Lens through ASX REIT Stocks – RFF, NSR, ARF, VCX, DXS

  • Nov 30, 2019 AEDT
  • Team Kalkine
Lens through ASX REIT Stocks – RFF, NSR, ARF, VCX, DXS

Real Estate Investment Trusts (REITs) have been a popular product worldwide for many decades. A REIT is basically a company which owns income generating real estates. We have made a list of few popular REITs currently trading on Australian Securities Exchange (ASX).

Rural Funds Group (ASX: RFF)

Rural Funds Group (ASX: RFF) is a real estate investment trust (REIT) which derive its revenues from long-term leases across six sectors:

  • Almond orchards,
  • Cattle assets,
  • Poultry infrastructure,
  • Vineyards,
  • Cotton assets
  • Macadamia orchards

The company is currently eying to sell its poultry assets and has already struck a deal with ProTen Investment Management Pty Ltd for the sale of RFF’s 17 poultry farms for $72 million which will be partially used to fund the acquisition of three WA cattle properties for $22.6 million, which are expected to settle in January 2020.

On 26 October 2019, the company executed a sale agreement to sell all RFF poultry farms to ProTen. Subject to the sale conditions being satisfied, the transaction is forecast to occur in December 2019. The sale of the poultry assets brings forward an investment decision relating to old assets requiring redevelopment.

Rural Funds Management Limited (RFM), the responsible entity for the Rural Funds Group recently reaffirmed its FY20 forecast adjusted funds from operations of 13.4 cents per unit (cpu) and distributions of 10.85 cpu, reflecting a payout ratio of 81.0%.

FY20 forecasts (Source: Company Reports)

For the year ended 30 June 2019, RFF reported adjusted funds from operations (AFFO) of 13.3 cents per unit (cpu), representing an increase of 4.7% since FY18. During the year, the adjusted Net Asset Value (NAV) of the Fund increased to $602.6 million.

In the last five years, RFF stock price has increased by 100.81% on ASX. However, in the last one year, the stock price has declined by 15.92%. At market close on 29 November 2019, RFF stock was trading at a price of $1.870 with a market cap of around $629.74 million.

National Storage REIT (ASX: NSR)

Last year, National Storage REIT (ASX: NSR) raised $358 million through two institutional placements and a security purchase plan (SPP) which allowed it to reduce gearing, maintain funding flexibility as well as support its future growth. Through 35 acquisitions, the company was able to add 180,000 sqm of net lettable area to its portfolio.

For the year ended 30 June 2019, NSR reported Underlying earnings of $62.4 million, up 21% on last year. The company delivered distributions in line with guidance at 9.6 cents per stapled security, providing stable returns to its investors.

FY20 Outlook

  • Underlying earnings growth of greater than 25%
  • Underlying EPS of greater than 4%

The company believes that it is well placed to execute its strategy and deliver stable and growing returns for its investors.

NSR has started an operational transformation plan, focused on delivering continued organic growth through a combination of improved people management, increasing automation, more sophisticated and timely reporting, and the use of technology and innovation designed to improve its bottom line.

The company has announced several strategic initiatives aimed at maximising shareholder returns and unlocking additional cost-effective sources of capital. This includes:

  • New Zealand Expansion- NSR has continued to build its presence in New Zealand with 9 new acquisitions in FY19, plus 3 new development sites, taking its total coverage to 22 storage centres throughout New Zealand.
  • Accelerating Development Pipeline- NSR continues to accelerate its development pipeline with 13 new development and expansion projects currently underway and 6 completed developments successfully delivered in FY19.
  • Joint Ventures- The company continues to work with its partners to deliver outstanding results.

In the last five years, NSR stock price has increased by 38.83% on ASX. At market close on 29 November 2019, NSR stock was trading at a price of $1.930, near to its 52-weeks high price of $1.950.

Arena REIT (ASX: ARF)

Internally managed Australian Real Estate Investment Trust (A-REIT), Arena REIT (ASX: ARF) reported 8.7% growth in its net operating profit in the 2019 financial year (year ended 30 June 20190), majorly driven by the rental income growth from annual rent reviews and income from acquisitions and development projects completed in the 2018 and 2019 financial years.

For FY19, the company reported distributable income (or earnings) per security (EPS) of 13.8 cents, an increase of 5.3% over the prior year. Arena has paid a full-year distribution of 13.5 cents per security, an increase of 5.5% on the prior year. At the end of FY19, the company had gearing of 22.8% with undrawn debt capacity of $92 million.

Arena’s management team has specialist asset management and development expertise and a strong track record that includes the successful delivery of 37 development projects over the past seven years at a total cost of $170 million.

The company believes that it is well-placed to continue to deliver on its investment objective – to generate attractive and predictable distributions to investors with earnings growth prospects over the medium to long term.

The company’ outlook is positive, and its portfolio remains in a strong position, supported by:

  • 100% occupancy;
  • long term predominantly triple net leases with minimum annual rent escalations;
  • market rent reviews scheduled for financial year 2020 and 2021;
  • annualisation of financial year 2019 development completions; and
  • debt capacity to execute on selective new investment opportunities.

Over the last five year, this Real Estate Investment Trust has witnessed a growth of around 92.16% in its stock price. At market close on 29 November 2019, ARF stock was trading at a price of $2.960 with a market cap of $882.07 million.

Vicinity Centres (ASX: VCX)

Australia’s leading retail property group Vicinity Centres (ASX: VCX) continued to maintain its focus on creating market leading destinations, realising mixed-use opportunities and expanding its funds management platform over the longer term. Since Vicinity’s origins in 2015, the company is eying to build a portfolio of resilient retail destination.

For the 2019 financial year (year ending June 2019), the company reported a net profit of $346 million, driven by steady underlying growth and development completions, although this was offset by valuation declines particularly in Western Australia (WA). Over the year, the company’s key earnings measure, funds from operations (FFO) per security, increased by 2.0% on a comparable basis, driven by 1.5% net property income growth. For FY19, VCX declared Distribution per security of 15.9 cents, representing payout ratio of 99.8% of adjusted FFO.

The company believes that it is in a strong position to fund its portfolio-enhancing development pipeline, and if appropriate, a securities buy-back, and also to acquire destination assets should the right opportunity arise.

The company’s portfolio continues to perform well and remains close to full occupancy. Adjusting for the two divestments announced recently, for the 12 months to September 2019, specialty store moving annual turnover (or MAT) per square metre increased 7.6% to over $11,300.

Outlook

  • FY20 FFO guidance of 17.6 to 17.8 cents per security
  • Distribution payout ratio is expected to be at the upper end of 95% to 100% of AFFO

At market close on 29 November 2019, VCX stock was trading at a price of $2.680 with a market cap of $10.04 billion.

Dexus (ASX: DXS)

Real estate group, Dexus (ASX: DXS) recently settled on the sale of its initial 25% interest in 201 Elizabeth Street, Sydney, securing around $34 million (pre-tax) of FY20 trading profits. The company has also entered into a put and call option to sell its remaining 25% interest in late 2020 with anticipation of contributing a further circa $34 million in pre-tax trading profits in FY21 in the event either option is exercised.

September Quarter Highlights

  • Leased 27,267 square metres of office space and 4,660 square metres of office development space across 77 transactions with office portfolio occupancy remaining high at 98.1%
  • Leased 22,691 square metres of industrial space across 30 transactions, with industrial portfolio occupancy increasing slightly to 97.4%
  • Launched next stage of office as a service through the acquisition of the Australian operations of Six Ideas, a strategic workplace and change management consultancy, enabling Dexus’ customers to align workplace with organisational goals and strategy
  • Sold the North Shore Health Hub, Stage 1 currently under development at 12 Frederick Street, St Leonards on a fund-through basis to Healthcare Wholesale Property Fund
  • Dexus was named the Global Industry Leader for the Real Estate Sector by the Dow Jones Sustainability Index (DJSI) and achieved Global Sector Leader status for listed office in the Global Real Estate Sustainability Benchmark (GRESB)

For the 12 months ending 30 June 2020, the company intends to deliver distribution per security growth of circa 5%, with the distribution payout ratio remaining in line with free cash flow.

At market close on 29 November 2019, DXS stock was trading at a price of $12.230 with a market cap of $13.35 billion.


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