-Rental growth driven by retailer demand for logistics in the wake of the pandemic
-Brokers confident growth of 10% or more per annum can be achieved over the next few years
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Credit Suisse believed it was always a matter of time until an upgrade occurred, given the conservatism embedded in prior guidance. Hence, with buoyant development margins, asset values and rents, the actual FY22 result could yield further surprises to the upside.
Morgan Stanley was actually surprised the upgrade occurred so soon after the FY21 results, which suggests the business is around 12 months ahead of the market in terms of its asset management trajectory.
Rental growth has been strong, driven by retailer demand for logistics driving up the value of these assets. There is the added benefit of enviable locations, the broker ascertains, resulting in rental growth that is more than around 2x reported income growth.
The company has found major retailers in the US have been overwhelmed during the pandemic from what can be achieved from stores in terms of online fulfillment. Those retailers have stepped up their commitments to logistics facilities. This has had a flow-on effect globally.
The
Work
Work in progress of
Work is heavily weighted to
Macquarie is confident the current production rate can be sustained as the time to develop has expanded to 22 months from 19 months at the FY21 results. This means greater visibility on the workload and development profits.
In turn this will benefit funds under management, which have been upgraded to
Given the momentum, Jarden believes
Multi-storey developments are an increasing part of the development work and, despite increasing material/construction costs, rental growth and pre-purchasing have been sufficient offsets. The strategy to focus on regeneration projects will be maintained.
The company has indicated net property investment income growth is stable, but could trend higher in the short to medium term because of the scarcity of product and high tenant demand.
Moreover,
One recent example,
The broker also assesses partnerships should provide returns exceeding 20% in FY22 with substantial accrued performance fees. Partnership returns per annum have averaged 16% over the past four years.
Morgan Stanley calculates
Risk
The main downside risk Macquarie envisages is higher bond yields and a significant increase in risk-free rates could have implications for asset valuations, in turn impacting funds management fees. A moderation in tenant demand could also have negative implications, although this appears unlikely at this stage.
Jarden expects the market will assume 15% growth is the new normal and in the medium term this would require work and development margins to keep growing, with any slowdown in asset revaluations to be offset by growth elsewhere.
While the business is in a strong position, Jarden is concerned market expectations could move too far ahead after this update. The broker, not one of the seven stockbrokers monitored daily on the FNArena database, retains an Underweight rating and
Credit Suisse asserts the stock screens well on an earnings multiple basis. While not cheaply priced, the shares will continue to outperform because the company taps an attractive growth outlook, strong balance sheet and continued demand for well located quality industrial assets.
The database has five Buy ratings and one Hold (UBS). The consensus target is
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