ASX code: IDR
Share price: $2.05
Industry: Real Estate
Forecast FY2016 Distribution: 15.60c
Industria REIT (ASX Code: IDR) is an ASX listed AREIT, externally managed by APN Funds Management, a specialist manager within the larger APN Property Group. The trust floated in late 2013, offering 125m shares at $2.00 – equating to a market cap of $250m.
Industria came to market with, and still holds 18 business park, technology park and industrial properties throughout Sydney, Melbourne, Brisbane and Adelaide. In terms of number of properties, Brisbane is Industria’s largest exposure with eight business park assets near Eight Mile Plains at the Brisbane Technology Park, 15kms outside of the Brisbane CBD. In Melbourne, the trust has five industrial properties: two of these are in Derrimut approximately 30kms outside the CBD, one is in Kilsyth 40kms from the city, one in Dandenong South, just shy of 40kms south-east of the CBD. The final property is at Tullamarine, 20kms north of the CBD located in close vicinity to Tullamarine Airport. Whilst only having two assets in NSW, these high grade commercial offices make up a larger combined asset value than Industria’s eight Brisbane assets (although they are not responsible for more rental income). The two office blocks are located in the Rhodes Corporate Park just off the Parramatta River, with ample facilities such as shopping centres, child care and public transport all within walking distance. Industria’s final property is located in South Australia at the Burbridge Business Park, in the immediate vicinity of Adelaide Airport.
In terms of its tenants, Industria has a solid mix of public and private companies from various industries as well as an approximate 10 percent of its income anchored by government bodies. Some of its largest tenants include Link Market Services, Queensland Motorways, Mitre 10, National Australia Bank and Queensland Health. The WALE (weighted-average lease expiry) of its tenants is sitting at a comfortable 5.3 years, up on previous half-year reports, though below its IPO levels.
Industria had previously been dealing with some leasing vacancies at its Brisbane Technology Park offices, which management put down to a generally weak leasing environment. However, management towards to middle and end of last year managed to secure a number of lease extensions on these properties through an increase in tenant incentives, increasing portfolio occupancy from 92.0% to 94.50% between June and December, slightly reducing future profitability in the process. This is also below IPO levels.
Whilst the assets held in Industria may not be as high quality as some of the more popular REITs on the market, the higher yield and one of the highest cap rates in the sector (7.8%) do make it worthy of further consideration. Its yield is currently forecast to be 7.6% in FY2016 with healthy growth towards 8.2% in FY2017. Also worth noting for investors is the potentially lucrative tax-deferred component of Industria’s distribution, forecast to be 38.3% for FY2016. Room for expansion through further assets is also possible, a strategy that has been flagged as the gearing levels of 33% are well within management guidelines. Due to some of the leasing concerns highlighted by management and the less centralised locations of some its assets, we would like to see Industria trading at a discount to its NTA of $2.11 before becoming interested as a buyer. On the basis of a turnaround in the Brisbane leasing market and a further reduction in the occupancy rate, without overcompensating tenants with incentives, a smaller discount could be justified.
Written by Gareth Abernethy, Associate Analyst