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Aventus Property Fund FY17 Report


Summary

The Aventus Property Trust (AVN) has gradually established a sizable large format retail portfolio over recent years to become the second largest landlord of large format retail centres in the country. Their annual results announced last week showed an impressive increase in FFO per security (up 52%) to 17.7cpu with distributions up 54% to 15.9cpu predominantly due to the $220M acquisition of the Home Central portfolio from Blackstone in May 2016.

The Fund which is backed by Brett Blundy, closed the year with the announcement of the $436M acquisition of the Castle Hill and Marsden Park Homemaker Hubs from LaSalle Investment Partners.

NTA for the Fund was up 7% to $2.27 per unit, driven by 29bps improvement in cap rates to an average of 7.24%.

The Fund is trading at approximately $2.33 per security, which is a 2.6% premium to June 30 NTA.

Funds from Operations

The Fund generated FFO of $71M which is an increase of $30M on FY16. The improvement in FFO was primarily a result of full contribution from the acquisition of the Blackstone portfolio.

Balance Sheet

The Balance Sheet showed a positive variation of $557M due predominantly to the acquisition of the Castle Hill and Marsden Park Centres which settled on the 30th June. A $91M valuation gain also boosted the total assets of the Trust.

The Trust increased gearing to $718M during the period from 35.7% of assets to 38.9% of total assets but is well within the LVR caps on the fund. The weighted average cost of debt is 3.0% with an average term of 3.4 years. A $200M debt piece is due for renewal in October 2018.

Portfolio

The portfolio comprises 22 large format retail centres covering with 546,000sqm with a higher concentration in NSW (58% of portfolio), followed by VIC and QLD. The centres contain 586 tenants with the largest tenant category (representing 37% of gross income) being non-household goods (ie Cafes, Fitness, Sports, Automotive, Pets, etc). The bulk of the tenant mix is however concentrated in Household items including furniture, hardware, electrical, homewares, bedding etc. These sector have performed well over the past few years as the residential markets have driven demand for new household items.

The portfolio has a vacancy of approx 1.7% of NLA with a further 11% of NLA up for renewal in FY18. The Fund continues to seek to renew near term lease expires ahead of time and has reduced the existing portfolio FY18 expiries down from 14% to 7% but with the addition of Castle Hill and Marsden Park, the FY18 are back up to 11% of NLA.

Aventus has identified $50M of minor development works to its portfolio with a further $30M planned for the expansion of Caringbah in FY19.

Key Risks

  • Potential for reduced rental growth as household goods sector slows along with building approvals and residential development activities.

  • Threat of Amazon reducing demand for large format retailers

  • Potential for softening cap rates as cost of debt increases

  • Potential for higher cost of debt in FY19 with renewal of $200M debt tranche.

  • Current high gearing may impact future expansion capabilities

Key Opportunities

  • Divestment of smaller centres

  • Addressing near term lease expiries while market has strength

Outlook

AVN expects to grow FFO by 2% - 4% for FY18 based on the full integration of Castle Hill and Marsden Park centres.

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