National Storage REIT

Refinancing of its debt facilities: National Storage REIT (ASX: NSR) announced that it has successfully negotiated terms for the refinancing of its debt facilities. According to the release, the overall facility has been increased from A$617 Mn to A$715 Mn, with average weighted tenor increasing from 3.6 years to 4.7 years. On this, the financial covenants will be remained consistent with ICR at 2 times coverage and the gearing covenant at 55%. The targeted gearing ratio range remains between 25% and 40%. According to the management, the refinance has been a significant milestone for NSR which will provide the continued growth and support for its acquisition and consolidation strategy. The facility is expected to be effective from 22 June 2018. On the financial front, the group recorded IFRS PAT of $ 59.8 million in 1HFY18, marking the splendid growth of 152% on Year on Year (YoY) basis. Return on equity stood at 88.5% in 1HFY18 which is remarkably high as compared to industry median (6.5%). However, debt to equity came at 9.63x in 1HFY18, slightly up from previous corresponding period (9.57x).


Balance Sheet Statement (Source: Company Reports)

The Board of Directors declared an unfranked dividend of 4.9 cents per share, which will be paid on August 29, 2018. On the other hand, BlackRock Group, a substantial holder of the Group changed its holding from 7.82 per cent of the voting power to 6.78 per cent of the voting power. Meanwhile, NSR stock has risen 5.84 per cent in the past one month as at June 21, 2018 and is trading at a higher PE level (397.56x) as compared to its peers. The stock price is currently trading close to 52-week level ($1.665), hence, we maintain our “Hold” recommendation on the stock at the current price of $ 1.640, considering the refinancing of its debt facilities which will support its business development plan.
 

Aveo Group

Upgraded its FY18 EPS Guidance: Aveo Group’s (ASX: AOG) stock tumbled 3.292 per cent on June 22, 2018 while the group upwardly upgraded its Underlying earnings per share guidance from previous guidance of 20.4 cents per security (cps) to 21.6 cps due to higher than expected development profits arising from the Group’s flagship retirement community development at Brisbane. Following this, we can expect EPS growth to be 14% higher than the reported FY17 EPS of 18.9 cps.

Further, the group expected to have about 565 new units on its balance sheet at 30 June 2018, largely from the delivery of 456 new units in May and June. Given the headwind of the Australian residential market, the Board believes it is prudent to reduce forecast FY19 new units delivered from the annual target of 500 to 418. Moreover, the overall reduction on FY19 earnings from the sale of Gasworks will be recorded at $4.7 million after income tax. The Board continues to have a conservative gearing policy with a target gearing range of 10%-20%. As newly delivered units are sold down, the gearing level is expected to move towards the lower end of the target gearing range over the medium term. Current reported gearing is 17.5%.


Major Development Delivery Forecast - Units (Source: Company Reports)

Apart from this, the Group also announced an unfranked dividend of 9 cents per share for the period of twelve months ending 30 June 2018, with a record date of 29 June 2018 and a payment date of 28 September 2018. The Company's Distribution Reinvestment Plan will not operate for this payment. Despite the positive financial result, the stock price did not perform well in ASX at the back of FY19 outlook. Meanwhile, the stock price was up by 3.40 per cent in the last five days and still has room for growth. The stock seems to be undervalued despite decent earnings and trading at near to 52-week low ($2.250), hence, we give a “Buy” recommendation on the stock at the current market price of $ 2.350.

 
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