APN Convenience Retail REIT’s $450 million petrol station portfolio has proven a bulwark during the economic slowdown, with the landlord pressed for minimal rent relief and confident enough to forecast modest earnings growth in the coming year.

Booking in a 13.3 per cent lift in funds from operations – the industry’s preferred earnings measure – the property trust reported only minimal impact on its revenue from the coronavirus pandemic.

It gave relief on just 1.2 per cent of its portfolio rent to tenants in the 2020 fiscal year. One-half of that total was deferred and the remainder waived.

Some 97 per cent of the portfolio’s income is derived directly from its major service station tenants, “who are all well capitalised, experienced operators capable of weathering the storm”, fund manager Chris Brockett said.

“The REIT’s portfolio is regarded as defensive due to its exposure to non-discretionary spending, and it helps that this asset class has been able to continue to operate through these lockdown periods, given they are regarded as essential services,” Mr Brockett told The Australian Financial Review.

“These factors ensure a resilient and reliable income source.”

The trust, which is part of APN Property’s stable of funds, recorded a $45.8 million statutory profit, up from $24 million a year earlier. That result was boosted by a portfolio revaluation uplift of $31.9 million or 5 per cent, the result of tighter capitalisation rates and market rent increases.

Income was boosted both through rental growth and a swag of acquisitions, backed by a successful equity raising.

The trust has given guidance for funds from operations and distributions in the coming year of between 21.8¢ and 22¢ per security, representing earnings growth of 0.9 per cent to 1.9 per cent.

“We are putting out guidance that we feel confident on achieving, and we are guiding to this growth despite the fact that we have significantly reduced our gearing,” Mr Brockett said.

That low gearing gives the fund more firepower to pursue acquisitions, winning plaudits from Ord Minnett analyst Leanne Truong, who noted the fund’s scope to increase its funds from operations as a result.

Extracted in full from: https://www.afr.com/property/commercial/apn-fund-s-service-stations-keep-on-pumping-20200818-p55mto