Aventus Retail Property Fund offers a quality, active management team that is consistently seeking to maximise returns from a well-diversified portfolio of assets valued at almost $2b. A 7%+ distribution yield sourced from defensive income is attractive to yield-focused investors. We cover the key takeouts here from today's announcement, and the three things the market is overlooking. 

Earnings 

The stock delivered Funds From Operations (FFO) of 18.1 cents per unit (CPU) with Distribution Per Unit (DPU) of 16.3 CPU for FY18. 

These were up 2.3% and 2.4% over the prior period.  With a diverse portfolio of tenants (top 15 <40%), 87% of which are national brands and with average rent reviews of >3% p.a. the Fund has capacity to grow earnings in a sustainable and consistent manner.  This provides investors with a high degree of income security.  The key attraction of investing into AVN is its distribution yield. 

The trust is facing earnings headwinds in FY19 from higher debt costs, dilutive FY18 asset sales and the impact of redevelopment which will see <1% growth in FFO/DPS in FY19 (pre-internalisation).

Portfolio 

Real estate valuations continue to rise across the AREIT sector.  The Trust’s NTA rose 7.2% over the year to $2.38 Cents per unit driven by a $78m in valuation increase across the portfolio.  Management have continued to improve the portfolio’s occupancy which now sits at 98.7%

Internalisation 

AVN announced an internalisation proposal that has been determined as fair and reasonable by an Independent Expert and in the best interests of AVN shareholders. 

The internalisation is a natural progression for AVN and is accretive to FY19 FFO guidance.  The $143m cost to internalise represents an EBIT multiple of 9.3x (8.3x adjusted for waived fees).  

The quality of the platform and management is not in doubt however the cost equates to 7.5% of FUM which is expensive compared to other transactions in the AREIT sector. 

Gearing post internalisation will increase to 39.3% (from 36% FY18) which is at the top end of the Fund’s indicative range (30-40%).  Management has indicated they have strategies to reduce this over time and have a track record of doing this successfully in the past.

Investment view

The internalisation will be a key focus with further information to be made available to investors in the EM/Prospectus on 24 August.

Three things the market is over-looking

1. The quality of the Aventus management team who will become more aligned post the internalisation. 
2. The main investor Brett Blundy who established AVN increases his stake to 32% post the internalisation.
3. Resilience of well managed large format retail centres in the face of competitive threats such as online retail.

Further Insight

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