Latest REIT IPO from Australian Unity Group is a Yield Play
The Fund will offer exposure to Australian office assets with a portfolio consisting of eight properties across Sydney, Adelaide, Melbourne, Brisbane and Canberra.
The Australian Unity Office Property Fund is the latest Real Estate Investment Trust, also known as REIT, to list on the ASX on June 20 with a market capitalisation of $281million.
The Fund will offer exposure to Australian office assets with a portfolio consisting of eight properties across Sydney, Adelaide, Melbourne, Brisbane and Canberra. The Fund is owned by The Australian Unity Group which has $2billion funds under management.
Income is expected to be Australian Unity’s primary driver. With occupancy rates across its portfolio currently at 96.5%, the Fund is forecasted to deliver a distribution yield of 7.4%. Income returns are underpinned with half of its portfolio leased to Telstra, the NSW Government and GE Capital Finance, thus making it an ideal yield play for income hungry investors.
However, potential investors should be aware of risks and limitations of REITs. The fund carries a concentration risk as all of its properties are characterised as office properties, located in the eastern states of Australia and tenancy concentration is also high as 30% of its income is derived from its largest tenant, Telstra. Moreover, gearing levels at 30 per cent may constrain the Fund’s capacity to expand its portfolio through acquisition.
Australian Unity offers profitable exposure to office properties in eastern Australian capital cities. We are attracted to the Fund’s yield profile, tenant profile and occupancy rates. While there are risks surrounding portfolio and tenant concentration, overall the outlook appears favourable for participants seeking income. However, units are valued at $2 and with Net Tangible Assets (NTA) currently at $1.96, capital growth in the short-term appears limited as there is no discount and REITs usually track the NTA.
Company: Australian Unity Office Property Fund
ASX Code: AOF
Shares on Offer: 77.5m
Listing Price: $2.00
Market Capitalisation: $281m
Listing Date: June 20
This article was first published on the Australian.
Author: Simon Herrmann
Jun 15, 2016
Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.