Waypoint REIT

Company Overview: Waypoint REIT (ASX: WPR), formerly known as Viva Energy REIT Limited, owns a high-quality portfolio of properties across all Australian states and mainland territories. Waypoint REIT is a stapled entity comprising one share in Waypoint REIT Limited and one unit in Waypoint REIT Trust and their controlled entities (Group). The company has a geographically diversified portfolio with a strong weighting to metro locations along the eastern seaboard. The company’s objective is to maximise the long-term income and capital returns from its ownership of the portfolio.

WPR Details

Financial Growth Supported by Higher Rental Income: Waypoint REIT (ASX: WPR) is Australia’s leading listed REIT that owns fuel and convenience retail properties with a high-quality portfolio of properties across all Australian states and mainland territories. On 14 May 2020, the company was renamed from Viva Energy REIT Limited to Waypoint REIT Limited and on 18 May 2020 its ASX ticker was changed from VVR to WPR. The company’s Trust was also renamed from Viva Energy Trust to Waypoint REIT Trust. WPR’s strategy is to maximise the long-term income and capital returns from its ownership of the portfolio for the benefit of all its security holders. From 2016 to 2020, the company’s revenue and statutory net profit have grown at a CAGR of 31.02% and 309.03%, respectively. The company also has a decent track record of growth in Distributable EPS. From 2016 to 2020, the company’s Distributable EPS has grown at a CAGR of 30.15%.

Looking ahead, the company is focused on improving the quality of its portfolio through selective acquisitions, non-core disposals and reinvesting in the core portfolio. Moreover, the company is investigating initiatives to diversify funding sources and extend tenor of debt and swap books. In order to improve its core portfolio, the company is pursuing strategic capital reinvestment opportunities with operators across the portfolio. It is also exploring potential capital management initiatives to pursue acquisition and portfolio reinvestment opportunities.

Five-Year Financial Summary Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

Decent Growth in FY20 Net Profit: For the year ended 31 December 2020, the company reported total revenue from ordinary activities of $181.8 million, up by 4.97% on FY19. Due to higher rental income from acquisitions and contracted rent reviews, the company’s distributable earnings increased by $6.8 million from $111.7 million in 2019 to $118.5 million in 2020. Statutory net profit increased by 41.65% to $279.9 million in 2020, mainly driven by higher distributable earnings and net valuation gains and lower derivative movements. Net profit was partially offset by lower straight-line rental income and higher borrowing cost amortisation and internalisation costs. Net Tangible Asset (NTA) per security as at 31 December 2020 stood at $2.49, up by 8.7% since December 2019. During the year, the company acquired five properties for $32.5 million at a weighted average capitalisation rate (WACR) of 6.25%. The company also completed $51.3 million of acquisitions and fund-through development expenditure and entered unconditional contracts to sell $5.5 million of noncore assets. As at 31 December 2020, cash and cash equivalents stood at $15.5 Mn with debt-to-equity ratio of 0.43x. 

FY20 Result Highlights (Source: Company Reports)

Key Metrics: The company’s net margin has witnessed decent improvement in the past five years, reflecting the improving distributable income. Net margin for FY20 stood at 154%, up from 114.1% in FY19. EBITDA margin for FY20 stood at 94.9%, slightly down from 95.2% in FY19. Current ratio for FY20 stood at 0.42x.

Past 5-year Financial Performance for Year Ending 31 December 2021; Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

Top 10 Shareholders: The top 10 shareholders together form around 48.96% of the total shareholding, while the top four constitutes the maximum holding. The Vanguard Group, Inc. and Pinnacle Investment Management Group Ltd are holding a maximum stake in the company at 10.33% and 7.20%, respectively, as also highlighted in the chart below:

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

Debt Scenario: As at 31 December 2020, the company had net unsecured borrowing (Non-current) of $845.8 million and total undrawn debt of $178 million. During the year, the company’s weighted average debt maturity increased from 2.9 years as at 31 December 2019 to 4.3 years as at 31 December 2020. In FY20, Swaps with a notional value of $196.5 million were extended to a five-year term, resulting in a weighted average hedge maturity of 2.4 years and a hedge rate of 1.88%. As at 31 December 2020, gearing ratio came it at 29.4%, which is slightly lower than the revised target gearing range of 30% to 40%.

Debt Maturity & Swap Maturity Profile (Source: Company Reports)

Track Record of Distribution: For the six months ended 31 December 2020, the company paid a final dividend of 7.73 cents per security, taking the total distribution for the full year to 15.14 cents per security, up from 14.37 cents per security paid in FY19. From 2016 to 2020, the company’s distribution has grown at a CAGR of 30.14%. At CMP of $2.360, the company’s annual dividend yield stood at 5.52%, higher than the five-year average (2016 to 2020) of 4.88%.

Distribution Track Record (Source: Company Reports)

Selling Non-Core Assets: During FY20, the company commenced the process of identifying and selling non-core assets within its portfolio. In December 2020, the company’s three assets were taken to public auction, out of which two assets were sold for a combined price of $5.5 million and 14.3% premium to June 2020 carrying value. The company is currently working with a third party for the potential sale of the third asset in 1Q21. The company is planning to sell further $20-30 million of potential non-core assets in the remainder of FY21.

Key Risks: Around 97% of the company’s rental income is received from Viva Energy, exposing the company to tenant concentration risk as any material decline in the profitability of Viva Energy’s business could affect the perceived stability of the rental income of Waypoint REIT. The company’s investment property value can be impacted by various factors, including supply and demand for traditional fuel, alternative fuels and/or convenience retail products, supply and demand for fuel and convenience retail properties, and general property market conditions.

Outlook: Moving forward, the company expects its rental income from existing fuel and convenience retail tenancies to grow in line with contracted annual rental increases. The company may pursue opportunities to acquire new fuel and convenience retail properties. For FY21, the company expects its FY21 Distributable EPS to be around 15.72cps, representing a growth of 3.75% on FY20. Notably, the guidance includes the impact of selling $20-30 million of non-core assets during the year but does not assume any acquisitions. With available liquidity of more than $120 million and gearing below the bottom end of its target range, the company seems well-placed to fund its future investments.

Track Record of Growth in Distributable EPS (Source: Company Reports)

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: Over the last three months, the stock has corrected by 12.59%. The stock has a 52-weeks low and high price of $1.807 and $2.870, respectively. On the technical analysis front, the stock has a support level of $2.29 and a resistance of $2.623. We have valued the stock using an EV/EBITDA multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). We believe that the company might trade at a slight premium to its peer average EV/EBITDA (NTM trading multiple), considering the expected increase in the rental income from existing fuel and convenience retail tenancies, expected sale of non-core assets in FY21, and decent outlook. We have taken peers like Arena REIT (ASX: ARF), Charter Hall Retail REIT (ASX: CQR), Charter Hall Social Infrastructure REIT (ASX: CQE), etc. Considering the company’s decent performance in FY20, track record of paying a decent distribution to its shareholders, expected growth in FY21 Distributable EPS, and valuation, we give a ‘Buy’ recommendation to the stock at the current market price of $2.360, down by 1.256% as on 4 March 2021.

WPR Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer

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