Aventus Retail Property Fund
About the author:
- Author name:
- By Fiona Buchanan
- Job title:
- Director of Research, Senior Analyst
- Date posted:
- 14 February 2018, 2:29 PM
- Sectors Covered:
- FY18 FFO guidance for 2-3% growth was reiterated with the 1H results which incorporates recent asset sales.
- Aventus is trading at a 9% discount to NTA and offers a 7.6% distribution yield (paid quarterly)
Portfolio valued at A$1.85bn
1H18 FFO was A$45m/9.1 cents per share (vs A$34.6m/8.8 cents per share in the previous corresponding period) with the uplift largely driven by new acquisitions and 3.1% growth in like-for-like NOI (vs 3% at June). A 1H distribution of 8.1c has been declared (90% payout). Net Tangible Assets stands at A$2.34 (vs A$2.22 at June).
During the 1H, AVN announced A$496m of transactions (the sale of two regional LFR assets for A$60m and acquisitions of A$436m). The portfolio is currently valued at A$1.85bn across 20 LFR assets with an average WACR of 6.69% (-16bps since June). Occupancy is 98.6% (+30bps since June) with the WALE 4.1 years.
Tenants: focus on remixing, Steinhoff Asia Pacific
AVN's largest category of 'non-household goods' remains at 37% of the portfolio (services, health, child care etc) with more new tenants added during the 1H reflecting the ongoing focus on remixing. The portfolio has >2% apparel exposure and no department stores.
While there continues to be uncertainty around Steinhoff International's financial position (and the implications for the local business which represents 9% of AVN's income), we have confidence in the overall quality of AVN's portfolio and management team to navigate through. Steinhoff Asia Pacific's brands include Freedom, Snooze and Fantastic Furniture with the group recently stating it is 'an independent, profitable and financially strong business delivering positive cash flows'. Management has noted that all rental payments relating to Steinhoff are up to date.
FY18 guidance for 2-3% growth
FY18 FFO guidance for 2-3% growth (18.1-18.2c) was reiterated (previously 2-4% growth before asset sales). We adjust our forecasts for the asset sales and higher interest costs post FY19 following the recent refinancing of some 3 year debt to 7 year notes. We expect management will continue to look at selective acquisitions and small asset sales (available capacity cA$140m post flagged asset sales). We note development capex has reduced to A$35m from A$50m in FY18 (timing issue so pushed out to FY19). Gearing stands at 36.9% (vs 38.9% at June) and is expected to drop to 35.5% post settlement of the Tweed asset in 1Q18.
Aventus offers exposure to LFR assets with income underpinned by leases to a diverse range of tenants with structured rental growth (85% subject to annual fixed/CPI rent increases). While headwinds are impacting the broader retail sector (online penetration increasing; Amazon), we believe AVN is well placed to navigate any challenges given:
- low vacancy rates and incentives;
- ability to re-mix tenants;
- low maintenance capex requirements;
- limited new supply; and
- opportunities for consolidation in a fragmented market (AVN = 14% market share).
AVN also has an organic growth pipeline which can leverage off any future zoning and planning reforms (83% of portfolio has expansion opportunity). A key near term catalyst relates to clarity on the position of its largest tenant.
We retain our Add recommendation.
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Disclaimer(s): Analyst owns shares.
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