Aventus: Not all retail is equal
Over 2019 Aventus (AVN) was a great example of our view that not all retail is equal. The stock returned 44.1%, making it not only the best performing retail AREIT but the 4th best performer in the AREIT sector.
The stock had been held back as investors digested its 2018 internalisation along with negative retail sentiment. In 2019 investors recognised the quality of AVN’s management and their ability to deliver retail sector leading NOI growth (FY19 3.5%) time after time. With rents half that of neighbourhood centres and low occupancy costs the market recognised the portfolio’s ability to perform in the current low growth environment hence the stock re-rated.
With a 5.9% distribution yield and management guiding to the upper end of their FY20 forecast FFO growth (3-4%) the stock continues to offer value for yield focused investors looking for sustainable growth.
Based on transactional evidence for similar large format centres over 1H20 (six transactions at an average 6.3%), AVN’s portfolio (cap rate 6.7%) looks to be conservatively valued with upside potential through the significant land bank that exists from the low 45% site coverage ratio.
Half-yearly results out on Tuesday
AVN reported their 1H20 result yesterday morning. The key numbers include:
Net operating income growth of 3.1% will again put AVN at the top relative to its peers, the consistency of this growth underpinned by 76% of their leases being on fixed 3-5% annual increases, with 87% of leases with national retailers. The sustainability of this growth and AVN’s track record in delivering this metric is a key attraction for APN.
NTA $2.20 +2.3% (Jun19 $2.15) driven by $20m in valuation gains.
Occupancy rate of 98.6% (Jun19 98.4%) improved slightly reflecting management’s skill and the attraction large format retail (LFR) centres have for tenants.
Gearing 35.7%, down 3% since June 19. Operating at the top end of their 30-40% target range had been a concern for some investors who felt it was limiting AVN’s growth potential. This risk is thus reduced as they move to the middle of their target gearing range providing both development and acquisition potential.
Key catalysts ahead
AVN has committed to spending $38m to developing five of their assets in 2020, $30m of this is at their Caringbah asset with an expected project IRR of 10%+. Since listing AVN has spent close to $100m in developing their centres earning an average cash yield of 9%. A great result for investors which compares very favourably to its retail peers. The future development potential of AVN’s portfolio, with some assets also having alternative use opportunities should see a continuation of their sustainable growth profile, a key attraction for APN.
AVN launched their first property syndicate over the half. Further expansion in this area will provide incremental income growth for the Trust and investors, however, management’s key focus remains maximising the returns from their portfolio and preserving investor value.
AVN’s management is also growing other earnings sources through solar, storage and signage opportunities across the portfolio.
With a best-in-class management team with a 16-year track record and a CEO with 25 years LFR experience, we remain confident in AVN’s ability to deliver sustainable growth over the medium to long term.
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Pete joined APN in 2006 and in January 2019 transitioned into his new role, becoming responsible for management of APN’s suite of real estate securities funds. Pete is now also the dedicated Fund Manager of the APN AREIT Fund