Shareholders of the real estate investment trust (REIT) CFS Retail Property Trust (ASX: CFX) have woken to a brighter morning today, given its FY14 report. CFS has been able to crush analysts' forecasts and provide some sweet growth this year. Here are some highlights from today's results:
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Net profit jumped a massive 35.6% from FY13 to $400.1 million
- A modest 2.2% increase in net property income from last year
- Dividends per share for the year remained the same as FY13 at 13.6 cents, in line with its guidance
- A slight increase in debt levels pushed gearing to 30.9%, compared to 28.8% in FY12
What this means for investors?
Overall, I think CFS has done exceptionally well to take advantage of the strong Australian housing market, fuelled by historically low interest rates. For a company with a relatively large market capitalisation of $6 billion, a 35.6% increase in net profit is outstanding.
CFS' strong result can also be attributed to steady property income growth and positive property valuations in addition to its successful internalisation measures, which have positively impacted its growth endeavours. According to its most recent annual report CFS has assets under management of $14.2 billion and solid relationships with over 5,100 retailers. This adds exceptional value to its overall operations.
Another crucial measure for REITs is their occupancy rates. Despite the challenging leasing market surrounding Australia, CFS has managed to maintain a full occupancy rate of 99.7%, up from 99.2% last year. However, even a slight increase is an optimistic sign, showing its resilience to short-term hardships.
Looking into the future
The future looks decent for CFS, with its internalisation measures set to provide it with plenty of growth potential and improve relationships with key retailers even further.
In addition to driving earnings, REITs like CFS must be able to improve efficiencies throughout their occupied assets and CFS has been aiming to achieve just that. Part of CFS's strong profit performance can be explained by higher sales from its specialty stores, which is a direct result of its replacement of underperforming tenants. According to its annual report, these replacements have been successful at improving efficiencies, lowering specialty store occupancy costs from 17.3% to 17.1%.
On the dark side however, investors have been warned that the Australia's softer retail sales growth has been weighing down the effects of favourable house price growth, in addition to the federal budget creating more cautious consumers.
The future outlook therefore remains conservative, with the threat of weaker retail sales surrounding companies in contact with the retail sector. However, as CFS's efficiency improvements and internalisation measures continue to materialise, I remain relatively optimistic regarding future growth. Although it may not be my favourite company for REIT exposure, you should definitely add it to your watchlist and look out for any favourable short-term price movements to take advantage of.
