Federation gets the tick
Federation Centres has been upgraded by investors following the group's news that it is increasing its distribution to shareholders for the half-year ending June 30.
During the week, group chief executive Steven Sewell said the distribution of 7.5¢ for the half-year was a substantial increase on the distribution of 6.6¢ for the half-year to December 2012, with the board also making the decision to move the payout ratio to the upper end of the 80 per cent and 90 per cent target range.
The previous guidance was for 2013 financial-year earnings per security (EPS) of of 15.5¢ to 15.75¢.
Brokers said that to declare a 2013 DPS of 14.1¢ suggested EPS at the top end of guidance and a payout ratio of about 90 per cent.
The action was taken as Federation gets closer to finalising asset sales that could see it raise as much as $1.2 billion.
According to brokers at JP Morgan, Federation's balance sheet is in good shape and can handle the 90 per cent payout.
"Federation has a $700 million pipeline of assets it intends acquiring from its syndicates on average capitalisation rates of about 8.5 per cent. It will likely to be funded with a sell down of 50 per cent stakes in further assets to capital partners at about 7.25 per cent," the brokers said.
"We expect the sales to the joint venture and and syndicate acquisitions will lift gearing to 25.6 per cent. Federation can then debt fund its share [$590 million] of the development pipeline."
Moelis & Co analyst Simon Scott also issued an upgrade of the stock, believing consensus earnings estimates for the 2014 financial year and beyond were too low.
"Based on our 12-month target price we estimate a double-digit investment return over the next year," Mr Scott said.