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.

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Property

UBS CBRE Property Securities Fund: Aims to provide investors with growing and reliable income

Mortgage, investment, real estate and property concept. Dollar money and house keys

Fund Objective

The Fund aims to provide investors with a growing and reliable income, plus capital growth, from a portfolio of mainly Australian Real Estate Investment Trusts. The Fund aims to outperform (after management costs) the S&P/ASX 300 Property Accumulation Index over rolling three-year periods.

Fund Description

The Fund is an actively managed fund investing in a portfolio of 15 – 25 mainly Australian property and property related equity securities across a range of geographic and economic sectors.

Investment Strategy

The Fund uses a multi-step investment process for constructing the Fund’s investment portfolio that combines top-down sector allocation with bottom-up individual stock selection. Top-down sector allocation is determined through a systematic evaluation of listed and direct property market trends and conditions. Bottom-up stock selection is driven by proprietary analytical techniques to conduct fundamental company analysis, which provides a framework for security selection through an analysis of individual securities independently and relative to each other.

Portfolio Performance

The Fund delivered a -8.0% return during May, outperforming the S&P/ASX 300 AREIT Index by +0.6%. During the month, the main contributor to relative performance was the Fund’s overweight position in Rural Funds Group, which benefits from its uncorrelated asset returns versus traditional equities and its inflation hedge characteristics. The Fund’s overweight position in SCA Property Group was again a top contributor to relative performance, with supermarket inflation capturing turnover rent and increased institutional interest driving valuation support in the convenience retail sector. Detractors to performance included the Fund’s underweight position in Vicinity Centres, which reported a positive quarterly update highlighting a continued recovery across visitation, sales and rent collections. The Fund’s overweight position in Charter Hall also detracted from relative performance, due to market concerns over the Group’s outlook for transactional activity and investor fund flows. 

About Fund:

The UBS Property Securities Fund (portfolio managed by CBRE while Distributed by UBS) is a portfolio of mainly Australian Real Estate Investment Trusts that the investment team believes are being undervalued by the market, based on the in-house assessment of the company’s future cash flows. The Fund aims to outperform (after management costs) the S&P/ASX 300 Property Accumulation Index over rolling five-year periods.

(Source: Banyantree, investmentcentre)

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’ Distribution Outlook is Depressed by Rising Interest Rates

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 39% in early 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 3.9 times. Debt maturity profile is fairly long at 4.6 years. The recent precipitous fall in interest rates should alleviate interest costs because about 40% of its debt is on floating rates.

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

Buy One Get One Free; Mirvac Securities Are Cheap. Fair Value Uncertainty to Medium.

Business Strategy & Outlook:   

Mirvac securities take the form of a stapled security, comprising one share in the corporation and one unit in Mirvac Property Trust. About 80% of the group’s 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 is also 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 pure passive real estate investment trusts, though, 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 and is currently within its target of 85%-90% of capital invested there. Within that, it is allocating more to office and industrial, trimming retail exposure, and refocusing its retail portfolio on urban areas. On the development side, more houses are expected (via master-planned communities) and fewer apartments in Mirvac’s residential earnings in the coming years. It also has a higher weight to commercial property development, mainly in office. Within residential, it is rolling out some build-to-rent projects, though this business is only a small portion of the portfolio at present. The shift toward master-planned communities will diversify earnings. However, the build-to-rent business as a yet-to-be proven concept. It remains to be seen whether renters will accept institutions as landlords in Australia. Mirvac’s first project, LIV Indigo in Sydney, was 93% leased by December 2021. 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 22%, based on its Dec. 31, 2021, accounts. This is at the low end of the group’s targeted range of 20%-30%. The group’s average cost of debt was 3.3% at its December 2021 results, and it might grind higher in the wake of interest-rate rises. Even so, the group’s weighted average debt maturity is about six years and the group has no major debt maturities until fiscal 2023. 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 (with retail under particular threat). However, Mirvac’s development pipeline is expected to be lower-risk, with projects at or near completion, and with mostly high levels of tenant commitments. This should prevent gearing rising excessively until the outlook for recovery from coronavirus 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: 

  • A resumption of inbound immigration should support the value of Mirvac’s assets and underpin the viability of major development projects that the group has in its pipeline.
  • Mirvac has been shifting toward industrial exposure, a sector that was less affected by the coronavirus, and could benefit as businesses seek to invest in local supply chains and e-commerce capabilities.
  • Demand could continue for quality real estate from the likes of pension funds, sovereign wealth funds, and other offshore investors, especially as the Australian economy has dealt with the coronavirus health crisis better than some, which could allow a faster resumption of business activity.

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 2019, despite only about 13% of the group’s invested capital being allocated there. There was a cyclical high and don’t expect development settlements to substantially exceed the 2019-20 high point in the next decade. 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. The company is allocating more capital to passive property ownership, and within that, trimming retail exposure and adding office, industrial, and residential.

(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

Remote Work Continues To Weigh On Office Recovery

Business Strategy & Outlook:   

The company’s strategy is to develop and own premier properties that maintain high occupancy rates and achieve premium rental rates through economic cycles in supply-constrained markets that have the strongest economic growth and investment characteristics for office real estate. Management has also outlined its policies on capital recycling to ensure continuous portfolio refreshment and value creation while maintaining a strong balance sheet and having adequate access to capital to take advantage of opportunistic situations. The company also welcomes management’s focus on ESG as it aligns its office portfolio to meet the sustainability requirements of its clients. 

The economic uncertainty emanating from pandemic recovery and the remote work dynamic has created a challenging environment for owners of office real estate. Employees are still hesitant in returning to the office as office utilization remains at approximately 45% of the pre-pandemic level. The national vacancy rate for office spaces was recorded at 17.5% in Q1 2022, which is roughly 500 basis points higher than pre-pandemic levels. The net absorption rate was marginally negative as of Q1 2022 and rental growth figures remain disappointing given the highly inflationary environment. Having said this, the company has seen an increasing number of companies requiring their employees to return to the office. In the long run, company believes that 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:  

Boston Properties is in sound financial health. The company’s share of debt which also includes its share of unconsolidated joint venture debt was $12.9 billion as of the end of the fourth quarter in 2021, resulting in a debt/EBITDAre ratio of 7.7 times. The current debt/EBITDAre ratio is probably on the higher side and is slightly above the company’s long-term average. However, company thinks that the figure should return to the industry average over the next few years as fundamentals recover and EBITDA sees healthy growth. The weighted average interest rate on the company’s debt was 3.40% and the weighted average maturity period was 6.6 years. The maturity schedule of the company’s debt shows that the maturities are adequately spread. Company believes

 that 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 EBITDAre divided by all fixed expenses (including interest expenses) was 2.8 times as of the end of 2021. As a real estate investment trust, Boston Properties 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 92.1% for the year 2021. This shows that the company is generating sufficient cash to cover its fixed expenses and payout dividends

Bulls Say: 

  • Boston Properties owns premier properties in supply constrained cities which have favorable regional dynamics and strong growth prospects. Additionally, the life sciences portfolio of the company should benefit from the strong demand in the burgeoning sector.
  • The company’s high-quality office buildings with good amenities should benefit from the flight to quality trend. 
  • Boston Properties’ balance sheet strength, its access to low-cost capital, and its development expertise allow it to pursue lucrative large-scale development projects that generate value for shareholders.

Company Description:  

Boston Properties develops, owns, and manages Class A office properties that are mainly concentrated in six markets–Boston, Los Angeles, New York, San Francisco, Seattle, and Washington, D.C. It owns over 200 properties consisting of approximately 53 million rentable square feet of space. The company has positioned itself to benefit from the burgeoning life sciences sector as it owns approximately 4.6 million square feet of life sciences space and has an additional 5 million square feet of future development potential.

(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

The pandemic could create additional opportunistic ways for Park to grow the portfolio

Business Strategy and Outlook

 Park Hotels & Resorts is the second largest U.S. lodging REIT, focusing on the upper-upscale hotel segment. The company was spun out of narrow-moat Hilton Worldwide Holdings at the start of 2017. Since the spinoff, the company has sold all the international hotels and 15 lower-quality U.S. hotels to focus on high-quality assets in domestic, gateway markets. Park completed the acquisition of Chesapeake Lodging Trust in September 2019, a complimentary portfolio of 18 high-quality, upper upscale hotels that should help to diversify Park’s hotel brands to include Marriott, Hyatt, and IHG hotels. In the short term, the coronavirus significantly impacted the operating results for Park’s hotels with high-double-digit rev PAR declines and negative hotel EBITDA in 2020. However, the rapid rollout of vaccinations across the country allowed leisure travel to quickly recover, leading to significant growth in 2021. The company should continue to see strong growth in 2022 and beyond as business and group travel also recover to pre-pandemic levels with Park eventually returning to 2019 levels by 2024.

 However, the hotel industry will continue to face several long-term headwinds. Supply has been elevated in many of the biggest markets, and that is likely to continue for a few more years. Online travel agencies and online hotel reviews create immediate price discovery for consumers, preventing Park from pushing rate increases. Finally, while the shadow supply created by Airbnb doesn’t directly compete with Park on most nights, it does limit Park’s ability to push rates on nights where it would have typically generated its highest profits. Still, Park does have some opportunities to create value. Management has only had control of the portfolio for three years, and think there is some additional growth that can be squeezed out of current renovation projects. The Chesapeake acquisition should provide an additional source of growth as the company drives higher operating efficiencies across this new portfolio. The pandemic could create additional opportunistic ways for Park to grow the portfolio.

Financial Strength

Park is in solid financial shape from a liquidity and a solvency perspective. The company seeks to maintain a solid but flexible balance sheet, which will serve stakeholders well. Park does not currently have an unsecured debt rating. Instead, Park utilizes secured debt on its high-quality portfolio. Currently, the majority of Park’s debt is secured by five of its largest hotels, leaving Park with 39 consolidated hotels that are free of debt encumbrance. Even if Park is unable to pay its debt obligations, the company can return the collateral secured by its debt to the lenders and proceed with its unencumbered business essentially debt free. That said, debt maturities in the near term should be manageable through a combination of refinancing, the company’s free cash flow, and the large cash position Park currently has on their balance sheet. Additionally, the company should be able to access the capital markets when acquisition opportunities arise. In 2024, which is the year hotel operations should return to normal, net debt/EBITDA and EBITDA/interest will be roughly 5.7 and 3.1 times, respectively, both of which suggest that the company should weather any future economic downturn and that it would be able to selectively acquire assets as the market recovers. As a REIT, Park is required to pay out 90% of its income as dividends to shareholders, which limits its ability to retain its cash flow. However, the company’s current run-rate dividend is easily covered by the company’s cashflow from operating activities, providing Park plenty of flexibility to make capital allocation and investment decisions. Park will continue to be able to access the capital markets given its current solid balance sheet and its large, higher-quality, unencumbered asset base.

Bulls Say’s

  •  Potentially accelerating economic growth may prolong a robust hotel cycle and benefit Park’s portfolio and performance. 
  • Low leverage gives Park greater financial flexibility to be opportunistic with new investments or return more capital to shareholders through dividend growth or share buybacks. 
  • Park’s management identified several enhancement initiatives that it can execute to drive EBITDA higher on the newly acquired Chesapeake portfolio.

Company Profile 

Park Hotels & Resorts owns upper-upscale and luxury hotels with 27,889 rooms across 48 hotels in the United States. Park also has interests through joint ventures in another 4,297 rooms in seven U.S. hotels. Park was spun out of narrow-moat Hilton Worldwide Holdings at the start of 2017, so most of the company’s hotels are still under Hilton brands. The company has sold all its international hotels and 15 lower-quality U.S. hotels to focus on high-quality assets in domestic, gateway markets.

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 is 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

Continued Demand for Logistics Should Drive Growth for Prologis for Several Years

Business Strategy and Outlook:

Prologis leases distribution space to some of the nation’s top retailers, and its tenant list is the strongest in the business. The continued growth in e-commerce should provide a long growth runway for distribution and logistics facilities, especially given the large amount of space necessary to support online sales compared with brick-and-mortar retail. It is difficult for industrial REITs to earn moats since supply can quickly and easily enter key cities to negate supply and demand imbalances. The aggressive construction after the financial crisis brought significant new facilities on line, and it is expected that supply will continue to grow. Although demand outpaced newly added supply for several years, supply additions have increased sharply, and company is cautious that a slowdown in consumer spending could expose the asset class, increasing vacancies, as seen in the recent downturn.

With vacancy rates hovering around historic lows in the United States and Europe and average market rent rebounding significantly since 2012, the Prologis is in the best position to benefit from incremental demand. The company’s vast portfolio surpasses all other logistics REITs in size, predominantly along coastal markets, where it more than doubles its competition. There is an undeniable shift toward tech-savvy millennial consumers, who are more likely to skip the brick-and-mortar locations and spend more time on retail websites and utilize mobile purchasing. They are also more likely to return items, which adds to the space needed to fuel the growing e-commerce distribution industry. As retailers seek additional distribution facilities closer to population centers to accommodate this trend, Prologis will tap into its deep land bank to complete lucrative developments and drive value for shareholders.

Financial Strength:

Prologis’ balance sheet has improved over the past several years, and the firm’s financial position is considered to be more in line with industry-leading REITs. It is forecasted that 2022 debt/EBITDA to be 6.0 times. This level is reasonably maintainable, with the company having completed the Industrial Property Trust acquisition with cash. Additionally, improving operating performance should help Prologis maintain this metric going forward. 

As a REIT, Prologis is required to pay out at least 90% of its income as dividends to shareholders. The current dividend of $3.16 per share is more than comfortable for Prologis. In fact, it’s likely that the company will continue to tap into the debt markets as its main source of financing, given its healthy appetite for expensive developments and cheap access to capital. Management continually evaluates the portfolio and sells facilities as well as land, which allows the company to subsidize developments and not become overburdened with debt financing. It is estimated that dispositions will begin to

slow in the short term as supply continues to increase.

Bulls Says:

  • Prologis has the largest portfolio of quality facilities in place and is in the best position to capitalize on e- commerce demand.
  • Industrial property is the real estate subsector best positioned to weather the coronavirus outbreak- related storm.
  • Prologis has an enviable tenant list, which gives investors hope for expansion and a sense security in a downturn.

Company Profile:

Prologis was formed by the June 2011 merger of AMB Property and ProLogis Trust. The company develops, acquires, and operates over 900 million square feet of high-quality industrial and logistics facilities across the globe. The company is organized into four global divisions (Americas, Europe, Asia, and other Americas) and operates as a real estate investment trust.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Property

Toll Brothers Has Made Good Progress Moving to a Lighter Land Acquisition Strategy

Business Stratgy and Outlook

 Toll Brothers prides itself on controlling an ample supply of some of the best land in the industry. Premier land inventory, combined with luxurious, customizable designs, allows the company to charge industry-leading average selling prices (among public peers).

The U.S. housing market remained robust in 2020-21 despite the pandemic, and expect continued strength this decade, with homebuilders and multifamily developers starting about 1.6 million homes annually over much of that time frame, above the 1.4 million historical average for annual new-home production.

 The three tailwinds driving increased demand for Toll Brothers’ traditional offerings: Strong demand for entry-level homes should encourage established homeowners to sell their first homes in favor of new move-up homes; the popularity of empty-nester homes and active-adult communities is increasing among baby boomers; and growing household wealth should put the company’s “affordable luxury” products in reach of younger households.

Toll also invests in for-sale urban high-rise infill and for-rent projects to diversify revenue and leverage existing assets. Although it is thought as these projects are riskier, and believe the firm mitigates some of this added risk by careful underwriting and joint venture partnerships. It is believed that these projects have generally met Toll Brothers’ expectations, and think the company has a robust project pipeline that will continue to contribute profitable growth in a healthy market.

Overall, Toll Brothers will continue to capitalize on what is seen as strong long-term housing demand dynamics. That said, given its luxury build-to-order focus and higher average selling price, and don’t think the firm is as well positioned to capture demand from first-time millennial buyers as lower-priced homebuilders like D.R. Horton.

While Toll Brothers can achieve positive economic profits with increased sales volume, but it is expected that competition and the company’s more capital-intensive land acquisition strategy (compared with peers) to restrain the amplitude of those profits. However, management is focused on moving to a lighter land strategy and has made substantial progress.

Financial Strength

As of Oct. 31, 2021, Toll Brothers had approximately $3.4 billion in total liquidity, including $1.6 billion in unrestricted cash and $1.8 billion capacity on a revolving credit facility. It is believed that this capital structure is appropriate for a large-scale production homebuilder. Toll’s $3.6 billion of outstanding debt consists of unsecured, fixed-rate notes payable ($2.4 billion), term loans and credit facilities (approximately $1 billion), and mortgage loan facilities (about $150 million). The outstanding senior notes have maturities staggered through fiscal 2030, with no more than $650 million due in any one year over the next 10 fiscal years. Between 2017 and 2021, Toll generated $4.4 billion of cumulative operating cash flow. Toll Brothers has formed joint ventures to participate in attractive opportunities and mitigate risk on certain land development, home construction, and other adjacent projects. As of fiscal 2020, the company was doing business with 46 joint venture partners and had approximately $431 million invested in joint venture projects, with a commitment to invest an additional $75 million. All of the company’s for-rent projects have been or will be developed in joint ventures. This is a prudent strategy, given the increased riskiness of these projects and Toll Brothers’ relative inexperience with this market. The company has guaranteed debt of certain unconsolidated, joint venture entities that is not recorded on the balance sheet–approximately $240 million as of fiscal 2020. And this is believed that the underlying collateral should be sufficient to repay a large portion of the obligation, should a triggering event occur.

Bulls Say’s

  •  New-home demand has strengthened, and inventory of existing homes remains tight. Job and wage growth should support growth in household formations and increased demand for new homes. 
  • The aging baby boomer population could spur demand for Toll Brothers’ empty-nester and active-adult products. 
  • Toll Brothers’ targeted customers are wealthier, have stronger credit profiles, and are more likely to make all-cash payments than the typical homebuyer.

Company Profile 

Toll Brothers is the leading luxury homebuilder in the United States with an average sale price well above public competitors. The company operates in 60 markets across 24 states and caters to move-up, active-adult, and second-home buyers. Traditional homebuilding operations represent most of company’s revenue. Toll Brothers also builds luxury for-sale and for-rent properties in urban centers across the U.S. It has it headquarters in Horsham, Pennsylvania.

(Source: MorningStar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Property

Duke Realty Corp shifting its portfolio from suburban office properties to become the leading domestic-only industrial REIT in the United States

Two young women talking together with a tablet in the living room. They sit spaced apart to prevent the virus.

Business Strategy and Outlook

Duke Realty has enjoyed an impressive run, shifting its portfolio from suburban office properties to become the leading domestic-only industrial REIT in the United States. Over the past few years, the company capitalized on depressed supply and an explosion of growth driven by a steady economy and the rise of e-commerce. However, with industrial vacancy hovering at historically low levels, investors may be late to the party. Supply has increased to levels not seen since 2007, posing a significant threat to the buoyant rent growth Duke Realty’s portfolio had been experiencing. 

As experts have noted in their no-moat argument for the company, Duke Realty’s properties are largely commoditized, with locations that are often along highways, miles away from metropolitan city centres. While prices for this type of land have risen over the years, the structures are easily replicable, causing other real estate companies to throw their hats in the ring, diversifying to meet the demand for industrial property. 

Major retailers continue to shift their strategies as brick-and-mortar shopping loses ground to its online counterpart. Fortunately for Duke Realty, warehouses that support e-commerce sales require more space, up to three times as much as traditional retail warehouses. While e-commerce currently accounts for only about 13% of total retail sales, its piece of the pie is growing at a double-digit pace annually. It is eventually viewed additional supply bringing Duke Realty’s returns to the cost of capital, since little prohibits new entrants to this market. Despite the competitive nature of this industry, Duke Realty has an established presence and first-mover advantage in many high-quality markets. The company’s tenants typically sign multiyear leases, so it may take some time before the effects of new construction on returns are seen.

Financial Strength

Duke Realty’s balance sheet has improved over the years and is in good financial shape. The company’s debt/EBITDA was 4.6 by the end of 2022. It is alleged as a maintainable level, given the company’s plan to finance most of its developments by disposing noncore assets. Its focus on Tier 1 markets will keep its facilities in high demand as e-commerce grows and retailers shift to an online strategy. Current leases have around 2.25% contractual rent bumps, so cash flows should rise with inflation in the short term. As a REIT, Duke Realty is required to pay out at least 90% of its income as dividends to shareholders. It’s likely that the company will continue to tap into the debt markets as its main source of financing given its healthy appetite for developments and cheap access to capital. Management continually evaluates the portfolio and sells facilities as well as land, which allows the company to subsidize developments and not become overburdened with debt financing. It is forecasted that dispositions will be steady as the company trims noncore assets.

Bulls Say’s

  • E-commerce should continue to drive demand for logistics space, and Duke Realty was an early mover with an established tenant list. 
  • The coronavirus outbreak will accelerate the growth of e-commerce relative to brick and mortar retail 
  • Historically low vacancy rates for industrial facilities should continue to warrant double-digit leasing spreads in the short term.

Company Profile 

Duke Realty is an Indianapolis-based publicly traded REIT that owns and operates a portfolio of primarily industrial properties and provides real estate services to third-party owners. It has interest in over 150 million square feet across the largest logistics markets in the U.S. 

(Source: MorningStar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Property

GPT reported NPAT of $1422.8 m with ample of liquidity; Reduced 1.7% of securities on issue through buyback

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

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.

1H22 results summary. Relative to the pcp: 

  • Funds from Operations (FFO) of $554.5m was flat over pcp, despite the Company continuing to provide Covid-19 rent relief to tenants, with a +3.6% YoY increase in Retail, +11% increase in Logistics and +2.3% increase in Funds Management combined with -17% YoY decline in finance costs were offset by -4.5% YoY decline in Office and +80.4% YoY increase in corporate overheads due to not having the benefit of pcp savings from the withdrawal of bonus schemes and the support of JobKeeper. FFO per security increased +1.2% to 28.82 cents, driven by on-market security buy-back. 
  •  NPAT improved to $1,422.8m (vs loss of $213.2m in pcp), driven by investment property valuation increases of $924.3m (vs valuation declines of $712.5m in pcp), with 60% of coming from the Logistics portfolio and the balance from Office portfolio. 
  • Total 12-month return was 14.1% vs -2.4% in pcp, amid investment property revaluation gains, driving an increase in NTA per stapled security of +9.3% YoY to $6.09. 
  • Operating cashflow increased +7.2% YoY to $520.4m and FCF grew +6.7% to $467.5m, resulting from higher cash collections and no payment for variable remuneration schemes, partially offset by higher transaction costs and taxation payments. 

Capital management: 

  • Strong shareholder returns with the Board buying back ~32.3 million securities (1.7% of securities on issue) at an average price of $4.54 per security for a total consideration of $146.8m (on-market security buy-back program formally concluded). 
  • The Company declared a final distribution of 9.9cps, taking FY21 distribution to 23.2cps, up +3.1% over pcp and representing a distribution payout of 95.1% of FCF. 
  • Ample liquidity with $934.7m held in cash and undrawn bank facilities. 
  • Well managed debt profile with weighted average cost of debt down -70bps over pcp to 2.4%, with modest increase expected in FY22 because of potential interest rate increases. 
  • Gearing increased by +500bps to 28.2% YoY (well within gearing range of 25-35%) primarily driven by debt funded acquisition of the Ascot Capital portfolio, resulting in S&P/Moody’s rating of A (negative)/A2 (stable) vs A (stable)/A2 (stable) in pcp, within GPT’s target A-rating band.

Company Profile

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)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Property

Goodman Group reported a strong 1H22 result with solid contributions from all segments

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 

  • Management’s upgraded FY22 EPS guidance provides us with certainty in near-term earnings outlook. 
  • 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 that GMG will 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.

1H22 Results Highlights

  • Operating profit of $786.2m was up +27.9% on pcp and Statutory NPAT of $2.0bn was up +92.3% primarily due to significant gains in fair value on investment properties in partnerships. 
  •  Group NITA was up +15% to $7.69 and operating EPS of 41.9cps was up +27% on pcp. 
  •  Group operating profit performance was driven by all three segments – Property investment earnings $234m up +19.3%, Management earnings $258.2m up +17.8% and Development earnings $562.8m up +41.7%. 
  •  Balance sheet retained a strong position at the end of the period, with gearing of 7.3% and 18.7% on a look-through basis. The Company has $2.0bn in liquidity available. 
  • Development work in progress (WIP) increased +19.8% to $12.7bn from 30 Jun-21, with the number of developments up to 81 (from 56 in pcp) and average development period for projects in WIP up to 22 months (from 18 months in pcp). Supply chain issues have not significantly impacted GMG, with management noting – “Goodman has managed COVID-related disruptions to minimize impact. Despite increases in construction costs, driven by supply, chain, labor and material shortages, Goodman has maintained strong margins and has a yield on cost of 6.7%.” Good momentum in the segment with management expecting “more than 30%” earnings growth for FY22. 
  • Management earnings were up +17.8% on pcp driven by revaluations gains, development completions and acquisitions. External AUM up +32% to $64.1bn. Performance fees for the period of $73.6m was up +9.9% on pcp, with management noting – “…the performance and activity levels of the partnerships continues to be strong, so the full year transactional and performance fee revenue is now expected to be over $170m. Overall, the full-year management revenue is expected to be up by nearly 20% over FY21. Fee revenue as a percentage of average stabilized assets under management will be around 1% this year, which is within the range of what we expect over time. So, we believe the scope exists for the continuation of growth in management income over the long term.” 

Company Profile

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)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.