Waypoint REIT: CY21 guidance upgrade

About the author:

Fiona Buchanan
Author name:
By Fiona Buchanan
Job title:
Director of Research, Senior Analyst
Date posted:
23 September 2021, 9:00 AM
Sectors Covered:
Property, AREITS

  • Following completion of an Australian medium-term notes issuance (A-MTN), WPR has upgraded CY21 distributable EPS guidance from 15.72c to 15.72-15.80c (+3.75-4.25% on the pcp).
  • The next catalyst relates to capital management initiatives in 4QCY21 following non-core asset sales. We note the buy-back is already active.
  • The portfolio is valued at $2.9bn across 427 properties with a WACR of 5.4%; occupancy of 99.9% and a WALE of +10 years.
  • WPR remains a preferred income stock with a distribution yield of 5.8% paid quarterly.
  • We retain an Add rating with a price target of (login to view).

Event

Upgrade to CY21 distributable EPS guidance on the back of A-MTN issuance.

A-MTN issuance extends weighted average debt expiry to 4.8 years

Waypoint REIT (ASX:WPR) has priced $200m of fixed-rate 7-year Notes at a coupon of 2.4%. The Notes rank pari passu with WPR’s existing senior unsecured debt, with proceeds to be used to partially repay WPR’s $336m term debt facility expiring in June 2023.

The Notes have been assigned a Baa1 senior unsecured rating by Moody’s and increase WPR’s weighted average debt maturity from 3.8 years to 4.8 years and the proportion of WPR’s debt that is fixed from 58% to 81%.

WPR stated that the Notes have been issued at a price which does not adversely impact its cost of debt.

We note that post non-core asset sales, gearing will sit around 28.7%

Forecast and valuation update

We adjust our forecasts for the revised guidance and sit at the upper end (15.80c) which implies +4% growth on the pcp and a distribution yield of 5.8%.

We continue to assume capital management initiatives occur in 4QCY21 and note achieving the upper end of guidance is subject to securityholders approving the proposed security consolidation at a General Meeting in 4QCY21.

Our blended DCF/NAV valuation remains (login to view).

Retain Add rating

WPR’s portfolio of service stations remains well placed given 99.4% of fuel income is contractually secured until May 2026. Over 90% of leases are triple net and 95% have 3% or higher fixed rent increases pa. Around 97% of rental income is received from Viva Energy (VEA). NTA is $2.75.

WPR remains suited to income investors with distributions to move to quarterly payment from September.

We expect non-core asset sales (flagged) in the near term and updates on capital management initiatives (as well as buy-back likely to be a capital return/security consolidation up to $150m).

Price catalysts

Capital management initiatives; asset re-ratings and M&A.

Risks

Unknown COVID-related risks; higher interest rates; tenant default/non-renewal; disruption to petrol-based retailing which may impact key tenants.

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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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