Australian Industrial REIT
ASX: Code: ANI
Security: price: $2.25
Industry: Property
Forecast distribution: 18.2c per share fully franked
We have recently focused on a number of property trusts and REITs. This week we look at Australian Industrial REIT, which owns a portfolio of industrial buildings.
ANI is in play, with Tony Pitt’s 360 Capital Group attempting a takeover. But despite the corporate action swirling around, ANI units offer good value, growth potential, and one of the best yields in the REITs sector, which we believe makes it a good pick for income-focused investors.
ANI owns 16 industrial properties in Sydney, Melbourne and Perth. The trust has performed well with a record of 100 per cent leasing since listing; it’s also benefited from the strength of the direct industrial market.
Its interim result in February was also strong with a net profit of $20 million and an increase in the value of its portfolio from $296.8m to $322m. The trust is now focused on acquiring well-located assets in major metropolitan markets with long-term sustainable growth.
But ANI has had a major distraction. Allan Fife’s Fife Capital Funds manages the trust, but its control over the fund has been challenged. In December last year 360 Capital announced a takeover bid for ANI by its 360 Capital Industrial Fund (TIX). 360, which owns 31 per cent of ANI’s units, is offering 0.9 TIX units and 4.5c for each ANI unit. It has also pledged a 10c per unit sweetener to accepting shareholders. With TIX units trading at $2.46, that values ANI at $2.35.
But ANI’s board and independent directors have opposed the bid strongly, and 360 suffered a major setback on May 25 when the majority of unit holders voted against a proposal to remove Fife Capital as manager and replace it with 360 Capital. TIX has now extended its bid.
ANI has modest gearing of 35 per cent and solid net tangible asset backing of $2.06 per unit.
It also has a strong yield. On February 27 ANI paid an interim distribution of 8.6c per unit. It is estimated to pay another 9.6c this month, taking the total payout for 2015 to 18.2c, giving an 8 per cent yield. At $2.25, the units are trading slightly below our forecast value of $2.31, and below the implied value of the TIX bid.
Despite the uncertainty created by the takeover activity, we think ANI will continue to generate reasonable earnings and dividend growth for investors.