Reporting Season: ALE Property Group result in line with guidance
Name: ALE Property Group (ASX:LEP)
Market Capitalisation: $1.1 billion
Last Closing Price: $5.48
With ALE Property Group’s (ASX:LEP) fiscal 2018 earnings and distribution in line with guidance and broker expectations, the main focus was on the company’s ability to deliver distribution growth in fiscal 2019.
Approximately 90% of ALE’s landholdings are located in Australian capital cities and major cities with a significant skew towards the east coast.
An average of 25% of each property is occupied by pub and retail liquor buildings with the balance being attributed to car parking and vacant land.
Nearly half of the group’s properties are located in Victoria, and a third are in Queensland.
Growth required to maintain share price
The group’s shares have performed strongly in fiscal 2018 increasing from circa $4.60 to a recent high of $5.83.
The past performance of this product is not and should not be taken as an indication of future performance. Caution should be exercised in assessing past performance. This product, like all other financial products, is subject to market forces and unpredictable events that may adversely affect future performance.
This will place pressure on the group’s ability to grow the level of distribution, particularly given there has been little change since fiscal 2016 when the distribution was 20 cents.
This year’s distribution of 20.8 cents represented a 2% increase on the prior year.
Arguably of more importance though is the fact that it implies a yield of less than 4% relative to ALE’s current share price.
With many real estate investment trusts (REITs) and companies involved in the broader property development sector offering superior returns, ALE’s share price could come under question.
Note that any decision with regards to adding this stock to your portfolio should be taken with caution and professional financial advice sought. [ME1]
Property redevelopment could drive growth
Working in the group’s favour is its low gearing of 41.6% and next debt maturity of August 2020.
This provides the financial flexibility to develop new properties rather than relying on property revaluations to drive growth.
The redeveloped Miami Tavern on the Gold Coast is a good example of how ALE can generate growth through the development of existing assets.
The group acquired the hotel in 2003 for $4.1 million, and as part of the redevelopment it opened a Dan Murphys outlet in December 2017.
An adjoining property was acquired in April 2018 to facilitate longer term development opportunities.
The acquisition price was $1.4 million, and the overall property is now valued at $14.9 million.
With 86 properties carrying a total value of more than $1.1 billion, ALE has numerous options in terms of generating growth through redevelopment.