Waypoint REIT: Looking longer term

About the author:

Fiona Buchanan
Author name:
By Fiona Buchanan
Job title:
Co-Head of Research, Senior Analyst
Date posted:
03 March 2022, 10:00 AM
Sectors Covered:
Property, AREITS

  • Waypoint REIT's (ASX:WPR) FY result delivered at the top end of its guidance range with CY21 dominated by asset sales (5% of the portfolio divested) and subsequent capital management initiatives ($173.3m), as well as completion of a portfolio review.
  • FY22 distributable EPS guidance is 16.44c (+4% on the pcp) and assumes $150m in asset sales and $100m of associated capital management. We note a buy-back is currently active.
  • The portfolio is valued at $3.09bn across 433 properties (WACR 5.16%; occupancy of 99.9% and WALE 10 years). The focus is now on repositioning the portfolio over the next 3-5 years which will include divestments and asset class diversification. Post revaluations, NTA stands at $2.95. Gearing at 30.1%.
  • We retain an Add rating with a revised price target of (login to view).

Event

CY21 result + CY22 guidance + portfolio review.

CY21 result: capital management and asset sales key events

FY21 distributable income of $122.6m (+4.25% on the pcp). Distributable EPS was 15.8c (+4.25% on the pcp and at the top end of the guidance range for 4.00-4.25% growth). Rental income was +1.9% on the pcp driven by fixed 3% rental increases offset by lower income given 37 assets were sold during CY21 (avg yield 6.22%).

Capital management – during CY21 $173.3m capital returned via 17c capital return and a buy-back. We expect further capital management in CY22.

Expenses increased on the back of higher insurance costs and government fees which were offset by lower interest costs.

Revaluations resulted in cap rates tightening to 5.16% from 5.56% in December 2020 (portfolio increased by $320.1m). NTA is $2.95 (+7.3% since June 2021).

Gearing at 30.1% (stable). Liquidity currently $60m. Weighted avg debt expiry c5 years (73% hedged). ICR 5.5x. Tenor is expected to be further extended this year.

Blended DCF/NAV valuation moves

CY22 distributable EPS guidance is 16.44c (+4% growth on the pcp vs MorgansE at 16.3c) which equates to a yield of ~6%. The guidance assumes $150m in asset sales and $100m of associated capital management initiatives during the year.

We adjust our forecasts for CY22 guidance; asset sales and associated capital management initiatives. We assume further asset sales and capital management initiatives in CY23 and CY24. At this stage we don’t assume any new acquisitions. CY22/23/24 EPS moves up 1%/0.3%/0.9%. The key swing factor relates to timing and quantum of asset sales and ability to redeploy.

Core portfolio in place, however longer-term repositioning a focus

WPR’s portfolio remains well placed given ~99% of fuel income is contractually secured until FY26. 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) which sells under the Shell brand. The sites are operated by Coles Express.

However, following a portfolio review WPR has stated that while Fuel & Convenience (F&C) will remain a key part of its strategy (it will look at new acquisitions and explore opportunities with its existing key tenant) the focus will also be on de-risking its F&C portfolio and improving its ESG metrics by broadening the investment mandate to other asset classes. As a result, over the next 3-5 years WPR aims to divest around 10% of the portfolio. Proceeds will either be recycled into new acquisitions or capital management initiatives.

WPR is trading at a discount to NTA; offers an attractive yield underpinned by contracted income and long WALE; and has developed a strategy to help mitigate portfolio risk taking a medium to longer term view.

Price catalysts

M&A; execution of portfolio strategy; and asset re-ratings.

Risks

Higher interest rates; tenant default/non-renewal; increasing EV penetration; disruption to petrol-based retailing which may impact key tenants; competition for assets hindering ability to reposition portfolio in line with strategy

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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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