 Results Highlights. Relative to the pcp: BWP declared final distribution of 9.2cpu, which brings full-year ordinary distribution to 18.29cpu, and in line with the previous year. 

  • BWP conducted 14 market rent reviews (including 10 Bunnings Warehouse properties) which saw rents broadly in line with the market. 
  • BWP saw like-for-like rental growth of 3.3% which takes into account average inflation on Consumer Price Index (“CPI”) linked leases of 3.3%.
  • Weighted average cost of debt of 3.0% for the year, 2.7% at FY22-end. 
  • Weighted average lease expiry (“WALE”) of 3.9 years at FY22-end.
  • BWP’s portfolio remains 97.5% leased.
  • BWP’s portfolio achieved net revaluation gains on the property investment portfolio of $371.9m for FY22. Net tangible assets of $3.87 per unit at 30 June 2022 (versus $3.29 per unit in FY21), up 17.6% on the previous year. 
  • Gearing (debt/total assets) is at 15.1% at FY22-end, versus 17.7% in FY21, and is below the BWP Board’s preferred range of 20 to 30%. The interest cover ratio (earnings before interest /interest expense) was 9.6x (versus 8.8x in FY21).
  • Property portfolio update. BWP’s property portfolio continues to retain solid operating metrics. Key highlights include: BWP’s entire portfolio was revalued at 31 December 2021 and again at 30 June 2022, including 24 property revaluations performed by independent valuers – The value of the portfolio increased $365.1m to $3,001.2m, post capex of $6.0m and revaluation gains of $371.9m, after adjusting for the straight-lining of rent of $1.7m and less net proceeds from divestments of $14.5m. Net revaluation gain was mainly a result of rental income growth and average decrease in capitalisation rates across the portfolio. BWP’s weighted average capitalization rate was 5.04% (versus December 2021: 5.11%; June 2021: 5.65%).
  • BWP’s portfolio was 97.5% leased.
  •  During FY22, 81 leases in the portfolio had annual fixed or CPI increases, resulting in an average increase of 3.2% in the annual rent for these tenancies.
  •  There were no properties acquired during FY22 but management did highlight that BWP made offers to purchase a number of properties. 
  •  In terms of developments: (i) Lismore, NSW: BWP committed to acquire adjoining land for $1.5m and expand its Lismore Bunnings Warehouse at a cost of $11.3m. (ii) Coburg, Victoria: BWP committed to expand its Coburg Bunnings Warehouse, Victoria at a cost of $3.5m.

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.

(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.

Categories
Property

LLC is currently trading large Earnings, remains unchanged in line with its long-term average

Graphic of investment stock market data analysis business

Investment Thesis:

  • The 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:

  • FY23 outlook: Improved financial performance in FY23, however, risks including inflation, supply chain and interest rates remaining headwind, leading to Group ROE target of 8-11% being achieved from FY24 along with 
  • ROIC target for the Development segment of 10-13% driven by more than $8bn completion target in FY24. ROIC for the Investments segment of 6-7.5% (vs target of 6-9%), including $73m pre-tax from the further sale of 13% of the Military Housing asset management income stream, with FUM target of >$70bn by FY26 remaining intact.
  • ROIC for the Development segment of 4-6% (vs target of 10-13%) with higher commencements and a record amount of WIP driving a recovery in both completions and profit. 
  • EBITDA margin for the Construction segment of 1.5-2.5% vs target of 2-3%, due to risks including ongoing Covid-19 disruption, cost pressures and supply chain constraints.
  • Savings target of >$160m per annum exceeded. Management continued to simplify the Group by exiting non-core businesses with the divestment of Services and reducing the cost structure, achieving recurring annualized operating cost savings of $172m, surpassing target of >$160m, incurring restructuring charges of $170m (pre-tax) and an impairment expense of $289m (pre-tax) amid change in strategy on a small number of underperforming development projects. 
  • Financial position. (1) Liquidity position remained strong at $3.944bn, down -20% YoY, including $1.3bn in cash, down -23.5% YoY primarily due to $1.6bn investment cash outflow. (2) Net debt increased +52.5% YoY to $1.06bn, leading to gearing increasing +230bps YoY to 7.3%, however, remaining within the target range of 10-20%. (3) Investment grade credit rating of Baa3/BBB- and stable outlook by Moody/Fitch. 
  • FY22 results summary. (1) Core operating profit after tax declined -26.8% YoY to $276m, with lower Development segment earnings in part due to a revised approach to JV arrangements, more than offsetting a strong recovery in the Investments segment, and core operating EPS declined -26.8% YoY to of 40.1cps, representing a ROE of 4%, down -140bps YoY and below management’s target range of 8-11%. (2) Statutory loss after tax was $99m vs profit of $222m in pcp, as investments segment revaluations of $70m were more than offset by Development impairment expense of $223m, restructuring costs of $119m and intangible impairments relating to digital activities of $55m. (3) Distribution per security of 16cps (final distribution of 11cps), declined -40.7% YoY, representing payout ratio of 40%, down -900bps YoY and at lower end of target range of 40-60%. (4) The Group formed ~$11bn of investment partnerships that will underpin strong growth in FUM and ended the year with a record WIP of $18.4bn.  

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 predominantly 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.

Categories
Property

Hotel Property Investments’ Outlook Is Depressed by Rising Interest Rates

Portrait of handsome man smiling and listening to female manager while discussing contract in meeting, copy space

Business Strategy & Outlook

A key attraction of Hotel Property Investments is favorable lease terms that provide predictable above-inflation rental income from long-term leases to joint venture entity Queensland Venue Company, which is an agreement between supermarket giant Coles and private equity owned (Kohlberg Kravis Roberts) Australian Venue Company. AVC manages the day-to-day operations of the hotels, with Coles needing the hotel licenses to operate its liquor retailing business under restrictive Queensland laws. There is ongoing uncertainty around Coles’ longer-term strategy regarding its liquor business following competitor Woolworth’s decision to exit its liquor and hotel businesses. Close to 90% of Hotel Property’s freehold properties are in Queensland, predominantly pubs that are leased to QVC. The joint venture leases generate about 90% of Hotel Property’s rental income. Since annual rents are not linked to earnings, investors do not generally benefit from the upside of stronger pub operating performance and face the downside risk of the joint venture not renewing leases on poorly performing pubs. 

Although this risk has been substantially alleviated due to the renewal of most leases for an extended 10- to 15-year period. The further trade-off is the defensive nature of the long lease terms, and strong tenants that generate above-inflation rentals with low maintenance costs. Most properties are on attractive triple-net lease terms where the tenant is responsible for most expenses other than land tax in Queensland, which recently increased. The portfolio currently has a weighted average lease term of about 10 years. Hotel Property is the ultimate holder of hotel licenses on most properties. These licenses allow the sale of liquor at up to three detached bottle shops within 10 kilometers of the main premises. Licenses revert to Hotel Property at the end of the lease term with respect to most pubs. Where the joint venture owns the license but opts to terminate the lease, Hotel Property has right of first refusal over the license at a preset price tied to trading data at that time.

Financial Strengths

Hotel Property is in sound financial health, with gearing (debt less cash/total assets less cash) of about 35% at the end of fiscal 2022, well below covenant gearing of 60% and within its target gearing of between 35% and 45%. It is also comfortably meeting its interest cover covenant of 1.5 times, with current interest cover (earnings before interest and tax/interest expense) of above 3.5 times. Debt maturity profile is fairly long at 4.1 years. The recent rise in interest rates could significantly increase interest expenses in the medium term because about 45% of all debt is fixed rate and begins to mature in 2025.

Bulls Say

  • Hotel Property Investments’ distribution yield is higher than most Australian REIT peers, supported by most contracted annual rental increases averaging the lesser of 2 times CPI or 4%. 
  • Rental income is underpinned by long lease terms. 
  • Liquor and most gaming licenses are retained by Hotel Property when leases expire. This is a contingent asset that should be a draw-card for potential pub tenants in the absence of adverse regulatory changes.

Company Description

Hotel Property Investments is an Australian REIT with a portfolio of freehold pub properties primarily in Queensland. Its portfolio is almost exclusively leased to Queensland Venue Company on triple-net long-term leases where the tenant is responsible for outgoings (except land tax in Queensland), resulting in relatively low maintenance expenses. Most leases also provide for annual rental increases typically at the lower of 4% or two times the average of the last five years consumer price index.

(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.

Categories
Property

MGR secured the management rights to AMP Capital Wholesale Office Fund , featuring a high-quality office portfolio

Above view of chef engineer in shirt and tie explaining sketch to manual workers in industry

Investment Thesis:

  • Potential uplift in property valuations and income.
  • High quality portfolio composition with stronger weighting towards Melbourne and Sydney urban areas minimizing risk from submarket weakness from Brisbane. 
  • Solid balance sheet. Gearing at 22.8% (at lower end of target range of 20%-30%).
  • Continuing recovery in weak retail sales especially for supermarkets.
  • Strong management team. 
  • Potential corporate activity.

Key Risks:

  • Deterioration in property fundamentals for Office, Industrial and Retail portfolio, such as delays with developments or lower than expected rental growth causing downward asset revaluations.
  • Tenant defaults as the economic landscape changes (increasingly competitive retail sector especially from online retailers such as Amazon). For instance, retailer bankruptcies causing rising vacancies in the retail portfolio.
  • Generally softening outlook on the broader retail market. 
  • Residential settlement risk and defaults. 
  • Higher interest rates impacting debt margins. 
  • Consumer sentiment towards impact of higher interest rates and effect on retail and residential businesses. 

Key Highlights:

  • Capital management. Strong balance sheet and capital position, with sufficient liquidity of $1.368bn (up +58% y/y) further to be enhanced by planned $1.3bn of non-core asset sales, net debt of $3.5bn (55% hedged) equating to gearing of 21.3%, down -150bps y/y and at the lower end of the target range of 20-30%, and credit rating of A-/A3 with stable outlooks from Fitch/Moody’s. 
  • Full year distribution of $404m, representing 10.2cpss, up +3% y/y, funded by strong operating cash flow of $896m, up +41% y/y. 
  • FY22 results summary. Compared to pcp; Despite headwinds from Covid-19-induced lockdowns, extreme weather along the eastern seaboard during 2H22, high inflation and tightening monetary policy, EBIT increased +10% and operating profit increased +8% (translating into EPS of 15.1cps vs guidance of at least 15cps) as +173% increase in Commercial & Mixed Use EBIT and +16% increase Residential EBIT was offset by -1% decline in Investment EBIT and +12% increase in unallocated overheads due to rising insurance and technology costs and normalisation of expenses. Statutory NPAT was up +1%, supported by asset revaluations within office, industrial and retail portfolios of $305m, offset by a $216m write-down of Toombul Shopping Centre amid damages by floods. 
  • AFFO increased +22% driven by higher operating earnings and lower maintenance capex. 
  • Cash collection declined -100bps to 97% (improved +500bps over 1H22) as high cash collection rates across Office (99%) and Industrial (100%) were more than offset by challenges in Retail (91%). 
  • Progressed ~$30bn development pipeline across Commercial & Mixed Use and Residential and settled 2,523 residential lots (flat y/y), exceeding 2,500 guidance. 
  • Increased external AUM by +3% to $10.2bn, equating to ~20% CAGR from FY15. 
  • Accelerating funds management strategy. MGR secured the management rights to AMP Capital Wholesale Office Fund (AWOF), featuring a high-quality office portfolio valued at over $7.7bn, growing external AUM +75% over FY22 to $17.9bn, accelerating Funds Management strategy, broadening investor base, and introducing new accretive income streams with base management fees and property management fees from the fund expected to be earnings accretive from FY23 onwards. MGR is expected to become trustee of AWOF by mid-October 2022 and provide AWOF $500m in liquidity with management continuing to explore further co-investment opportunities in both Industrial and BTR (Build-to-Rent) platform and expects ~$5bn of future organic external AUM growth potential from diversified development pipeline.

Company Description:

Mirvac Group Ltd (MGR) is a real estate investment and development company. The company operates in Residential and Commercial & Mixed-Use space within the real Estate sector. Mirvac Group Ltd is headquartered in Sydney, Australia.

(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.

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Categories
Property

Status Quo for Crown Castle in Q2: Towers Look Good While Small Cells Lag

Business Strategy & Outlook:    

Crown Castle’s strategy has deviated from that of its two biggest competitors, which focus almost exclusively on towers and have a multinational footprint. Crown operates exclusively in the United States and is aggressively investing in fiber to pursue small-cell communications sites. Crown Castle has adopted a high-risk strategy. Small cells require heavy initial investment and lack the competitive advantage that Crown has with its towers.

Crown’s legacy tower business (70% of total revenue in 2021), where it leases space on its towers to wireless carriers, which install antennas and other equipment. The carriers enter long-term leases with Crown that include rent escalators (annual increases of about 3%), giving the business a highly visible and stable revenue stream. Towers are also the beneficiaries of the explosion in mobile data use, which has been growing 30%-40% per year in the U.S. To meet the demand, carriers either locate equipment on additional towers or add or modify equipment on existing towers. Significant operating leverage makes both alternatives highly profitable for Crown–additional tenants and equipment upgrades can be added to towers for very little incremental cost. Towers will continue to be an integral part of the long-term mobile network solution. Since 2017, Crown has focused its investment on fiber and building small cells rather than towers. Management emphasizes that the fiber will be very lucrative when it can co-locate additional tenants on fiber it has already built, but it has yet to show significant colocation demand. The skeptical significant colocation demand will ever come to fruition, as AT&T and Verizon each own a lot of fiber on which to build small cells. Over the past five years, about 75% of Crown’s total capital spending has been on fiber, yet growth in the much smaller fiber segment still has not been able to outpace tower revenue growth. 

Financial Strengths:  

Although Crown Castle is highly leveraged, the steady cash flows it receives from its tower business allow it the financial flexibility it needs and alleviate any concerns about its ability to service its debt. The firm closed 2021 with a net debt/EBITDA ratio of 5.4 times, above the 5 times EBITDA ratio it targets, but its interest coverage ratio (adjusted EBITDA/interest expense) was also over 5.0. At the end of 2021, Crown had more than $450 million in cash and access to $5 billion on its revolving credit facility. As a real estate investment trust, Crown Castle is obligated to make dividend payments of at least 90% of its REIT taxable income (excluding income from its non-REIT subsidiaries) each year. In recent years, the payout ratio has been well in excess of 100% of free cash flow, but capital spending is now declining, so don’t expect a change to the roughly 7% annual dividend increases or the firm’s stance that it can do so without having to raise equity or materially increasing its leverage ratio.

Bulls Say: 

  • Crown Castle is at the forefront of an industry transition toward small cells that will be necessary with 5G networks.
  • Carriers will have to continue investing heavily in their networks as mobile data usage continues increase by more than 30% each year in the U.S., and Internet of Things and video trends make that pace likely to continue.
  • Crown is virtually assured stable growth in its tower business. It holds long-term leases with contractual rent escalators, and its costs have similar certainty and are highly leverageable.

Company Description: 

Crown Castle International owns and leases roughly 40,000 cell towers in the United States. It also owns more than 85,000 route miles of fiber. It leases space on its towers to wireless service providers, which install equipment on the towers to support their wireless networks. The company’s fiber is primarily leased by wireless service providers to set up small-cell network infrastructure and by enterprises for their internal connection needs. Crown Castle’s towers and fiber are predominantly located in the largest U.S. cities. The company has a very concentrated customer base, with more than 70% of its revenue coming from the big three U.S. mobile carriers. Crown Castle operates as a real estate investment trust.

(Source: Morningstar)

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