Lens Through Property Market Players: LEP and CDP

Summary

• Property market felt the wrath of COVID 19 when all of a sudden, the world found itself in the lockdown with permission to go out only for essentials.
• Economic downturn and uncertainties also lowered business and consumers' confidence.
• ALE Property reported a 7.5 per cent increase in FY20 distribution profit with solid capital position; however, Group is assessing the situation carefully and expecting a tough time ahead.
• Carindale Property, maintaining available liquidity of AUD 23.3 million at 30 June, is expecting net operating cashflow (after interest) in excess of AUD 17 million for FY20.

Everything was going fine for the Australian property market before the pandemic began, with prices going up and businesses busy with new projects. However, once the unprecedented crisis arrived, people found themselves confined to their homes and things began to change.

The pandemic affected the world economy, and the Australian economy also faced a downturn. Amid lockdown and social restrictions, people are allowed only to go out for buying essentials which put the property buying at the backseat of their minds, with buyers prohibited from inspecting properties or participate in the auctions. Moreover, credit dwindling and rising unemployment are among the factors impacting the property market.

In the backdrop of soured relations between Australia and China, Australia also witnessed reduced interest from Chinese buyers. Property market is experiencing a challenging time, with a mismatch being witnessed in the supply and demand for property due to the ongoing pandemic and falling immigration.

The uncertain environment all around made the future of the market little hazy. The pandemic had a major impact on real estate companies; however, different companies were impacted in different ways.

Good Read: The O’s and C’s in Property Sector: Opportunity, Collections, Consistency

In that backdrop, let us discuss how two ASX-listed real state sector players, LEP and CDP are placed amid the pandemic.

ALE Property Reports 7.5% Increase in FY20 Distributable Profit

On 5 August 2020, ALE Property Group (ASX: LEP), the owner of Australia’s largest portfolio of freehold pub properties, released full-year results for FY20 ended 30 June 2020.

• Distribution profit stood at AUD 30.4 million, up by 5 per cent year-on-year, on the back of 2.0 per cent increase in property income, largely unchanged borrowing expenses, lower management expenses and increased land tax expenses.
• Statutory net profit after tax was noted at AUD 20.0 million.
• Full-year distribution remained unchanged at 20.90 cents per security and will be 49.42 per cent tax-deferred.
• Current passing gross rent was up 0.9 per cent to AUD 61.04 million due to average rent increase of 1.7 per cent for 43 of the 86 properties.
• Weighted average adopted yield reduced slightly from 5.09 per cent to 5.08 per cent.
• Directors' valuations of 86 properties improved by 0.9 per cent to AUD 1,174.2 million post an independent evaluation of 82 of the 86 properties

Capital position remains solid with gearing at a historic low of 41.3 per cent, debt maturities diversified over the next 3.4 years, and debt facility of AUD 250 million repaid all FY20 maturing debt.

ALE's FY20 total return was up by 1.4 per cent per annum, significantly outperforming the AREIT 300 index's FY20 total return, which was down by 21.1 per cent p.a.

COVID 19 Impact on ALE Property's Operations: Employees are working from home with minimal impact on day-to-day operations. Property prices have been maintained as in the pre-pandemic era, highlighting resilience and strength of the lease covenant.

Various other sectors have been immensely impacted by the COVID-19 pandemic, and impacts have been quite visible on the pub sector, which was closed during the lockdown period, with all trading activities halted. Despite the uncertain market situation, the valuation assessment undertaken by the Company highlights that the demand still exists for prime assets secured by robust tenant covenants with extended contract terms and yields are holding to pre-pandemic levels.

Good Read: Impact of Coronavirus on Australian Economy and Way Forward

However, if the crisis becomes prolonged than anticipated, it can profoundly impact the fair value of ALE's property portfolio. The group is assessing the situation carefully. It is expecting a tough period ahead, as the recovery from a financial and community perspective will be long-lasting.

On 14 August 2020, LEP traded flat at AUD 4.900, with a market cap of AUD 959.27 million and annual dividend yield of 4.27 per cent.

Carindale Property Expects FY20 Net Operating Cashflow in Excess of AUD 17Mn

Carindale Property Trust (ASX: CDP), which is set to release its full-year results for FY20 on 25 August 2020, recently announced the appointment of Guy Russo to the Board, effective 1 September 2020. Holding more than four-decade experience, Mr Russo is most well-known for leading the corporate turn-around of Kmart Australia.

On 6 August 2020, the company, by way of update ahead of the results release, announced that it expects registering net operating cashflow (after interest) in excess of AUD 17 million for FY20 ended 30 June 2020. The preliminary estimate is subject to the external audit review, as well as the Board review and approval.

The results will incorporate a valuation of the Trust's assets as at 30 June 2020. The property assets’ carrying value is expected to go down by nearly 14 per cent from the value at 31 December 2019, primarily on account of pandemic impacts.

The trust confirms the available liquidity of AUD 23.3 million at 30 June 2020.

On 14 August 2020, CDP closed the day's trade at AUD 2.800, down by 4.437 per cent from its previous close. The company has a market cap of AUD 205.1 million and annual dividend yield of 12.35 per cent.

Also read: Property Portfolios and Real Estate Stocks - SCG, CNI, COF, VCX