ASX code: CRR
Security Price: $2.98
Industry: Real Estate
Forecast Distribution: $0.195 per security
With the full year results season on the doorstep for investors, many may be forgiven for thinking that recent weeks represent the calm before the storm. However, this hasn’t been the case for property focused investors, with a raft of updates keeping analysts busy. Amongst all the activity was the recent IPO of a new niche Real Estate Investment Trust (REIT), Convenience Retail REIT (CRR).
Managed by experienced real estate asset manager, APN Property Group, we believe the offer may well be of interest for income focused investors. The genesis of CRR actually dates back to 2002, when APN launched its Property Plus Portfolio (PPP). This unlisted trust invested in a small portfolio of service stations and has delivered an average annual total return of 14.6 per cent since inception.
With the $90m asset base of PPP being rolled into the new enlarged CRR vehicle, whose asset base now exceeds $300m, investors can gain access to a high-quality ASX listed portfolio offering an attractive quarterly income stream.
According to management, CRR is being established to invest in Australian convenience retail commercial property, leased to leading national and international businesses which operate petrol stations, fast food outlets and related convenience based consumer offerings. Ultimately, CRR is designed to deliver a high, reliable and growing cash income stream, as well as the potential for capital growth over time.
Key portfolio metrics look sound. Occupancy is high at 99.4 per cent while the weighted average lease expiry (WALE) of 13.6 years is amongst the best on the ASX. At 30 per cent, gearing is in the lower half of management’s target range of 25 to 40 per cent, and provides some scope to grow the vehicle further in coming years.
CRR may appear marginally expensive if one were to superficially review the pricing premium to its net tangible asset (NTA) backing of $2.73 per security. However, on deeper inspection, the capitalisation rate (of 7.2 per cent) used to calculate this asset valuation looks conservative to us.
The reality is that many comparable long WALE assets are transacting on much tighter yields in the private market. In addition, the capitalisation rate used to value the assets of listed peer Viva Energy REIT (VVR) is at an approximate 20 per cent premium to CRR. Concurrent with the attractive 6.5 per cent yield on offer, this view drives our valuation of about $3.10 per security.
With an attractive and defensive yield backed by long-term leases to a high-quality tenant base that includes Puma Energy Australia, Woolworths, 7-Eleven and Viva Energy Australia, we believe CRR is worthy of consideration for relatively risk averse, income focused investors.
Adrian Ezquerro is a senior analyst for the Clime Australian Income Fund