Key points
- A number of specialty REITs have come to the market offering pure-play exposure to ‘big-box’ retail properties, healthcare properties, retirement and aged care properties, childcare properties, tourism properties, hotels, agribusiness and even data centres.
- APDC Group is a great example of a tech REIT investing in data centres that is doing better than the data centres themselves.
- Other speciality REITs include, Bunnings Warehouse Property Trust, Generation Healthcare REIT and Hotel Property Investments.
One of the recent developments on the Australian stock market is specialty real estate investment trusts (REITs), outside the normal categories of office, retail and industrial property.
Specialty REITs have come to the market offering pure-play exposure to ‘big-box’ retail properties, healthcare properties, retirement and aged care properties, childcare properties, tourism properties, hotels, agribusiness and even data centres. The trusts offer investors targeted exposures to the sectors they wish to invest in.
A couple of weeks ago (4 May) I mentioned the specialty REITs National Storage REIT (NSR) – which invests in self-storage centres – and Ingenia Communities Group (INA), which owns a portfolio of “seniors living” properties. Here are five more specialty REITs, from a wide variety of sectors.
1) Bunnings Warehouse Property Trust (BWP)
Market capitalisation $1.98 billion
Bunnings Warehouse Property Trust was the first of the specialty REITs: it was listed in September 1998 to focus on “big box” warehouse retailing properties and, in particular, Bunnings Warehouses leased to hardware giant Bunnings Group, a wholly-owned subsidiary of Wesfarmers Limited (WES).
The $1.9 billion property portfolio consists of 83 properties, spread across Western Australia, Victoria, New South Wales, Queensland, South Australia and the Australian Capital Territory. Most have a Bunnings Warehouse on them, but several are multi-tenanted, including retail space leased to other retailers, for example, Officeworks, Boating Camping Fishing (BCF), Ultratune, Spotlight, Sleepmaster and The Good Guys.
BWP has been a strong performer on the stock market, generating a total return (capital gain plus dividends) over the last five years of 18.2% a year. On the analysts’ forecasts collated by FN Arena, analysts expect a 15.8-cent distribution (dividend) in FY15, increasing to 16.6 cents in FY16. That prices BWP on an unfranked FY15 yield of 5.1%, rising to 5.4% in FY16.
However, the analysts’ consensus target price does not make good reading for BWP holders: at $3.10, the analysts think it has 17.4% downside to its target price of $2.56.
Source: Yahoo!7 Finance, 18 May 2015
2) APDC Group (AJD)
Market capitalisation $148 million
Floated in January 2013, APDC Group is the “tech REIT.” It’s the sector’s way to play the “big data” investment theme, because it owns three data centres, which it leases to listed data centre operator NEXT DC Limited (NXT), which established AJD as a special-purpose REIT. NEXT DC is AJD’s only tenant, under long-term leases: it owns three of the group’s five purpose-built data centres – in Melbourne, Sydney and Perth – which host critical IT infrastructure, such as servers, for NXT’s customers, and offer Data-Centre-as-a-Service (DCaaS) services.
Owning the data centres has proven a better way to make money than operating them: whereas NXT does not make a profit, and is not expected to do so until FY16, AJD is nicely profitable. On FN Arena’s numbers, the analysts’ consensus forecasts expect a distribution of 9.1 cents a share in FY15, unfranked, rising to 9.3 cents in FY16. At the current price, that prices AJD on a forecast FY15 dividend yield of 7.0% and a FY16 projected yield of 7.2%.
But the analysts see AJD as fully valued, it is only 1% below the consensus target price of $1.31.
Source: Yahoo!7 Finance, 18 May 2015
3) Generation Healthcare REIT (GHC)
Market capitalisation: $284 million
Investors are constantly being reminded of the growing demand for healthcare services on the back of Australia’s ageing population, which makes healthcare both a defensive sector and a growing one. In the REIT space, the best way to get exposure to healthcare is Generation Healthcare REIT, which listed in May 2006: it is the only listed REIT that invests solely in healthcare assets.
The portfolio of 13 properties includes hospitals, medical centres, laboratories and other purpose-built healthcare facilities, located in Victoria, Queensland and New South Wales. GHC is about to enter the aged-care sector, tapping the market for a fully underwritten $52 million capital raising to fund its purchase of three facilities from a major not-for-profit player in the sector, RSL Care. The trust has also signed a deal with St John of God Health Care (SJGHC) to build a new 18,000-square-metre private hospital in Berwick in Melbourne’s outer south-east, across the road from the Monash University Berwick campus. GHC will invest about $45 million in the hospital, with SJGHC acting as both tenant and joint landlord.
Generation Healthcare REIT has been an excellent performer on the ASX, with a total return running at close to 26% a year for the last five years.
In the offer document for its entitlement offer, sent to unitholders earlier this month, GHC forecast a distribution of 8.58 cents a share in FY15 (new units issued under the offer, which is priced at $1.50, will not be entitled to the June 2015 half year distribution: the new units will be entitled to distributions for the period commencing 1 July 2015, that is, FY16), and 8.84 cents a share in FY16.
At the current market price of $1.62, that prices GHC at a FY15 yield of 5.2%, unfranked, rising to 5.5% in FY16. But on FN Arena’s numbers, the analysts’ consensus target price for GHC, at $1.55, implies 4.3% downside risk.
Source: Yahoo!7 Finance, 18 May 2015
4) Hotel Property Investments (HPI)
Market capitalisation $386 million
Floated in December 2013, HPI owns a portfolio of 44 freehold pubs and associated specialty tenancies, valued at $545 million, located throughout Queensland and South Australia. The pubs are leased to the Coles group and to Australian Leisure & Hospitality (ALH), a joint venture 75% owned by the Woolworths group. About 95% of the rental income comes from the hotel leases to Coles.
The remaining rental income is derived from Speciality Tenants leasing the On-site Specialty Stores. Specialty Tenants include a mix of franchisors and franchisees including 7-Eleven, Nightowl, Nando’s, Subway, Noodle Box and The Good Guys.
According to FN Arena, HPI’s analysts expect the stock to pay a dividend of 16 cents a share (stapled security) in FY15, unfranked, increasing to 19 cents in FY16, equating to a FY15 prospective yield of 6.0% and 7.1% in FY16. But they view the stock as trading above its consensus target price ($2.50).
Source: Yahoo!7 Finance, 18 May 2015
5) Rural Funds Group (RFF, $1.09)
Market capitalisation $128 million
RFF is the Australian REIT sector’s specialist agricultural exposure. The trust owns a $313 million portfolio of agricultural assets including cattle, sheep, poultry and cotton farms, almond orchards and vineyards, as well as land and water holdings.
RFF earns income from leasing out its properties to what it calls “blue-chip” operators – including listed ASX companies Select Harvests Limited (SHV) and Treasury Wine Estates (TWE) – so that it takes no exposure to direct operating risk. As at December 2014, RFF’s 27 properties were 100% occupied, with a weighted average lease term of 12.2 years. Poultry represented 39% of assets, almonds 37%, vineyards 16% and cropping properties 3%, with the rest being cash and receivables.
As with healthcare, the investment “thematic” of growing export demand for Australia’s soft commodities, particularly to the increasingly wealthy Asian nations. RFF provides a diversified exposure to this theme, augmented by increasing farm productivity, on a simple “landlord” model immediately recognisable to any REIT investor.
According to Thomson Reuters, the analysts’ consensus forecast distributions for RFF are 8.1 cents for FY15 and 8.3 cents for FY16, pricing the stock on a FY15 yield of 7.4%, lifting to 7.6% in FY16 (with franking of about 6.6% expected each year). Analysts also see RFF as very close to the consensus price target, which is $1.12.
Source: Yahoo!7 Finance, 18 May 2015
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