Industria REIT
This is an extract of our full report. Please refer to our full report before making any investment decisions.
Industria REIT Turnaround value play
February 2017
Recommendation: BUY
Improving outlook for office markets
Active management driving improved portfolio performance
Undemanding multiples relative to the REIT sector
ASX: IDR Share Price: $2.05 Valuation: $2.34 M/Cap: $334.4M Shares/options: 163.1M Monthly T/over: $6.0M
Jonathan Kriska +61 2 9239 9633 [email protected]
Petra Capital Pty Ltd
February 2017
Contents Investment Case ................................................................................................................................................. 4 About Industria REIT .......................................................................................................................................... 7 History & Overview ........................................................................................................................................ 7 Fund Strategy ................................................................................................................................................ 7 Portfolio Overview ......................................................................................................................................... 8 Tenants & Leases .......................................................................................................................................... 9 Property Valuations ..................................................................................................................................... 10 Spotlight on WesTrac .................................................................................................................................. 10 Other Assets ................................................................................................................................................ 13 Commercial Property Markets .......................................................................................................................... 15 Suburban Office Markets ............................................................................................................................. 15 National Industrial Markets .......................................................................................................................... 16 Financials .......................................................................................................................................................... 18 Earnings Forecasts ...................................................................................................................................... 18 Cash Flow .................................................................................................................................................... 19 Debt Facilities .............................................................................................................................................. 19 Valuation ........................................................................................................................................................... 20 Relative Yield ............................................................................................................................................... 20 Dividend Discount Model (DDM) ................................................................................................................. 20 NAV Valuation ............................................................................................................................................. 21 Key Risks .......................................................................................................................................................... 22 Board and Management ................................................................................................................................... 23 About the Manager ...................................................................................................................................... 23 The Board – APN Funds Management Limited........................................................................................... 23 Management Team ..................................................................................................................................... 25 Key Shareholders ............................................................................................................................................. 26 Financial Model ................................................................................................................................................. 27
2
February 2017
Industria REIT (IDR)
Buy
Turnaround value play
Share Price: Target Price:
We initiate coverage of Industria REIT (IDR) with a BUY recommendation and a 12 month target price of $2.34 per share. After a difficult few years, IDR seems to have turned the corner. We note the improvement in both portfolio occupancy and lease expiry following a period of positive leasing deals and value enhancing acquisitions/disposals. In particular, we highlight the transforming acquisition of the WesTrac asset in Tomago for $158.6 million in September. IDR has moved into growth mode after a period of tracking sideways.
A$2.05 A$2.34
Company Data Shares – ordinary (M)
163.1
Dilution (M)
0.0
Total (fully diluted) (M)
163.1
Market cap. (M)
334.4
12 month low/high ($)
1.95 / 2.29
Average monthly turnover ($M)
6.0
Index
ASX 300
GICS Industry
Real Estate
Financial Summary (fully diluted/normalised)
Investment Highlights
• Attractive distribution yield – 7.8% in FY17. • Share price in line with its NTA of $2.05.
Year end 30 June
2015A
2016A
2017F
2018F
2019F
Property NOI ($M)
29.6
29.2
37.0
40.5
41.3
EBITDA ($M)
26.8
26.2
33.6
36.7
37.5
Performance turnaround from asset management
NPAT (adj.)($M)
20.6
21.5
27.7
30.5
31.6
• In recent periods IDR’s occupancy has increased
EPS (¢ps)
16.5
17.5
18.1
18.7
19.3
EPS Growth (%)
12.9
6.0
3.5
3.4
3.4
PER (x)
12.4
11.7
11.3
11.0
10.6
AFFO ($M)
15.2
13.8
20.9
26.5
27.5
AFFOPS (¢ps)
12.2
11.2
13.6
16.3
16.9
467.2
472.0
526.4
526.3
525.7
from 92% to 96% due to active leasing.
• This reflects management’s ability to lease about a third of portfolio space (pre-WesTrac) over the past two years.
Enterprise Value ($M)
Transactions driving further value
NTA (cps)
2.02
2.12
2.05
2.06
2.08
• After actively increasing occupancy, IDR has been
Price to NTA (%)
1.3
-3.4
0.0
-0.6
-1.2
Dividends (¢ps)
16.2
15.5
16.0
16.3
16.8
Payout ratio (%)
98.1
88.6
88.4
87.0
87.0
7.9
7.6
7.8
7.9
8.2
successful in selling some of its lower quality assets at prices well above book value.
• The acquisition of the industrial asset at 1–3 WesTrac
Yield (%)
Drive, Tomago for $158.6 million in September has dramatically improved the portfolio in terms of WALE, occupancy, size, annual rent reviews of +3.0%, and strengthens IDR’s cash position.
Board Executive
Independent
Chairman
No
Yes
Director
No
Yes
Director
No
Yes
Director
Yes
No
Improving Office Markets
Michael Groth
Director
Yes
No
• As well as Industrial property, IDR is a play on office
John Freemantle
Director
Yes
No
• These transactions have decreased IDR’s portfolio exposure to Brisbane Technology Park from ~43% to 25%, a challenging component of the portfolio, given the overall weakness in the Brisbane office market.
markets, with ~52% of assets being business park assets in suburban markets.
Director
Position
Geoff Brunsdon Michael Johnstone Jennifer Horrigan Howard Brenchley
IDR – performance over one year
• Australia’s office markets are enjoying greater levels of
$2.40
demand, lower vacancies and better rental growth.
$2.30
• Metro office markets, in which IDR also invests, have
$2.20
performed well relative to CBD markets.
$2.10
Attractive multiples $2.00
• IDR trades on a FY17 yield of 7.8% (vs. 6.0% ASX300
$1.90
REITs).
• IDR trades in line with its NTA (vs. 24% premium
$1.80 Feb-16
ASX300 REITs). 3
Apr-16
Jun-16
Aug-16
Oct-16
Dec-16
February 2017
Financial Model Industria REIT (IDR)
Year end 30 June
MARKET DATA Recommendation Price Price target (12-month) 52 week high / low Market capitalisation Shares on issue (basic) Options / rights Other equity Shares on issue (diluted)
$ $ $ $m no. no. no. no.
PROFIT AND LOSS Property NOI RE Fees Admin Expenses EBITDA Depreciation & amortisation EBIT Net interest Non-operating income Pretax Profit Tax expense Minorities/Preference dividend Reported NPAT Significant items Operating NPAT
$m $m $m $m $m $m $m $m $m $m $m $m $m $m
FY15 29.6 (2.2) (0.6) 26.8 0.0 26.8 (5.9) 1.8 22.8 0.0 0.0 22.8 (2.1) 20.6
FY16 29.2 (2.3) (0.6) 26.2 0.0 26.2 (5.7) 10.5 31.0 0.2 0.0 31.3 (9.7) 21.5
FY17e 37.0 (2.7) (0.7) 33.6 0.0 33.6 (7.1) 0.0 26.5 0.0 0.0 26.5 1.2 27.7
FY18e 40.5 (3.0) (0.8) 36.7 0.0 36.7 (7.3) 0.0 29.3 0.0 0.0 29.3 1.2 30.5
FY19e 41.3 (3.0) (0.8) 37.5 0.0 37.5 (7.1) 0.0 30.4 0.0 0.0 30.4 1.2 31.6
INTERIM SUMMARY Property NOI EBITDA Depreciation & amortisation EBIT Net interest Non operating revenue Pretax Profit Tax expense Minorities/Preference dividend Reported NPAT Significant items Operating NPAT Reported EPS (diluted) Normalised EPS
$m $m $m $m $m $m $m $m $m $m $m $m ¢ ¢
2H15 14.7 13.4 0.0 13.4 (2.7) 0.4 11.1 0.4 0.0 11.6 1.0 10.6 9.3 8.5
1H16 14.2 12.7 0.0 12.7 (2.8) 9.3 19.2 0.7 0.0 19.9 9.4 10.5 16.1 8.5
2H16 15.0 13.5 0.0 13.5 (2.9) 1.3 11.8 (0.4) 0.0 11.4 0.3 11.0 9.3 9.0
1H17 17.0 15.5 0.0 15.5 (3.6) 0.0 12.0 0.0 0.0 12.0 (0.6) 12.6 8.4 8.8
2H17 20.0 18.1 0.0 18.1 (3.5) 0.0 14.5 0.0 0.0 14.5 (0.6) 15.1 8.9 9.3
BALANCE SHEET Cash Receivables Inventory Investment Properties Associates Derivatives Other Total assets Payables Borrowings Derivatives Other Total liabilities Net assets Equity Minorities Shareholder's equity
$m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m
FY15 1.9 4.0 0.0 399.9 0.0 0.0 0.6 406.4 16.1 134.7 5.8 0.0 156.5 249.8 249.8 0.0 249.8
FY16 1.6 2.0 0.0 417.9 0.0 0.0 0.4 421.8 15.0 139.3 6.4 0.0 160.7 261.2 261.2 0.0 261.2
FY17e 1.0 2.0 0.0 546.0 0.0 0.0 0.4 549.4 15.0 193.1 6.4 0.0 214.5 334.9 334.9 0.0 334.9
FY18e 1.2 2.0 0.0 547.5 0.0 0.0 0.4 551.0 15.0 193.1 6.4 0.0 214.5 336.5 336.5 0.0 336.5
FY19e 1.7 2.0 0.0 548.9 0.0 0.0 0.4 553.0 15.0 193.1 6.4 0.0 214.5 338.5 338.5 0.0 338.5
PER SHARE DATA Reported EPS (diluted) Normalised EPS (diluted) ….Growth
¢ ¢ %
FY15 18.2 16.5 12.9
FY16 25.4 17.5 6.0
FY17e 17.3 18.1 3.5
FY18e 18.0 18.7 3.4
FY19e 18.6 19.3 3.4
Funds From Operations (FFO) Adj Funds From Operations (AFFO) AFFO yield
¢ ¢ %
16.5 12.2 5.9
17.5 11.2 5.5
18.1 13.6 6.6
18.7 16.3 7.9
19.3 16.9 8.2
Dividend Payout Yield Tax deferred
¢ % % %
16.2 98.1 7.9 45.5
15.5 88.6 7.6 42.6
16.0 88.4 7.8 na
16.3 87.0 7.9 na
16.8 87.0 8.2 na
NTA ($/share)
$
2.02
2.12
2.05
2.06
2.08
Shares on issue
VALUATION DATA P/E (operating EPS) Prem/(Disc) to NTA Price to book Enterprise value EV/EBITDA EV/EBIT
x % x $m x x
FY15 12.4 1.3 1.0 467.2 17.4 17.4
FY16 11.7 (3.4) 1.0 472.0 18.0 18.0
FY17e 11.3 0.0 1.0 526.4 15.7 15.7
FY18e 11.0 (0.6) 1.0 526.3 14.4 14.4
FY19e 10.6 (1.2) 1.0 525.7 14.0 14.0
GROWTH PROFILE Property NOI EBITDA EBIT Operating NPAT Operating EPS DPS
% % % % % %
FY15 13.6 8.1 8.1 23.0 12.9 (3.1)
FY16 (1.6) (2.2) (2.2) 4.4 6.0 (4.3)
FY17e 26.8 28.1 28.1 28.7 3.5 3.2
FY18e 9.4 9.1 9.1 10.1 3.4 1.8
FY19e 2.0 2.1 2.1 3.4 3.4 3.4
LEVERAGE Net debt Gearing (net debt / EBITDA) Leverage (net debt / equity) LVR (net debt / assets) Interest cover (EBIT / net interest)
$m x % % x
FY15 132.8 4.9 34.7 32.7 4.5
FY16 137.7 5.2 34.5 32.6 4.5
FY17e 192.0 5.7 36.4 35.0 4.7
FY18e 191.9 5.2 36.3 34.8 5.0
FY19e 191.3 5.1 36.1 34.6 5.2
KEY RATIOS EBITDA margin EBIT margin NPAT margin ROE ROA
% % % % %
FY15 90.5 90.5 69.6 8.3 5.1
FY16 90.0 90.0 73.9 8.2 5.1
FY17e 90.9 90.9 75.0 8.3 5.0
FY18e 90.6 90.6 75.5 9.1 5.5
FY19e 90.8 90.8 76.5 9.3 5.7
BUY 2.05 2.34 1.95 / 2.29 334.4 163.1 0.0 0.0 163.1
m
123.5
123.0
163.1
163.1
163.1
CASH FLOW EBITDA Net interest Tax paid Other Operating cash flow Capital expenditure Acquisitions/divestment/other Investing cash flow Equity Increase / (decrease) in borrowings Other Financing Dividends Financing cash flow Net cash flow
$m $m $m $m $m $m $m $m $m $m $m $m $m $m
FY15 26.8 (5.9) 0.0 (4.6) 16.3 (1.1) 11.3 10.2 (2.9) (1.9) 0.0 (22.4) (27.2) (0.7)
FY16 26.2 (5.7) 0.2 (5.6) 15.1 (1.3) 1.2 (0.1) 3.7 0.0 0.0 (18.9) (15.2) (0.3)
FY17e 33.6 (7.1) 0.0 (4.4) 22.1 (1.3) (117.6) (118.8) 65.2 53.8 0.0 (22.9) 96.1 (0.6)
FY18e 36.7 (7.3) 0.0 (1.4) 27.9 (1.4) 0.0 (1.4) 0.0 0.0 0.0 (26.3) (26.3) 0.2
FY19e 37.5 (7.1) 0.0 (1.4) 29.0 (1.4) 0.0 (1.4) 0.0 0.0 0.0 (27.0) (27.0) 0.5
Free cash flow
$m
15.2
13.8
20.9
26.5
27.5
DUPONT ANALYSIS Net Profit Margin Asset Turnover Return on Assets Financial Leverage Return on Equity
% x % x %
FY15 69.6% 0.1x 5.1% 1.6x 8.3%
FY16 73.9% 0.1x 5.1% 1.6x 8.2%
FY17e 75.0% 0.1x 5.0% 1.6x 8.3%
FY18e 75.5% 0.1x 5.5% 1.6x 9.1%
FY19e 76.5% 0.1x 0.0% 1.6x 9.3%
12-MONTH SHARE PRICE PERFORMANCE 130.0 120.0 110.0
XPK IDR
100.0 90.0 80.0
Source: Petra Capital
27
February 2017
ABN 95 110 952 782 ACN 110 952 782 AFSL 317 944
Petra Capital Level 17, 14 Martin Place, Sydney NSW 2000 Director: Research (Industrials): Research (Industrials): Research (Industrials): Research (Industrials): Research (Industrials): Research (Property): Research (Resources): Research (Resources): Sales: Sales: Sales: Sales: Sales: Sales: Sales: Sales: Sales: Corporate (ECM): Corporate (ECM): Administration: Administration: Administration: Administration: Administration: Legal & Compliance: Financials:
George Marias Michael Henshaw George Kopsiaftis Nick Berry Killian Murphy Daniel Porter Jonathan Kriska Brett McKay Matthew Schembri Frank Barila Shane Gavegan Mark Innes Richard Macphillamy Vincent Pisani Michael Vincent Colin Redmond Daniel Gardiner Peter Veldhuizen Conrad Anderson David Wallis Krystle Garven Amelia Holland Samantha Tingley Silvia Fratta Pasini Larissa Falvo Stephen Newton Tony Christelis
+61 (0)2 9239 9601 +61 (0)2 9239 9606 +61 (0)2 9239 9618 +61 (0)2 9239 9634 +61 (0)2 9239 9607 +61 (0)2 9239 9625 +61 (0)2 9239 9633 +61 (0)2 9239 9605 +61 (0)2 9239 9630 +61 (0)2 9239 9603 +61 (0)2 9239 9616 +61 (0)2 9239 9602 +61 (0)2 9239 9604 +61 (0)2 9239 9617 +61 (0)2 9239 9620 +61 (0)2 9239 9613 +61 (0)2 9239 9608 +61 (0)2 9239 9609 +61 (0)2 9239 9610 +61 (0)2 9239 9622 +61 (0)2 9239 9635 +61 (0)2 9239 9614 +61 (0)2 9239 9636 +61 (0)2 9239 9621 +61 (0)2 9239 9611 +61 (0)2 9239 9612 +61 (0)2 9239 9615
[email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]
Disclosure This document has been prepared in Australia by Petra Capital Pty Ltd which holds an Australian Financial Services License AFSL 317 944. Petra Capital Pty Ltd is an ASX Market Participant. Petra Capital Pty Ltd and its associates, officers, directors, employees and agents, from time to time, may receive brokerage, commissions, fees or other benefits or advantages, hold securities in companies researched by Petra Capital Pty Ltd and may trade in these securities either as principal or agent. Disclaimer The information or advice contained in this report has been obtained from sources that were accurate at the time of issue, however the information has not been independently verified and as such, Petra Capital Pty Ltd cannot warrant its accuracy or reliability. Persons relying on this information do so at their own risk. To the extent permitted by law, Petra Capital Pty Ltd disclaims all liability or responsibility for any direct or indirect loss or damage (including consequential loss or damage) caused by any error or omission within this report, or by persons relying on the contents of this report. This report is published by Petra Capital Pty Ltd by way of general information or advice only. This report does not take into account specific investment needs or other considerations that may be pertinent to individual investors. Before making any investment decisions based on this report, parties should consider, with or without an investor adviser, whether any relevant part of this report is appropriate to their financial circumstances and investment objectives. Petra Capital Pty Ltd is a licensed institutional/wholesale stockbroking firm. The report is only intended for institutional and sophisticated clients to whom Petra Capital Pty Ltd has issued the report. Petra Capital Pty Ltd is not licensed to advise retail investors – retail investors should contact their own stockbroker or financial adviser/planner for advice. Ratings Information regarding the scope and expertise of our research services, processes for selection for coverage, and the management of conflicts of interest can be found on Petra Capital’s website at http://www.petracapital.com.au/research-disclosures. Petra Capital uses the following ratings system and definitions: Buy - Forecast to outperform the Market by more than 5%; Hold - Forecast to perform up to 5% above or below the Market; Sell - Forecast to underperform the Market by more than 5%; Speculative Buy - Speculative Investment; Take Profits Recommend taking short term profits in a stock we remain fundamentally positive on a medium term view; Accept Offer - For a company under takeover where we see the offer as a fair price with low risk of a competing offer; No Rating - No rating at this time. Market performance is relative to the S&P/ASX Small Ordinaries Index which we assume generates a neutral return on a 12 month basis. US Investors This material is intended for use by major U.S. institutional investors (as such term is defined in the U.S. Securities Exchange Act of 1934) and “$100 million investors” only and not the general investing public or retail customers. “$100 million investors” means any entity, including any investment adviser (whether or not registered under the U.S. Investment Company Act of 1940) that owns or controls (or in the case on an investment adviser has under management) in excess of US$100 million in aggregate financial assets (i.e. cash, money-market instruments, securities of unaffiliated issues, futures and options on futures and other derivative instruments). Transactions by or on behalf of any US person in any security mentioned in this document may only be effected through Monarch Capital Group LLC, a U.S. broker dealer. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, its accuracy is not guaranteed. Additional and supporting information is available upon request. This is not an offer or solicitation of an offer to buy or sell any security or to make any investment. Any opinion or estimate constitutes the preparer’s best judgement as of the date of preparation and is subject to change without notice. Petra Capital Pty Limited or Monarch and their associates or affiliates, and their respective officers, directors and employees may buy or sell securities mentioned herein as agent or principal for their own account. Other International International investors are encouraged to contact their local regulatory authorities to determine whether restrictions apply in buying/selling this investment.
Industria REIT Turnaround value play
February 2017
Recommendation: BUY
Improving outlook for office markets
Active management driving improved portfolio performance
Undemanding multiples relative to the REIT sector
ASX: IDR Share Price: $2.05 Valuation: $2.34 M/Cap: $334.4M Shares/options: 163.1M Monthly T/over: $6.0M
Jonathan Kriska +61 2 9239 9633 [email protected]
Petra Capital Pty Ltd
February 2017
Contents Investment Case ................................................................................................................................................. 4 About Industria REIT .......................................................................................................................................... 7 History & Overview ........................................................................................................................................ 7 Fund Strategy ................................................................................................................................................ 7 Portfolio Overview ......................................................................................................................................... 8 Tenants & Leases .......................................................................................................................................... 9 Property Valuations ..................................................................................................................................... 10 Spotlight on WesTrac .................................................................................................................................. 10 Other Assets ................................................................................................................................................ 13 Commercial Property Markets .......................................................................................................................... 15 Suburban Office Markets ............................................................................................................................. 15 National Industrial Markets .......................................................................................................................... 16 Financials .......................................................................................................................................................... 18 Earnings Forecasts ...................................................................................................................................... 18 Cash Flow .................................................................................................................................................... 19 Debt Facilities .............................................................................................................................................. 19 Valuation ........................................................................................................................................................... 20 Relative Yield ............................................................................................................................................... 20 Dividend Discount Model (DDM) ................................................................................................................. 20 NAV Valuation ............................................................................................................................................. 21 Key Risks .......................................................................................................................................................... 22 Board and Management ................................................................................................................................... 23 About the Manager ...................................................................................................................................... 23 The Board – APN Funds Management Limited........................................................................................... 23 Management Team ..................................................................................................................................... 25 Key Shareholders ............................................................................................................................................. 26 Financial Model ................................................................................................................................................. 27
2
February 2017
Industria REIT (IDR)
Buy
Turnaround value play
Share Price: Target Price:
We initiate coverage of Industria REIT (IDR) with a BUY recommendation and a 12 month target price of $2.34 per share. After a difficult few years, IDR seems to have turned the corner. We note the improvement in both portfolio occupancy and lease expiry following a period of positive leasing deals and value enhancing acquisitions/disposals. In particular, we highlight the transforming acquisition of the WesTrac asset in Tomago for $158.6 million in September. IDR has moved into growth mode after a period of tracking sideways.
A$2.05 A$2.34
Company Data Shares – ordinary (M)
163.1
Dilution (M)
0.0
Total (fully diluted) (M)
163.1
Market cap. (M)
334.4
12 month low/high ($)
1.95 / 2.29
Average monthly turnover ($M)
6.0
Index
ASX 300
GICS Industry
Real Estate
Financial Summary (fully diluted/normalised)
Investment Highlights
• Attractive distribution yield – 7.8% in FY17. • Share price in line with its NTA of $2.05.
Year end 30 June
2015A
2016A
2017F
2018F
2019F
Property NOI ($M)
29.6
29.2
37.0
40.5
41.3
EBITDA ($M)
26.8
26.2
33.6
36.7
37.5
Performance turnaround from asset management
NPAT (adj.)($M)
20.6
21.5
27.7
30.5
31.6
• In recent periods IDR’s occupancy has increased
EPS (¢ps)
16.5
17.5
18.1
18.7
19.3
EPS Growth (%)
12.9
6.0
3.5
3.4
3.4
PER (x)
12.4
11.7
11.3
11.0
10.6
AFFO ($M)
15.2
13.8
20.9
26.5
27.5
AFFOPS (¢ps)
12.2
11.2
13.6
16.3
16.9
467.2
472.0
526.4
526.3
525.7
from 92% to 96% due to active leasing.
• This reflects management’s ability to lease about a third of portfolio space (pre-WesTrac) over the past two years.
Enterprise Value ($M)
Transactions driving further value
NTA (cps)
2.02
2.12
2.05
2.06
2.08
• After actively increasing occupancy, IDR has been
Price to NTA (%)
1.3
-3.4
0.0
-0.6
-1.2
Dividends (¢ps)
16.2
15.5
16.0
16.3
16.8
Payout ratio (%)
98.1
88.6
88.4
87.0
87.0
7.9
7.6
7.8
7.9
8.2
successful in selling some of its lower quality assets at prices well above book value.
• The acquisition of the industrial asset at 1–3 WesTrac
Yield (%)
Drive, Tomago for $158.6 million in September has dramatically improved the portfolio in terms of WALE, occupancy, size, annual rent reviews of +3.0%, and strengthens IDR’s cash position.
Board Executive
Independent
Chairman
No
Yes
Director
No
Yes
Director
No
Yes
Director
Yes
No
Improving Office Markets
Michael Groth
Director
Yes
No
• As well as Industrial property, IDR is a play on office
John Freemantle
Director
Yes
No
• These transactions have decreased IDR’s portfolio exposure to Brisbane Technology Park from ~43% to 25%, a challenging component of the portfolio, given the overall weakness in the Brisbane office market.
markets, with ~52% of assets being business park assets in suburban markets.
Director
Position
Geoff Brunsdon Michael Johnstone Jennifer Horrigan Howard Brenchley
IDR – performance over one year
• Australia’s office markets are enjoying greater levels of
$2.40
demand, lower vacancies and better rental growth.
$2.30
• Metro office markets, in which IDR also invests, have
$2.20
performed well relative to CBD markets.
$2.10
Attractive multiples $2.00
• IDR trades on a FY17 yield of 7.8% (vs. 6.0% ASX300
$1.90
REITs).
• IDR trades in line with its NTA (vs. 24% premium
$1.80 Feb-16
ASX300 REITs). 3
Apr-16
Jun-16
Aug-16
Oct-16
Dec-16
February 2017
Financial Model Industria REIT (IDR)
Year end 30 June
MARKET DATA Recommendation Price Price target (12-month) 52 week high / low Market capitalisation Shares on issue (basic) Options / rights Other equity Shares on issue (diluted)
$ $ $ $m no. no. no. no.
PROFIT AND LOSS Property NOI RE Fees Admin Expenses EBITDA Depreciation & amortisation EBIT Net interest Non-operating income Pretax Profit Tax expense Minorities/Preference dividend Reported NPAT Significant items Operating NPAT
$m $m $m $m $m $m $m $m $m $m $m $m $m $m
FY15 29.6 (2.2) (0.6) 26.8 0.0 26.8 (5.9) 1.8 22.8 0.0 0.0 22.8 (2.1) 20.6
FY16 29.2 (2.3) (0.6) 26.2 0.0 26.2 (5.7) 10.5 31.0 0.2 0.0 31.3 (9.7) 21.5
FY17e 37.0 (2.7) (0.7) 33.6 0.0 33.6 (7.1) 0.0 26.5 0.0 0.0 26.5 1.2 27.7
FY18e 40.5 (3.0) (0.8) 36.7 0.0 36.7 (7.3) 0.0 29.3 0.0 0.0 29.3 1.2 30.5
FY19e 41.3 (3.0) (0.8) 37.5 0.0 37.5 (7.1) 0.0 30.4 0.0 0.0 30.4 1.2 31.6
INTERIM SUMMARY Property NOI EBITDA Depreciation & amortisation EBIT Net interest Non operating revenue Pretax Profit Tax expense Minorities/Preference dividend Reported NPAT Significant items Operating NPAT Reported EPS (diluted) Normalised EPS
$m $m $m $m $m $m $m $m $m $m $m $m ¢ ¢
2H15 14.7 13.4 0.0 13.4 (2.7) 0.4 11.1 0.4 0.0 11.6 1.0 10.6 9.3 8.5
1H16 14.2 12.7 0.0 12.7 (2.8) 9.3 19.2 0.7 0.0 19.9 9.4 10.5 16.1 8.5
2H16 15.0 13.5 0.0 13.5 (2.9) 1.3 11.8 (0.4) 0.0 11.4 0.3 11.0 9.3 9.0
1H17 17.0 15.5 0.0 15.5 (3.6) 0.0 12.0 0.0 0.0 12.0 (0.6) 12.6 8.4 8.8
2H17 20.0 18.1 0.0 18.1 (3.5) 0.0 14.5 0.0 0.0 14.5 (0.6) 15.1 8.9 9.3
BALANCE SHEET Cash Receivables Inventory Investment Properties Associates Derivatives Other Total assets Payables Borrowings Derivatives Other Total liabilities Net assets Equity Minorities Shareholder's equity
$m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m
FY15 1.9 4.0 0.0 399.9 0.0 0.0 0.6 406.4 16.1 134.7 5.8 0.0 156.5 249.8 249.8 0.0 249.8
FY16 1.6 2.0 0.0 417.9 0.0 0.0 0.4 421.8 15.0 139.3 6.4 0.0 160.7 261.2 261.2 0.0 261.2
FY17e 1.0 2.0 0.0 546.0 0.0 0.0 0.4 549.4 15.0 193.1 6.4 0.0 214.5 334.9 334.9 0.0 334.9
FY18e 1.2 2.0 0.0 547.5 0.0 0.0 0.4 551.0 15.0 193.1 6.4 0.0 214.5 336.5 336.5 0.0 336.5
FY19e 1.7 2.0 0.0 548.9 0.0 0.0 0.4 553.0 15.0 193.1 6.4 0.0 214.5 338.5 338.5 0.0 338.5
PER SHARE DATA Reported EPS (diluted) Normalised EPS (diluted) ….Growth
¢ ¢ %
FY15 18.2 16.5 12.9
FY16 25.4 17.5 6.0
FY17e 17.3 18.1 3.5
FY18e 18.0 18.7 3.4
FY19e 18.6 19.3 3.4
Funds From Operations (FFO) Adj Funds From Operations (AFFO) AFFO yield
¢ ¢ %
16.5 12.2 5.9
17.5 11.2 5.5
18.1 13.6 6.6
18.7 16.3 7.9
19.3 16.9 8.2
Dividend Payout Yield Tax deferred
¢ % % %
16.2 98.1 7.9 45.5
15.5 88.6 7.6 42.6
16.0 88.4 7.8 na
16.3 87.0 7.9 na
16.8 87.0 8.2 na
NTA ($/share)
$
2.02
2.12
2.05
2.06
2.08
Shares on issue
VALUATION DATA P/E (operating EPS) Prem/(Disc) to NTA Price to book Enterprise value EV/EBITDA EV/EBIT
x % x $m x x
FY15 12.4 1.3 1.0 467.2 17.4 17.4
FY16 11.7 (3.4) 1.0 472.0 18.0 18.0
FY17e 11.3 0.0 1.0 526.4 15.7 15.7
FY18e 11.0 (0.6) 1.0 526.3 14.4 14.4
FY19e 10.6 (1.2) 1.0 525.7 14.0 14.0
GROWTH PROFILE Property NOI EBITDA EBIT Operating NPAT Operating EPS DPS
% % % % % %
FY15 13.6 8.1 8.1 23.0 12.9 (3.1)
FY16 (1.6) (2.2) (2.2) 4.4 6.0 (4.3)
FY17e 26.8 28.1 28.1 28.7 3.5 3.2
FY18e 9.4 9.1 9.1 10.1 3.4 1.8
FY19e 2.0 2.1 2.1 3.4 3.4 3.4
LEVERAGE Net debt Gearing (net debt / EBITDA) Leverage (net debt / equity) LVR (net debt / assets) Interest cover (EBIT / net interest)
$m x % % x
FY15 132.8 4.9 34.7 32.7 4.5
FY16 137.7 5.2 34.5 32.6 4.5
FY17e 192.0 5.7 36.4 35.0 4.7
FY18e 191.9 5.2 36.3 34.8 5.0
FY19e 191.3 5.1 36.1 34.6 5.2
KEY RATIOS EBITDA margin EBIT margin NPAT margin ROE ROA
% % % % %
FY15 90.5 90.5 69.6 8.3 5.1
FY16 90.0 90.0 73.9 8.2 5.1
FY17e 90.9 90.9 75.0 8.3 5.0
FY18e 90.6 90.6 75.5 9.1 5.5
FY19e 90.8 90.8 76.5 9.3 5.7
BUY 2.05 2.34 1.95 / 2.29 334.4 163.1 0.0 0.0 163.1
m
123.5
123.0
163.1
163.1
163.1
CASH FLOW EBITDA Net interest Tax paid Other Operating cash flow Capital expenditure Acquisitions/divestment/other Investing cash flow Equity Increase / (decrease) in borrowings Other Financing Dividends Financing cash flow Net cash flow
$m $m $m $m $m $m $m $m $m $m $m $m $m $m
FY15 26.8 (5.9) 0.0 (4.6) 16.3 (1.1) 11.3 10.2 (2.9) (1.9) 0.0 (22.4) (27.2) (0.7)
FY16 26.2 (5.7) 0.2 (5.6) 15.1 (1.3) 1.2 (0.1) 3.7 0.0 0.0 (18.9) (15.2) (0.3)
FY17e 33.6 (7.1) 0.0 (4.4) 22.1 (1.3) (117.6) (118.8) 65.2 53.8 0.0 (22.9) 96.1 (0.6)
FY18e 36.7 (7.3) 0.0 (1.4) 27.9 (1.4) 0.0 (1.4) 0.0 0.0 0.0 (26.3) (26.3) 0.2
FY19e 37.5 (7.1) 0.0 (1.4) 29.0 (1.4) 0.0 (1.4) 0.0 0.0 0.0 (27.0) (27.0) 0.5
Free cash flow
$m
15.2
13.8
20.9
26.5
27.5
DUPONT ANALYSIS Net Profit Margin Asset Turnover Return on Assets Financial Leverage Return on Equity
% x % x %
FY15 69.6% 0.1x 5.1% 1.6x 8.3%
FY16 73.9% 0.1x 5.1% 1.6x 8.2%
FY17e 75.0% 0.1x 5.0% 1.6x 8.3%
FY18e 75.5% 0.1x 5.5% 1.6x 9.1%
FY19e 76.5% 0.1x 0.0% 1.6x 9.3%
12-MONTH SHARE PRICE PERFORMANCE 130.0 120.0 110.0
XPK IDR
100.0 90.0 80.0
Source: Petra Capital
27
February 2017
ABN 95 110 952 782 ACN 110 952 782 AFSL 317 944
Petra Capital Level 17, 14 Martin Place, Sydney NSW 2000 Director: Research (Industrials): Research (Industrials): Research (Industrials): Research (Industrials): Research (Industrials): Research (Property): Research (Resources): Research (Resources): Sales: Sales: Sales: Sales: Sales: Sales: Sales: Sales: Sales: Corporate (ECM): Corporate (ECM): Administration: Administration: Administration: Administration: Administration: Legal & Compliance: Financials:
George Marias Michael Henshaw George Kopsiaftis Nick Berry Killian Murphy Daniel Porter Jonathan Kriska Brett McKay Matthew Schembri Frank Barila Shane Gavegan Mark Innes Richard Macphillamy Vincent Pisani Michael Vincent Colin Redmond Daniel Gardiner Peter Veldhuizen Conrad Anderson David Wallis Krystle Garven Amelia Holland Samantha Tingley Silvia Fratta Pasini Larissa Falvo Stephen Newton Tony Christelis
+61 (0)2 9239 9601 +61 (0)2 9239 9606 +61 (0)2 9239 9618 +61 (0)2 9239 9634 +61 (0)2 9239 9607 +61 (0)2 9239 9625 +61 (0)2 9239 9633 +61 (0)2 9239 9605 +61 (0)2 9239 9630 +61 (0)2 9239 9603 +61 (0)2 9239 9616 +61 (0)2 9239 9602 +61 (0)2 9239 9604 +61 (0)2 9239 9617 +61 (0)2 9239 9620 +61 (0)2 9239 9613 +61 (0)2 9239 9608 +61 (0)2 9239 9609 +61 (0)2 9239 9610 +61 (0)2 9239 9622 +61 (0)2 9239 9635 +61 (0)2 9239 9614 +61 (0)2 9239 9636 +61 (0)2 9239 9621 +61 (0)2 9239 9611 +61 (0)2 9239 9612 +61 (0)2 9239 9615
[email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]
Disclosure This document has been prepared in Australia by Petra Capital Pty Ltd which holds an Australian Financial Services License AFSL 317 944. Petra Capital Pty Ltd is an ASX Market Participant. Petra Capital Pty Ltd and its associates, officers, directors, employees and agents, from time to time, may receive brokerage, commissions, fees or other benefits or advantages, hold securities in companies researched by Petra Capital Pty Ltd and may trade in these securities either as principal or agent. Disclaimer The information or advice contained in this report has been obtained from sources that were accurate at the time of issue, however the information has not been independently verified and as such, Petra Capital Pty Ltd cannot warrant its accuracy or reliability. Persons relying on this information do so at their own risk. To the extent permitted by law, Petra Capital Pty Ltd disclaims all liability or responsibility for any direct or indirect loss or damage (including consequential loss or damage) caused by any error or omission within this report, or by persons relying on the contents of this report. This report is published by Petra Capital Pty Ltd by way of general information or advice only. This report does not take into account specific investment needs or other considerations that may be pertinent to individual investors. Before making any investment decisions based on this report, parties should consider, with or without an investor adviser, whether any relevant part of this report is appropriate to their financial circumstances and investment objectives. Petra Capital Pty Ltd is a licensed institutional/wholesale stockbroking firm. The report is only intended for institutional and sophisticated clients to whom Petra Capital Pty Ltd has issued the report. Petra Capital Pty Ltd is not licensed to advise retail investors – retail investors should contact their own stockbroker or financial adviser/planner for advice. Ratings Information regarding the scope and expertise of our research services, processes for selection for coverage, and the management of conflicts of interest can be found on Petra Capital’s website at http://www.petracapital.com.au/research-disclosures. Petra Capital uses the following ratings system and definitions: Buy - Forecast to outperform the Market by more than 5%; Hold - Forecast to perform up to 5% above or below the Market; Sell - Forecast to underperform the Market by more than 5%; Speculative Buy - Speculative Investment; Take Profits Recommend taking short term profits in a stock we remain fundamentally positive on a medium term view; Accept Offer - For a company under takeover where we see the offer as a fair price with low risk of a competing offer; No Rating - No rating at this time. Market performance is relative to the S&P/ASX Small Ordinaries Index which we assume generates a neutral return on a 12 month basis. US Investors This material is intended for use by major U.S. institutional investors (as such term is defined in the U.S. Securities Exchange Act of 1934) and “$100 million investors” only and not the general investing public or retail customers. “$100 million investors” means any entity, including any investment adviser (whether or not registered under the U.S. Investment Company Act of 1940) that owns or controls (or in the case on an investment adviser has under management) in excess of US$100 million in aggregate financial assets (i.e. cash, money-market instruments, securities of unaffiliated issues, futures and options on futures and other derivative instruments). Transactions by or on behalf of any US person in any security mentioned in this document may only be effected through Monarch Capital Group LLC, a U.S. broker dealer. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, its accuracy is not guaranteed. Additional and supporting information is available upon request. This is not an offer or solicitation of an offer to buy or sell any security or to make any investment. Any opinion or estimate constitutes the preparer’s best judgement as of the date of preparation and is subject to change without notice. Petra Capital Pty Limited or Monarch and their associates or affiliates, and their respective officers, directors and employees may buy or sell securities mentioned herein as agent or principal for their own account. Other International International investors are encouraged to contact their local regulatory authorities to determine whether restrictions apply in buying/selling this investment.
