麦格理-亚太地区-房地产行业-澳大利亚上市房地产行业：增强防御力-2020.3.6-112页.pdf

Please refer to page 110 for important disclosures and analyst certification,or on our website March 2020 Australia EQUITIES REIT gearing is now 28%vs pre-GFC of 42%Potential liquidity concerns in the next 3 years Contracted rent represents 76%of REIT incomes Source:Company data,Factset,Macquarie Research,March 2020 Inside Covid-19:Earnings+balance sheets 4 Sector valuation Pending remedy 19 Reporting season scorecard 23 FCF A better half 29 NTA Office and industrial higher 30 Retail Sales up,leasing down 33 Asset Managers What next?39 Residential Solid foundations 40 Office Not too shabby 43 Industrial Built solid 47 The good and bad of reporting season 50 Office Reducing demand 71 Residential Helping hands 83 Retail Know your tenant 97 Analysts Macquarie Securities(Australia)Limited Stuart McLean +61 2 8232 2859 Darren Leung +61 2 8232 8544 Caleb Wheatley +61 2 8237 6699 Listed Property Sector Growing your defences Key points FY20 REIT EPS forecasts were upgraded,vs downgrades for industrials.Office and residential surprised to the upside.Retail remained soft.If Covid-19 conditions worsen,key focal points will be EPS and balance sheet.76%of EPS is contracted rent while 30%of debt expires in 3yrs.If Covid-19 recovers in the short term,growth names of CHC,GMG,LLC and MGR will be in favour.If not,defensive REITs are likely to outperform.s Strong REIT earnings performance further upside risk provides a buffer 1H20 REIT company-defined earnings were once again resilient,beating MRE expectations by+1.9%.FY20 EPS improved 80bps,which compares to Industrial FY20 EPSg moderating 250bps to-3.2%.There was a clear divergence intra-sector with earnings guidance for large cap retail REITs of SCG,VCX and URW disappointing expectations.We believe upside risk to guidance or reduced downside risk exists for 7 of 22 REITs under coverage.Reporting season showed stronger than expected outcomes in office and residential(namely SGP more so than MGR)while retail leasing conditions deteriorated(excluding CQR).We maintain relative preferences of residential,office and logistics over large mall landlords,but we recognise the inherent cyclicality across all our sectors,particularly development.Total returns in retail have historically been more defensive in economic downturns but the impacts of Covid-19 could accelerate the headwinds faced by large cap retail REITs.Covid-19:Balance sheet and earnings sustainability to come into focus We estimate that 76%of income across the REITs is contracted rent,which limits the near-term earnings implications from Covid-19 relative to other equity market sectors and can support near term outperformance.DXS,GPT,CQR,SCP and CLW screen well on earnings certainty.In a more severe Covid-19 related downturn,the most significant downside earnings risk are those leveraged to asset values and development.These would include residential developers of SGP&MGR,fund managers of CHC and GMG as well as LLC.Balance sheets across the sector are relatively healthy with Net Debt/EBITDA of 5x(pre-GFC:6x)and net debt/total tangible assets of 28%(pre-GFC 42%).Our analysis highlights only 50%of REITs have debt maturities over the next twelve months,with 30%of debt maturing on a three-year view.While we do not expect immediate balance sheet stress(corporate debt costs unchanged over recent weeks),key stocks to monitor include URW,CMW,LLC,NSR,SCG and LEP.V-shaped recovery is more aligned with our stock preferences We have Outperform recommendations on active groups such as CHC,LLC,GMG,MGR and PPC.These companies could benefit from lower rates if there is a quick rebound from Covid-19.We remain cautious on large cap retail,with Underperform recommendations on SCG and VCX.If the Covid-19 outbreak accelerates further;DXS,AVN and CQR are the defensive REITs with Outperform recommendations.Defensive REITs such as GPT,CLW and SCP would likely screen favourably(all rated Neutral).-5010015020025030035040045050020253035404502030405060708091011121314151617181920Gearing(LHS)Debt(RHS)Gearing(%)GFCGross debt(Index,100)19%(1%)5%(3%)10%11%(5%)2%(4%)12%(3%)(9%)33%8%2%22%(27%)16%10%5%(28%)(3%)(40%)(30%)(20%)(10%)-%10%20%30%40%ADI ARF AVN CHC CLW CMW CQR DXS GMG GOZ GPT IAPLEP LLC MGR NSR PPC SCG SCP SGP URW VCXPotential liquidity requirement/Market cap(%)82%86%87%88%78%8%6%14%8%10%2%3%7%8%1%2%-%50%55%60%65%70%75%80%85%90%95%100%DXSGPTSCGURWVCXContracted NOITurnover rentAncillary incomeFunds managementDevelopment/trading profitsProportion of income(%)Macquarie Research Listed Property Sector 6 March 2020 2 Fig 1 Key stock recommendations,investment thesis and valuation metrics for the REITs Stock Rec Share price MRE price target FY20 DPS yield FY20 FCF yield FY20 PE multiple Investment thesis ADI N 3.02 3.01 5.7%6.0%15.2 We are attracted to the DPS yield of ADI,leasing outcomes,and continued upside from the deployment of balance sheet capacity.Link roll-off a key headwind to the FFOps(and AFFOps post incentive)in FY22.ARF N 3.01 3.20 4.8%4.6%20.8 Better-than-expected underlying thematic will continue to underpin positive market rent reviews.While there is plenty of balance sheet capacity,we believe valuation remains challenging.AVN O 2.74 3.45 6.2%6.9%14.3 A solid result that is better than retail peers.Asset class offers stable income growing at 2%p.a.and a reasonably attractive DPS yield(6.1%).CHC O 12.01 15.23 3.0%9.0%17.5 While the FY20 upgrade appears to be driven by more transitory items,base fees also continue to move higher and operating leverage is emerging in the business.Conditions remain favourable for third party deployment into real assets.CLW N 5.59 5.61 5.1%4.1%19.7 The REITs portfolio is backed by long-term sustainable cash flows,which is attractive for investors seeking income return with underlying growth supported by fixed or CPI-linked annual rental reviews.The balance sheet is also largely intact given the group has equity funded a large number of its transactions.Offsetting this is:i)a distribution that is above our free cash-flow forecasts(mainly impacted by transaction fees);and ii)limited evidence of NTA growth.CMW N 1.15 1.20 6.5%5.1%13.2 While 1H20 beat was driven by non-recurring items(performance fees;development fees),there is upside risk to FY20 guidance.There is a path for the FM platform to generate stable earnings into the medium term and the stock is offering sufficient value.CQR O 4.81 5.31 6.0%6.1%15.1 Defensive cashflows,attractive DPS yield(6.0%)and strong operational metrics remain attractive,particularly in a tough environment for retail landlords.DXS O 12.30 13.62 4.3%5.0%17.8 Office&industrial asset values have further upside in our view.The group has a solid DPS growth profile and potential delays in the SYD office supply pipeline should support asset values.GMG O 15.15 17.33 2.0%2.9%26.6 Had a positive 1H20 result and is executing on strategy as expected.GMG is also screening as favourable compared to other growth stocks on the ASX on a PEG basis.GOZ N 4.16 4.21 5.6%5.5%16.3 Downtime,negative rental reversions and elevated break-payments in FY20 are headwinds moving into FY21.The upside comes from deployment of balance sheet capacity and accelerated lease up at Botanicca 3.GPT N 5.74 6.26 4.8%4.9%16.9 Office and logistics the clear stand-out performers.These sectors should see income fundamentals and further cap rate compression(25-50bps).Retail outcomes remain the key concern.IAP O 1.42 1.76 5.1%6.1%14.7 We are attracted to:i)stable defensive cashflows;ii)attractive valuation offering a 6.0%dividend yield;and iii)sufficient balance sheet capacity.LEP N 5.33 5.13 4.3%2.7%31.4 While the TSR is limited,we do not factor in any potential upside from capital management initiatives which may lift earnings.LLC O 17.40 21.71 3.7%n.m.13.8 Poor cash generation increase in gearing and limited incremental news on E&S was expected.However,the trajectory for these items appears more positive going forward.MGR O 3.11 3.57 3.9%5.4%17.7 The passive capital component of the business is performing as expected which is the driver for the distribution so there is limited risk here,in our view.Uncertainty associated with the residential book may weigh on the share price in the short term although we note this is an increasingly shrinking proportion of the groups earnings and capital allocation.NSR U 2.27 2.25 4.3%3.0%22.8 Share price has factored in much of our M&A estimate,with downside risk given the likelihood of a bidding war has diminished after two bidders withdrew.While underlying thematic and macroeconomic environment is supportive of outlook,we remain cautious on underlying portfolio growth.PPC O 1.18 1.41 2.8%n.m.18.7 Using a more normalised EPS base in FY22,PPC is trading below its historical average.Accounting for the lower interest rate environment elevating residential portfolio values of peers(e.g.MGR,SGP)gives valuation support.Further,PPC is trading at a 3%premium to book value(held at cost)which also doesnt place a value on the FM/JV business(39%of FY20 NPAT).SCG U 3.33 3.47 7.0%6.9%13.2 While we appreciate there are several small items impacting the earnings profile,the FY19 result indicated there are headwinds in the business.We continue to look for evidence of improving underlying conditions for landlords before becoming more positive.Asset values are holding up for now but not enough to warrant a re-rating in our view.SCP N 3.01 2.84 5.0%5.0%17.8 The upgrade to FFOps highlights SCPs ability to execute on growth initiatives.Further,the improvement in comp sales growth was positive.However,leasing conditions are likely to remain difficult,impacting AFFO(via higher incentives)and in turn the DPS profile.SGP U 4.67 4.71 6.0%7.9%12.5 While there was no change to formal guidance,we note the underlying drivers of the business are improving.However,we believe retail conditions will continue to drag on earnings into the near term and understand managements conservatism.There is also limited valuation upside from a NAV perspective.VCX U 2.21 2.22 6.8%6.8%12.7 Value is starting to emerge on a NAV basis and operating metrics may be bottoming.However,the earnings/DPS outlook remains soft.URW N 106.10 119.24 10.2%9.8%8.4 For a stock at a significant discount to NAV,there were several positives,including divesting assets at BV,cutting the long-term development pipeline and a limited deterioration in fundamentals.However,we believe risk remains over US/UK asset values(and in turn gearing),rising cost of debt and delays in near-term developments.URW AU 8.96 9.83 Notes:1.Metrics as at 04 March 2020.2.O=Outperform;U=Underperform;N=Neutral.3.URW in Euros.A$9.83 is our official target price for URW.Source:Company data,Macquarie Research,March 2020 Macquarie Research Listed Property Sector 6 March 2020 3 Fig 2 Key reporting season takeaways by stock ADI-Cashed up 1H20 FFOps was 2%above MRE expectations,in part driven by higher add back of amortisation.FY20 guidance(+3.5%)was reaffirmed.Gearing of 29%provides$80m of capacity to the mid-point of target range(30-40%).Each$10m of deployment is 1%accretive to FFOps.We remain concerned on the FY22 expiry of Link at Rhodes(12%of income).ARF-Growth spurt 1H20 EPS of 7.2cps(+6%y-y)was broadly in line with our expectations(7.1cps).FY19 DPS guidance of 14.3cps(+6%y-y)reaffirmed.Better-than-expected outcomes for the tenants is a positive with occupancy up 5%.Market rent reviews in 1H20 were+15.2%which is a record.Underlying thematic was a positive step change.AVN-Banking a better rate 1H20 result in line with expectations(FFOps of 9.6cps;+4.3%y-y).Incremental steps towards reducing gearing is a positive.FY20 EPS guidance refined to upper end mainly due to cost of debt as well as positive outcomes at the NPI level.DRP underwrite dilutive to EPS.Thesis unchanged asset class offers stable income growing at 2%p.a.and a reasonably attractive DPS yield.Retain Outperform.CHC-More to come 1H20 Operating EPS of 48.5cps was 32%above MRE expectations.This was driven by performance and transaction fees.FY20 Operating EPS guidance upgraded from+30%growth to 40%(original guidance was+18-20%).We continue to see upside risk here.CLW-Triple N 1H20 operating EPS of 14.0cps was up 8.5%y-y and in line with our expectations(13.9cps).FY20 EPS guidance of 28.3cps reaffirmed.No change to thesis.Income vehicle that has a good track record of portfolio management.Valuation remains a hurdle.CMW-Humming along 1H20 EPS of 5.2cps was up 26%YoY.This was 22%above our expectations,driven by development and performance fees.The size of the beat implies a 63%/27%1H/2H split.After accounting for more limited fees in 2H,we believe FY20 guidance is conservative.CQR-Some more fuel for the tank 1H20 operating EPS of 15.9cps was+1.7%on pcp and broadly in line with MRE(15.7cps).FY20 Operating EPS upgraded 10bps to+2.3%.$100m equity raising also announced to fund a$77m acquisition in BP Partnership(pro forma co-investment 47.5%)and reduce gearing.Portfolio re-leasing spreads of+4.1%were the best across the retail REITs this reporting season.DXS-Trading up some growth 1H20 result was in line with expectations.FY20 FFOps guidance raised 1%to 4%and DPS raised 0.5%to 5.5%.Our analysis suggests constituents of the business could see DPS up to 1%higher as an upside scenario.Our OP thesis is predicated on higher asset values.However,Sydney fundamental conditions could benefit from supply delays.GMG-In ten years 1H20 EPS of 28.8cps(+12.9%y-y)was largely in line with expectations.Performance fees in FY20 expected to be$200m(FY19:$204m).FY20 EPS guidance upgraded by 2%to 57.3cps(+11%y-y)was above our expectations and consensus;driven by development returns.We believe this could still be conservative.GOZ-Growth needed at Richmond 1H20 FFOps of 12.6cps was 3%above our forecast(12.3cps)driven by higher NPI than expected.FY20 FFOps of 25.4cps re-affirmed.While there are several positive drivers of the P&L in 2H20,offsets include downtime and negative rent reversions.Balance sheet provides upside.GOZ is exploring adjacent revenue streams,such as FM.While incrementally positive,materiality will take time.GPT-The tale of 3 sub-sectors FY20 guidance 1%above MRE expectations(driven by office/logistics)Retail NOI disappointed,with LFL NOI moderating further&downtime from developments impacting operating income.Office and logistics remain strong.The near term logistics development pipeline will aid FFOps growth.LEP-The wait is nearly over 1H20 EPS was 4%below MRE given higher expenses than anticipated,driven by land tax and corporate expenses.No update on the 2018 rent review process for the remaining 43 assets.The process will now be finalised in 2H vs prior commentary by March 2020.Greater clarity on asset values&capital management options will be provided post completion of rent review process.LLC-The art of the negotiation 1H20 NPAT was above MRE,driven by development.LLC does not provide full-year earnings guidance.Melbourne Metro conso