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Aventus - "Not all Retail is the Created Equal"


Aventus Group results for the year ended 30 June 2019 were well received following reports of above average like for like income growth however the results are all in the telling.

In comparing the performance of Aventus, CEO Darren Holland said "its NOI growth for the year was double the industry average and a record high for the trust". Like for Like income growth at Aventus was reported to be 3.5%, compared to 1.5% at Vicinity Centres, 2.1% at Charter Hall Retail REIT and 2.5% at SCA Property Group.

"Not all retail property is created equal," Mr Holland said. "Large-format retail is very different. We don’t have any department stores or discount department stores, there’s no fashion and online retailing is having less of an impact due to the big and bulky nature of the products our retailers sell. "Our rents are also about a third of shopping centres’, so occupancy costs are low and sustainable.

The business is attempting to distance itself from the traditional retail sector, however the bulky goods sector is not immune to the same issues that shopping centres are faced with, in fact the more imminent threat to bulky goods is the declining housing construction market which is a traditional source of new sales.

Though not expressly stated, the Aventus Group are seeking to support its future earnings by broadening its tenant base. The group is focused on expanding its "Everyday Needs" category of tenants which include food & beverage, supermarkets, liquor & convenience, services, health & wellbeing, automotive, office supplies, discount variety and pet stores with 38% of the portfolio (by income) now in the Everyday Needs Category.

Overall Net Income for the REIT was up +$8m however this was primarily due to a -$9m decrease in property management fees resulting from internalisation proposal (costs which are incurred now elsewhere in the P&L), without which net income would be negative. The business also recorded a -$14m loss in mark to market financing derivatives and lower valuation gains leading to an overall reduction in profit of -19%.

The internalisation proposal which passed in Sept 2018 resulted in the trust paying $148M for the management rights of the Trust. The payment included $8m of assets and $140m of goodwill. From the date of acquisition to 30 June 2019 the acquired management businesses contributed revenues of $0.8 million and recorded a net loss of $9.3 million to the Aventus Group.

The valuation gains of $85m were achieved included $49m of capital expenditure. The Weighted Average Capitalisation Rate of the portfolio remained steady at 6.7%. Leasing activities were reported to achieve positive leasing spreads and low incentives (though details of these were not reported) with like-for-like NOI growth of 3.5%.

Aventus has earmarked a number of opportunities to drive incremental income growth and to take advantage of development opportunities in the portfolio.

Financial Highlights

  • Funds from Operations (FFO) of $96 million or 18.4 cents per security (up from $89m; 18.1 cents per security)

  • Distributions of 16.6 cents per security

  • Gearing of 38.7% within target range of 30% - 40%.

  • Weighted average debt maturity of 4.1 years (up from 3.3 years)

Guidance

Based on the continued momentum from the portfolio, the FY20 guidance of FFO per security is expected to grow by 3 – 4% which is equal to 19.0 – 19.2 cents per security.”

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