APN Industria REIT: Rent remains resilient
About the author:
- Author name:
- By Fiona Buchanan
- Job title:
- Co-Head of Research, Senior Analyst
- Date posted:
- 20 August 2021, 7:30 AM
- Sectors Covered:
- Property, AREITS
- APN Industria REIT's (ASX:ADI) FY21 FFO was at the upper end of guidance with good leasing outcomes seeing occupancy increase over the period. Cash collection was strong at 99.9%.
- Revaluations during the period saw good NTA growth with two-thirds of the $1.1bn portfolio now exposed to industrial assets. We expect further near-term NTA growth with the WACR for industrial assets at 5.50% (+7 year WALE).
- FY22 FFO guidance has been set at 19.3c (-3% on the pcp) and DPS guidance 17.3c (flat on the pcp). Upside risk relates to leasing outcomes at Rhodes Corporate Park, Sydney (represents c10% of income).
- We retain a Hold rating with a revised price target (review price target).
FY21 result – FFO $41.2m or 19.9c vs guidance of 19.7-19.9c. FY21 DPS 17.3c.
FY22 guidance – FFO guidance is 19.3c (-3% on FY21). DPS guidance is 17.3c.
Underlying income remains strong
FFO $41.2m (+12% on the pcp) and FFO per security 19.9c (+3.1% on the pcp). The increase in FFO was predominantly a result of a 10.9% increase in NPI which was driven by like-for-like property rental growth of 2.1% as well as the contribution from acquisitions. We note the BTP property posted 8.7% like-for-like growth.
DPS of 17.3c (flat on the pcp) was in line with guidance (87% payout ratio).
Revaluations – $85m or +10% in FY21. WACR compressed 60bps to 5.78% (industrial 5.50%; business parks 6.36%).
NTA is $3.20 (+13.5% on June 2020).
Portfolio – valued at $1.1bn across 37 assets (67% industrial/33% business park assets). ADI had an active year with $182m in acquisitions. Metrics remain solid: WALE 5.4 years; occupancy 98% (up from 96% in the pcp). 77% of rental income is subject to fixed annual increases ≥3%.
Leasing – the key near-term leasing event remains focussed on the Link Market Services lease at Rhodes Corporate Park Sydney which expires in September 2021 (c10% of income/13,900sqm). ADI has stated that around 5,000sqm is under negotiation although FY22 guidance does not assume this is leased post expiry. FY22/23 lease expiries stand at 15/19% respectively.
Balance sheet – gearing 31.6% at June. ICR 7.2x. Undrawn debt c$74m. Weighted average debt maturity 3.9 years. Weighted average interest costs 2.65%.
Conservative FY22 guidance in place
FY22 FFO guidance was slightly below our expectations (19.3c vs MorgansE at 19.8c) which largely relates to ADI taking a conservative view around leasing at Rhodes Corporate Park (we had assumed some small income however now sit in line with guidance).
We note there is upside to FY22 forecasts if there is any success here: each floor of vacancy (c2,250sqm) = +$1.2m or 0.6c to FFO pa.
Post result, our blended DCF/NAV valuation is (review price target).
Retain Hold rating
There has been significant cap rate compression over the past 6-12 months largely due to the strength in the industrial market however with the WACR on ADI’s industrial assets 5.50% (WALE +7 years), we expect there is near-term growth potential, although this appears to be somewhat priced into the current security price.
Dexus (DXS) is now the manager post the recent acquisition of APN Property Group (APD) and holds a 15.3% co-investment. We expect the scale of DXS provides future growth opportunities for ADI. As a result of the management changes, ADI will change its name to Dexus Industria REIT (DXI) from October.
Potential catalysts include positive leasing outcomes; growth opportunities via Dexus; accretive acquisitions; and asset re-ratings.
Unknown COVID related outcomes; lease vacancy/non-renewal.
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