Aventus Group: In a strong position with ability to evolve
About the author:
- Author name:
- By Fiona Buchanan
- Job title:
- Co-Head of Research, Senior Analyst
- Date posted:
- 19 August 2021, 12:30 PM
- Sectors Covered:
- Property, AREITS
- AVN’s result highlighted the strong portfolio metrics with occupancy, rent collection, foot traffic and avg rent/sqm increasing over the period.
- However, given the exposure to Sydney and Melbourne markets and uncertainty around the current lockdowns and rental relief outcomes, AVN didn’t provide FY22 guidance with the result. Currently around 80% of the portfolio is trading.
- The portfolio is now valued at $2.3bn across 19 LFR assets with revaluations during the period resulting in the WACR compressing 72bps to 6%.
- We retain a Hold rating with a revised price target of (login to see).
FY21 result – FFO of $110m (+9.6% on the pcp) and FFO per security of 19.4c (+7.1% on the pcp). FY21 DPS was 17.47c (equal to a 90% payout ratio).
FY22 guidance – no guidance provided however has confirmed the payout ratio will be consistent at 90-100% of FFO
Portfolio metrics remain solid
Portfolio - is valued at around $2.3bn across 19 assets (75% external) with a WACR of 6% and WALE of 3.7 years. 77% of leases have fixed rent reviews of around 3.8% pa. Occupancy is 98.8% (+0.8% on the pcp). Post balance date AVN divested its MacGregor Home asset at a 56%/$15m premium to BV. Rent collection over FY21 was strong at 98% with foot traffic +6%.
Revaluations - up $297m/+15.4% since June 2020 resulting in the WACR tightening 72bps to 6% over the period largely due to market transactions/demand.
Leasing - FY22/23 lease expiries stand at 10%/12% respectively. Despite the challenges, overall FY21 leasing spreads were positive and incentives remain low. FY21 saw 119 leasing deals done (vs 90 in FY20). As at June the average rent/sqm was $336 (vs $325 in the pcp).
COVID impacts – currently ~80% of AVN’s portfolio is open and management is currently working through rent relief claims.
Balance sheet - AVN recently completed $660m of debt refinancing (80% of current debt portfolio). The next refi is January 2025. Weighted average debt expiry 4.4 years. Gearing currently sits around 29% (ICR >6x). Liquidity $132m.
NTA is $2.69 (+25.7% on the pcp).
Forecast and valuation update
We make adjustments to our forecasts incorporating some assumed rental abatements however note it will be assisted by NSW land tax relief for landlords and lower interest costs than we had previously assumed.
As a result our FY22 FFO/DPS forecasts remain relatively unchanged at 19.8c/17.8c (90% payout).
Following changes, our target price moves to (login to see), which is a blend of our DCF/NAV (5.9% cap rate) valuation.
Investment view: retain Hold rating
AVN‘s portfolio remains well positioned for the longer term given: low vacancy rates and incentives; sustainable rents; ability to re-mix tenants (eg health and services); low capex requirements; and limited new supply.
We believe demand for LFR assets will remain strong given its ability to adapt to changing consumer behaviours. 32% of AVN’s tenants currently offer click & collect and AVN is focused on using its data led/digital channels to enhance its offering.
AVN can also be viewed as a long-term landbank play given the portfolio’s metro focus and low site coverage (44% site cover ratio).
We retain a Hold rating however note that AVN continues to offer an attractive distribution yield for income focused investors.
End of lockdowns in NSW and VIC; accretive acquisitions; asset re-ratings; potential ASX200 inclusion; leasing successes.
Risks include material changes in bond yields; unknown impacts from COVID; increased vacancy; and tenant default/non-renewal.
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