Aventus LFR Portfolio Earnings Rebounded in 2nd Half25 February 2021
Aventus Group released their half yearly results showing a strong rebound in their larger format retail portfolio in FH21.
Earnings from the group were up 6.5% with rent collection rebounding from 87% to 98% along with an 8% growth in customer traffic.
Mr Darren Holland, Aventus CEO said, “Aventus remains focused on our strategy of optimising portfolio performance, seizing consolidation opportunities, building our development pipeline and diligent capital management. It has proven to be a successful formula from year to year and we remain confident in its value.
Aventus upgraded guidance to FFO of at least 19 cents per security, which represents growth of at least 4% from FY20.
- Net Tangible Asset (NTA) per security of $2.24, an increase of 4.7%
- Funds from Operations (FFO) of $56 million, an increase of 6.5% or 10.0 cents per security, up from 9.6 cents;
- Distributions of 8.2 cents per security;
- Gearing reduced 2.0% to 34%, within target range of 30% – 40%;
- Weighted average debt maturity of 2.6 years and weighted average cost of debt reduced to 2.8%;
- Interest Cover Ratio increased to 5.9 times, an increase of 0.7 times;
- Cash and undrawn debt liquidity of $136 million
- Traffic increased +8% above pre-COVID levels across the portfolio;
- Cash collection strong at 98%;
- Increased occupancy of 98.5%, with minimal holdovers of approximately 2%;
- Diversified tenant base well-placed to benefit from the recent household shift to working, learning and entertaining from home;
- Active leasing management with 63 leases negotiated across 41,000 sqm of GLA;
- Exposure to established national retailers comprising 88% of the portfolio by GLA, including Bunnings, JB Hi Fi, Officeworks, Harvey Norman and Adairs; and
- Over 77% of leases in the portfolio include annual fixed rent review, with the weighted average at 3.8%
“Traffic and retail activity have increased significantly, the performance of our retailers have exceeded expectations and the team have capitalised on the favourable environment for our centres. Strong consumer spending trends appear likely to continue aided by ongoing travel restrictions and an improved housing outlook.
“On capital management, we preserved value for investors by not raising capital through a dilutive equity raising. Additionally, the prudent management of our relief agreements resulted in an additional $2 million of rent being billed and our focus on cash collection resulting in 98% of rent for the period collected. Pleasingly, we increased occupancy to 98.5% and reported a $46 million net valuation gain mainly driven from income
growth and the completion of our Caringbah development”, said Mr Holland.
Aventus completed independent valuations for 29% of the portfolio by value during the period resulting in total net valuation gains of $46 million, or 2.4%. The Weighted Average Capitalisation Rate (WACR) across the portfolio compressed 9 basis points to 6.64%.
Leasing activity was strong over the period, with Aventus negotiating 63 leases covering 41,000 sqm and occupancy rising to 98%.
The development of Caringbah in Sydney was opened and fully leased in November 2020, achieving an IRR of 13% and a valuation increase of $42 million. The valuation improvement represented an increase of 43% on the centre’s pre-development value.
Aventus provided support to its retailers throughout the half-year in accordance with the National Code of Conduct. Aventus assistance agreements provided immediate relief to affected retailers and contained a true-up mechanism based on sales performance. This meant that the support provided from April to September 2020 was recovered from those retailers who traded more favourably than expected. Aventus results includes $2 million of re-billings, which reflects the reversal of abatements and acceleration of deferrals.
Aventus earnings forecast of 19 cents represents a distribution yield of 6.8% on todays price of $2.78. The REIT is trading at a 25% premium to NTA.
The group has a diversified tenant base with 88% national retailers and no tenant accounting for greater than 5% of income. The portfolio has no department stores or discount department stores and less than 2% by income exposure to fashion and apparel, which are generally more at risk to online shopping.
The Group is however heavily exposed to consumer goods and electronics and whilst it claims to be more weighted to Everyday Needs business, many of their retailers appear to be incorrectly categorised. Ie I am not sure when Anaconda, Weber, BCF, BBQ Galore etc became everyday purchases.
Whilst its tenants have performed exceptionally well in 2021 as a result of the Federal Government stimulus’ flowing through to household spending, i expect 2022 will be more challenging.
I favour LFR portfolios above Regional and Super Regional Retail Centres however I still prefer portfolios of Neighbourhood Centres.
Aventus are on our recommend list at NTA.
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