The Thursday REIT Market Wrap: 16 December

• Nine companies announced quarterly dividends today
• Multiple acquisitions including seven South Australian pubs
• Revaluations continue to roll in, with most companies reporting large uplifts

The ASX

The ASX200 closed today at 7,295.70 points, 31.40 points lower than yesterday or 0.43%.

Among the top five gains for the day, included Lifestyle Communities (ASX: LIC) at third place with a 1.11 point increase or 5.401%.

Today’s news

In the real estate space, Hotel Property Investments (ASX: HPI) kicked off the day with the acquisition of a South Australian pub portfolio of seven properties coming to a total of $66.1 million, a $30.4 million portfolio capex program and associated rentalisation agreed with a tenant across the Queensland Venue Company portfolio and the sale of Acacia Ridge Hotel for $25 million.

The SA pub portfolio was acquired at a cap rate of 5.4%, and the Acacia Ridge Hote sale was at a cap rate of 4.4%.

HPI also completed the $3.8 million Ferry Road Tavern development on the Gold Coast and increased its debt facilities.

The portfolio of SA pubs includes:

• The Unley – Parkside, SA
• The Mile End – Mile End, SA
• Avenues Café Bar – Adelaide, SA
• The West End Tavern – Adelaide, SA
• Mick O’Shea’s Hotel – Hackham, SA
• The Duck Inn – Coromandel Valley, SA, and
• Victoria Hotel – Strathalbyn, SA

The Acacia Ridge Hotel sale comes after just over a year of ownership, HPI purchased the property in January 2020 for $20 million with an initial yield of 5.5%.

Market updates abound, Vicinity Centres (ASX: VCX) release its one today, with preliminary property valuations indicating a 2.2% uplift or $309 million increase on book values.

“DFO valuations continue to grow as tightening capitalisation rates and income growth highlight the strength of our DFO portfolio and its resilience through cycles. Vicinity is the market leader in the Outlet category, having consolidated our leadership position with the acquisition of a 50% interest in Harbour Town Premium Outlets on the Gold Coast, in November 2021. In addition to attracting value-conscious shoppers year-round, DFOs play a key role in retailer sales channels, particularly as a means to manage inventory levels,” said VCX CEO and MD Grant Kelley.

Among the multiple acquisitions rolling in, Dexus Convenience Retail REIT (ASX: DXC) announced two, both in Queensland: Puma Chandler and BP Brendale.

The two properties were acquired for a combined $20.8 million, representing an average purchase yield of 5.5%; the combined WALE is 11.7 years, and WARR is 2.8%. In detail: the Chandler property is tenanted by Puma, and three food outlets, was purchased for $11.7 million and had a purchase yield of 5.7%, WALE of 11.3 years, and WARR of 3%; the Brendale property is tenanted by BP, purchased for $9.1 million, purchase yield of 5.2%, WALE of 12.2 years, and WARR greater of 2.5% or CPI.

As a result of these acquisitions, the Board of Dexus Asset Management Limited has upgraded DXC’s FFO and distribution guidance for the 12 months ending 30 June 2022 (FY22) to 23.1 cents per security, up 5.5% on FY21. This compares to prior guidance of 22.9 cents per security. The upgrade will flow through the third and fourth quarter FY22 distributions and the updated guidance is subject to current market conditions continuing and no unforeseen events.

Later in the day, DXC also announced its valuations, reporting a net revaluation uplift of $22 million to approximately $812 million. The net increase is approximately 4.4% on a like for like basis compared to 30 June 20211. In isolation, the valuation uplift is estimated to increase DXC’s Net Tangible Asset backing (NTA) by circa 16 cents per security.

The weighted average capitalisation rate across the total portfolio tightened 20 basis points over the six-monthperiod to 31 December 2021, from 6.02% at 30 June 2021 to 5.82%.

Centuria Industrial REIT (ASX: CIP) has completed valuations on 66 properties, representing circa 86% of portfolio value. The total portfolio value was reported to have increased to $3.8 billion, and on a like for like basis, portfolio valuation increased $281million or 9.6% from prior book values. CIP also reported total portfolio WACR is 4.20% and pro forma NTA increased to $4.22 per unit.

Australian Unity Office Fund (ASX: AOF) announced that Telstra will not be renewing its lease of 30 Pirie Street, Adelaide. The lease will expire in February 2023.

The distribution reinvestment plan for Cromwell Property (ASX: CMW) has been suspended in respect of the December 2021 quarter distribution.

Under Rule 13 of the DRP rules, the Cromwell Board may suspend the DRP at any time. The Cromwell Board has made the decision to suspend the DRP because it considers, having regard to a number of relevant factors including the fact that Cromwell’s stapled security price is currently below the per stapled security NTA (net tangible assets), it is not in the interests of Cromwell’s securityholders as a whole for stapled securities to be issued under the DRP.

The quarterly distribution for the quarter ended 31 December 2021 will be paid to securityholders in cash.

Arena REIT (ASX: ARF) also provided a market update, the company expects a net revaluation uplift of $154 million. This represents an increase of 13.9% from 30 June 2021 and an increase of $0.446 in Net Asset Value (NAV) per security.

In a breakdown, the early learning childcare portfolio proved strongest, with a $141 million or 14.7% uplift, whereas the healthcare portfolio moved $13 million or 8.8%.

Co-working space company WOTSO (ASX: WOT) has made another acquisition, purchasing 233-237 Military Road in Cremorne, on Sydney’s lower North Shore for $9.2 million.

WOTSO also announced that the Group has entered into an option deed with the property owners at the current WOTSO Neutral Bay site and BlackWall head office (50 Yeo Street, Neutral Bay) that, if exercised, would see the Group give up the various leases it holds at that site and receive a fee of $5.5 million from the property owners.

WOTSO also officially opened its Newcastle site on 6 December.

Aspen Group (ASX: APZ) released its property revaluations for approximately a quarter of its portfolio:

In Dexus Industria REIT (ASX: DXI) news, the company said the outcome of the valuations is an estimated increase above prior book values of $92 million to approximately $1.76 billion. The increase is approximately 8.4% on a like for like basis compared to 30 June 2021. In isolation, the valuation uplift is expected to increase Net Tangible Assets (NTA) by circa 29 cents per security.

39 assets were externally valued, as of 31 December 2021, with the remainder subject to internal valuations.

DXI said a combination of favourable market rents and lower capitalisation rates have driven the valuation gains, with the weighted average capitalisation rate across the total portfolio tightening 46 basis points over the six month period to 31 December 2021, from 5.78% on 30 June 2021 to 5.32%.

Distributions

Distributions/Dividends announced: