The Ampol Ltd (ASX: ALD) share price is off to a slow start this week, falling 3.5% this morning following a company announcement.
Ampol today announced a $1.4 billion property trust deal with partners Charter Hall Group (ASX: CHC) and Singapore’s GIC.
The fuel and convenience giant has been mitigating risks since the initial public offering (IPO) was unveiled last November. The risks include market volatility as a result of COVID-19, extreme shocks to the oil price and a failed takeover bid by Canadian firm Alimentation Couche-Tard. Let’s look at what this means for Ampol shares.
What’s in today’s announcement?
Ampol revealed the unlisted property trust would hold 203 of its core freehold convenience retail sites (petrol stations), with Ampol maintaining a 51% controlling stake, and the Charter Hall & GIC ‘consortium’ acquiring the other 49 per cent.
The consortium will pay $682 million for this stake, which values the entire 203 property trust at $1.4 billion, and Ampol will pay $77 million in rental payments to the trust in its first year.
The plan is that all sites within the property trust will be leased back to Ampol under long-term arrangements, the average being 19.2 years. This lengthy duration gives the fuel company added security, as it will benefit from long-term lease repayments and the liquidity that provides.
Ampol will use the proceeds of the deal to reduce its debts, which have ballooned because of the pandemic and lower demand for both jet and everyday vehicle fuel.
Ampol CEO Matt Haliday said: “Following the completion of our retail network review in 2019, we identified the opportunity to unlock the value of our high-quality retail property assets through a transaction that would demonstrate value, whilst importantly allowing Ampol to retain strategic and operational control over our core convenience retail network.”
Should you invest in Ampol shares?
The property trust deal gives Ampol more flexibility to buy future sites and sell additional properties into the trust over time. I like the company plan, which is to unlock financial capital without being forced to change its operating structure.
The big test from here will be whether the additional funds freed up by this property trust will find their way back to shareholders in the form of dividends.
I’m also waiting to see how Ampol performs when it provides its full-year earnings for FY20 on 25 August. Of particular interest will be the impact of the pandemic on its earnings and operations, and whether there will be some clarity for shareholders with an FY21 forecast.
The market’s adverse reaction to this morning’s news may also be attributed to the upfront $77 million that Ampol will need to fork out to get the ball rolling. In addition, the original announcement last year said that 250 sites would be incorporated in the transaction. The negative price movement in Ampol shares may thus communicate an underwhelming shareholder response.
Foolish takeaway
In principle, it’s good to see Ampol attempting to unlock additional value for its shareholders. I’m enthused by the long-term duration of this agreement and the stability that provides.
Having said that, keep an eye out for Ampol’s FY20 earnings next week to assess both the tailwinds and risks facing the fuel retailer moving forward.
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Motley Fool contributor Toby Thomas owns shares of Ampol Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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