APN Industria REIT, capitalising on an exceptional value opportunity

Team Veye | 22 May 2020 ASX - ADI
APN Industria REIT, capitalising on an exceptional value opportunity

APN Industria REIT (ASX: ADI)

Market update and stapled security buyback

APN Funds Management Limited (APN FM), as Responsible Entity for APN Industria REIT (ASX: ADI) (ADI or the REIT), on 20 May 2020 announced the following market update and buyback of its stapled securities.

Balance sheet 

The balance sheet position remains strong: 

  • Low gearing of 28.8% (as at 31 December 2019), below the target range of 30% - 40%. Value declines in excess of 45% could be sustained before the gearing covenant would be breached (55%); 
  • Interest cover at 31 December 2019 was 6.7x; revenue could fall by more than 50% without triggering a breach of the ICR covenant (2.0x); and 
  • ~$44 million of undrawn facilities; no refinancing events until September 2021


(Chart source: TradingView)

Revenue impacts from COVID19 

Approximately 10 – 15% of tenants are eligible for relief under the Code of Conduct. APN has continued to work with impacted tenants to provide an appropriate level of rental relief. Rent collection has been pleasing – and APN collected ~95% of billings for April, and a similar outcome is expected for May. The Board intends on paying a distribution for this quarter and will confirm the amount in due course.

Valuations for 30 June 2020 

ADI’s portfolio comprises 17 industrial properties (56% by value), and 15 low-rise business park properties (44% by value) leased to cost-conscious occupiers. The weighted average cap rates are 6.2% and 6.7% respectively.

Since COVID19 began to impact the economy there has been limited transactional activity to indicate material movements in valuation metrics. As a result, the valuation movements for 30 June 2020 are anticipated to be largely attributable to near-term income impacts and lower growth rates (as opposed to a material movement in cap rates). (Data Source – Company Reports)


Veye’s Take

APN Industria REIT believes that the share price does not reflect the underlying value of the ADI portfolio nor the strength of its balance sheet. Buying back ADI securities is an attractive capital management initiative that will enhance value without compromising the financial strength of the REIT. Over the past few months APN has worked collaboratively with its tenants to ensure that it finds equitable and balanced outcomes to this challenging situation. As a result of this work, and the balance sheet strength and portfolio quality, it is in the unique position of having the confidence to allocate capital to a buyback and capitalise on an exceptional value opportunity. As earlier reviewed, the stock subsequent to forming a double bottom was moving in a very narrow range. After consolidating, it has now given a break out with good volumes. It can have the potential of continuing its up move. Veye recommends a "Hold" on “APN Industria REIT” at the current price of $2.31


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