Charter Hall Social Infrastructure REIT

CQE Details

Business Update: Charter Hall Social Infrastructure REIT Limited (ASX: CQE) is engaged in the ownership of established freehold early learning centres. As of 12 July 2021, the market capitalisation of CQE stood at ~$1.31 billion. On 21 June 2021, CQE declared its new deal with Goodstart Early Learning (Goodstart) for 48 properties for a 20-year lease. After the new lease deal, the estimated WALE of the properties is ~15 years compared to 5.5 years reported previously.

As of 30 June 2021, CQE reported revalued portfolio consisting of childcare properties (333) and a 50% stake in the Brisbane Bus Depot. As a result, CQE posted an increase of 7.7% in the total portfolio valuation in June 2021 compared to the December 2020 valuation. The valuations uplift has led to an increase in the Pro-forma NTA (net tangible asset) per unit, up by 8.1% on the December 2020 NTA.

CQE has announced 4.1 cents per unit of distribution for Q4FY21 to be paid on 21 July 2021. With the addition of Q4FY21 distribution, the shareholders are expected to receive 15.7 cents per unit according to the previous distribution guidance.

Key Takeaways of 1HFY21: The company posted total revenue of $45.1 million in 1HFY21 versus $42.6 million in 1HFY20. CQE registered a statutory net profit of $29.1 million in 1HFY21 versus $25.5 million in 1HFY20. In 1HFY21, CQE declared a distribution of 7.5 cents per unit. The company held a cash balance of $25.3 million as of 31 December 2020.

Revenue & NPAT Trend from FY18-FY20; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of changes in the property cycle, tenants’ underlying business, and interest rate. CQE is exposed to the uncertain COVID-19 environment causing delays and loss of rental income from the property portfolio.

Outlook: CQE expects the FY21 taxable income will be more than the cash distribution to shareholders on the back of portfolio changes and capital gains. Given the expectations of a higher taxable income, the company will also pay a special distribution of 4 cents per unit on 21 July 2021.   

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

Source: 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: The stock of CQE gave a positive return of 33.64% in the past nine months and a positive return of 65.88% in the past year. The stock is currently trading higher than the 52-weeks’ average price level band of $2.230 - $3.750. We have valued the stock using the Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight discount than its peer average, considering the increased debt facilities in June 2021 and the COVID-19 risks associated with CQE’s tenant businesses, rental income, and property cycle. For this purpose, we have taken peers like GPT Group (ASX: GPT), Dexus (ASX: DXS), HomeCo Daily Needs REIT (ASX: HDN) and others. Considering the current trading levels, decent returns in the past nine months and past year, valuation, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the current market price of $3.740, up by 3.030% as on 12 July 2021.

CQE Daily Technical Chart, Data Source: REFINITIV  

GDI Property Group

GDI Details

2HFY21 Dividend Distribution Declared: GDI Property Limited (ASX: GDI) manages properties and funds. As of 12 July 2021, the market capitalisation of GDI stood at ~$596.18 million. On 17 June 2021, GDI announced the distribution of $0.03875 per share for the six months ending 30 June 2021. GDI has announced 30 June 2021 as the record date and 31 August 2021 as the payment date.

Key Takeaways from 1HFY21: The company reported $26.03 million of revenue in 1HFY21 versus $36.21 million in 1HFY20. The decline was due to the COVID-19 associated rent waivers and write-offs and higher net interest expenses. Total FFO also declined to $14.25 million in 1HFY21 versus $23.81 million in 1HFY20. GDI held a cash and cash equivalents balance of $7.10 million as of 31 December 2020.

Total Revenue & NPAT Trend from FY17-FY20; (Analysis by Kalkine Group)

Key Risks: The company faces tenant risk, concentration risk, liquidity, and funding risk. GDI is also exposed to the risk of lower rental income and waivers due to the COVID-19 impact on the property cycle and tenants’ underlying businesses.

Outlook: GDI intends to distribute 7.75 cents per share for FY21 irrespective of FFO level given no material change in the circumstances. Like the 1HFY20 distribution, GDI expects to pay 2HFY21 cash distributions out of capital. For CY21, GDI aims to carry out asset management initiatives to generate capital appreciation. The company intends to further advance the project development at Westralia Square (WS2). GDI aims to progress on developing 1 Mill Street and at 180 Hay Street properties in Perth. GDI will evaluate acquisition opportunities for its Funds management and property businesses.

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

Source: 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: The stock of GDI gave a positive return of 2.33% in the past nine months and a positive return of 3.30% in the past year. The stock is currently trading near 52-weeks’ average price level band of $1.000 - $1.300. We have valued the stock using the Enterprise Value to EBITDA based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at some discount than its peer average, considering its lower revenue, NPAT and FFOs for 1HFY21, and the risks associated with the COVID-19, impact on tenants’ business and income, risk of concentration and rental waivers. For this purpose, we have taken peers like Ingenia Communities Group (ASX: INA), APN Industria REIT (ASX: ADI), Garda Diversified Property Fund (ASX: GDF) and others. Considering the current trading levels, property development plans for WS2, capital appreciation outlook for CY21, valuation, and associated risks of COVID-19, interest rate and rental waivers, we give a ‘Speculative Buy’ rating on the stock at the current market price of AUD 1.095, down by 0.455% as on 12 July 2021. 

GDI Daily Technical Chart, Data Source: REFINITIV  

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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