Convenience Retail REIT (CRR) has announced that all acquisitions associated with the IPO (25 in total) have now settled. Additionally, CRR has also settled the acquisition of the Durack Service Centre for A$5.25m (cap rate 6.8%/debt funded). The asset is anchored by a 7-Eleven (c86% of rent) and a long standing mechanic and has a WALE of 11.9 years.
We incorporate the new acquisition into our forecasts, however there are no material changes.
The portfolio: 67 service stations valued at A$312.9m
Post the new acquisition, CRR owns a portfolio of 67 service stations (mainly located in QLD and NSW) valued at $312.9m, which are primarily leased to Puma Energy Australia and Woolworths. Income is underpinned by a WALE of around 13 years with occupancy at 99.6%. The weighted average cap rate is 7.2%. Leases are a mix of CPI and fixed increases and are mostly triple-net in nature.
The outlook: further acquisitions likely
As per the PDS, Convenience Retail REIT is forecast to deliver an annualised FY18 distribution yield of approximately 7.0% and FY19 distribution yield of 7.3% (paid quarterly). CRR declared a 3.25c distribution for the September quarter which will be paid on 30 November 2017. We estimate current gearing is around 31% (target gearing range 25-40%). Additionally, CRR has undrawn debt available which allows for future growth opportunities.
We expect further acquisitions given CRR has stated it is actively involved in discussions for both single asset and portfolio acquisitions. Puma Energy is also expanding its retail network nationally which will offer potential acquisition opportunities for CRR.
We note that CRR is managed by APN FM which has an 11.9% co-investment and a 15-year track record in managing service stations. Key catalysts include further accretive acquisitions, asset re-ratings and delivering on PDS forecasts. Longer term risks relate to tenant default/non-renewal and disruption to petrol based retailing, which may impact key tenants.
We retain our share price target and Add recommendation.
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Disclaimer(s): Morgans Corporate Limited was co-lead manager to the initial public offer of stapled securities in Convenience Retail REIT and received fees in this regard.
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