ASX Code: IDR
Security price: $2.01
Forecast distribution: 16.2c per share
Real estate investment trusts were among the strongest performing sectors of the Australian sharemarket in 2014.
That’s not surprising, as investors hunt for income and yield, which property-based investments traditionally deliver.
Industria REIT stapled securities is one property-related opportunity that we think is still attractive. Industria listed in December 2013 at $2, and the securities have largely tracked sideways since then.
Industria, managed by specialist real estate investment manager APN Funds Management, owns and manages “workspace-focused” industrial, business and technology parks in Sydney, Brisbane, Melbourne and Adelaide.
While the office leasing market has been somewhat subdued of late, particularly in Queensland (perhaps explaining some of the underperformance), Industria should still appeal to income investors as it combines stable income from a diversified portfolio with upside from potential growth.
Industria has 17 assets worth $398 million, with valuations based on an average capitalisation rate of 8.19 per cent.
The portfolio is diversified by geography, sector and tenants, with well-known tenants such as Mitre 10 and National Australia Bank. Industria is also spread across industrial property (23 per cent) and business and technology parks (77 per cent). The net tangible asset value per security is $2.01 — about the present trading price of securities.
Importantly, Industria has contracts with tenants on almost all its leases, guaranteeing rental growth. The portfolio has performed strongly in terms of income and capital growth. Industria reported a net profit in 2014 of $27.5m, well above the IPO forecast of $9.7m, driven by underlying property revaluation uplift. It recently handed down its first-half result, a profit of $11.2m. That was slightly lower than the IPO forecast of $11.6m. Total occupancy is now 93 per cent, against 97 per cent at IPO.
Industria is hoping further interest rate cuts and the falling Australian dollar will boost the fortunes of its tenants.
In the first half, it delivered a distribution of 8.36c. The full-year payout is forecast to be between 16.2c and 16.72c, giving an indicative yield of at least 8 per cent. While Industria is exposed to a weakening economy, its solid assets should continue to deliver a strong income for yield-starved investors.