360 Capital Industrial Fund

About the author:

Fiona Buchanan
Author name:
By Fiona Buchanan
Job title:
Director of Research, Senior Analyst
Date posted:
29 September 2015, 1:52 PM
Sectors Covered:
Property

Revised bid: TIX holding at 33.4%

360 Capital Industrial Fund (TIX) has increased its bid for ANI with the implied value currently A$2.42 per ANI unit. Key changes include:

  1. the 10c per ANI unit payable by 360 Capital Group (TGP) is now unconditional for all accepting ANI unitholders; and
  2. TIX has increased its cash component payable to 14.5c from 4.5c.

ANI unitholders who accept prior to 12 October 2015 will also qualify for TIX's distribution for the September quarter (equal to 4.84c). The revised bid is above the A$2.40 offshore bid referred to by ANI on 21 September 2015. TGP has also called a meeting of ANI unitholders to replace Fife Capital as the RE of ANI. The meeting will be held on 26 October 2015.

FY16 guidance: Distribution per unit (DPU) of 21.5c unchanged

TIX has previously indicated the combined group would deliver FY16 EPU of 22.3c and DPU of 21.6c versus guidance of EPU of 22.2c and DPU of 21.5c. DPU guidance is unchanged and implies a 9% yield at current prices. Post the revised bid we have not made any changes to our forecasts until there is further clarity. We note that if the additional 10c cash payment for ANI is debt funded it is expected to have minimal impact on TIX's gearing (39% at June 2015). TIX also has cA$40m in available debt capacity.

As at 30 June, TIX's ANI investment was valued at A$68.8m or 11% of the asset base (current book value A$2.28). If TIX were to sell into a higher counter bid, there would be a potential profit booked for TIX shareholders.

Portfolio remains in good stead: Current NTA is A$2.34

We note that TIX's underlying portfolio metrics are solid with occupancy of 99.7% and WALE around 5 years. The property portfolio comprises of 22 assets valued at A$533.4m and we expect the next round of revaluations to be undertaken in December 2015.

In our view, FY16 lease expiries are manageable at c9% with some already leased, renewed or agreed terms for disposal in 1H16 (we note the Oakleigh South asset is due to settle in December 2015 for A$10.5m).

Investment view

While the focus has been on the ANI bid, TIX continues to offer investors exposure to Australian industrial property with quality tenants (such as Woolworths); cashflows are supported by stable rents underpinned by long-term leases which average c3.2% rental growth per annum; strong industry drivers; an attractive distribution yield; and future growth potential from new acquisitions.

Near term catalysts include a successful takeover of ANI/resolution and accretive acquisitions, although we note that while the ANI bid plays out the share price will likely remain subdued. Given management's strong co-investment in the Fund (c17%) and track record, we continue to back its strategy. Post adjusting our shares on issue, our DCF valuation has moved to A$2.69 (from A$2.70), which implies a total return of +20%.

Key risks include potential falls in asset prices, lack of access to funding and lease/tenant defaults (non-renewal and vacancy). We retain our Add recommendation.

More information

Morgans clients can access our detailed research and on 360 Capital Industrial Fund (TIX). If you are interested in finding out more, please contact your nearest Morgans office.

Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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