Asset Plus Limited (APL.NZ) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Asset Plus Annual Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Mark Francis, CEO of Centuria New Zealand. Please go ahead.

Thank you. Welcome, everybody. Good morning. Thanks for joining us for the 6 months results through September 2025 for Asset Plus. Look, as usual, you'll hear from me, just a quick intro. Then, I will hand over to Simon Woollams, COO, walk you through the financial summary; and Stephen Brown-Thomas, take you through at an asset level what's going on. And then, of course, as you heard, we'll have some questions at the end if there are any. You've obviously now seen the results, profit for the period, $1.6 million, up -- sorry, against the $2.3 million performance in the corresponding period, the difference really attributable to a fair value movement in Graham Street, which, as you know, is now sold; and funds from operations level, $1.6 million against a deficit of $350,000 last year, the drivers of that being lower interest rates, lower OpEx and lower management fees. At an AFFO level, that number is $1.19 million, which is really driven by the leasing costs that relate to this Aderant deal. And Simon can talk to the difference between our funds from operation and that AFFO number in a bit more detail shortly. Net rental just under $2.5 million, up from $2.25 million in the prior period. And of course, what you're all interested in hearing about is leasing and obviously, the milestone lease with Aderant during the period. And Stephen will talk to the outlook on leasing in his presentation shortly. Key metrics, the one asset still carrying that March valuation of $107.7 million. Important to note, I guess, 65% occupancy and 8.5 year WALE, both of those numbers will move in the right direction when we start the Aderant lease, which is likely to be in February that will take occupancy to 74% and the WALE to 9.5 years. Debt still at 0 and of course, NTA, as you've seen at $0.324. I'll hand you straight over to Simon now to walk through the financial performance in a bit more detail.

Right. Thanks, Mark. Good morning, everyone. It's pretty straightforward here, but just a couple of key highlights around the performance. Obviously, a slight increase in the net rental position, primarily driven by obviously the sale of 35 Graham Street and the OpEx saving there. Management fees were obviously not [ near ] reduced as a result of that sale of Graham Street and you'll see a lower fair value with respect to Munroe Lane, and that was obviously revalued down at 31 March 2025. But the key driver, obviously, is the material movement in finance costs. Obviously, all debt was repaid and Graham Street settled. So that is the fundamental driver of the increase in funds from operations along with those savings on management fees and operating costs at Graham Street. Mark touched on the fact that there was a fair value movement in respect to Graham Street in the prior period. Obviously, that was reflecting the discount unwind up to the settlement occurring in November 2024. For the period, after claiming depreciation in respect to the fit-out of Munroe Lane, there's a very small tax loss, so no real update in respect of deferred tax. Essentially, we're just reflecting a very small deferred tax asset, which offsets the deferred tax liability, which is historical building depreciation claimed at Munroe Lane. So the Board has determined that there's no material utilization of those losses in the near term. Obviously, that's revisited at each reporting period and will be driven by the outcome of future leasing. The Board also determined to provide a bit more prominence with respect to FFO. Historically, we've reported AFFO, as you know, but with obviously the Aderant leasing costs derived or incurred this period as well as fit-out costs, which will be recognized in the second half, the AFFO number will be quite materially different from FFO. Historically, they've been pretty similar numbers as we've essentially incurred no leasing costs and very, very small amounts of maintenance CapEx in the past. But there's obviously some waterfall on the reconciliation appended. In terms of net rental, that's basically covered flat at Munroe Lane and the OpEx savings at 35 Graham Street. In terms of administration and finance costs, I've touched on this in terms of the savings on management fees and obviously funding costs. In terms of the balance sheet, the Board determined that there was no material movement with respect to Munroe Lane, so no independent valuation was undertaken. And the only movement in the fair value was essentially a little bit of CapEx incurred, about $240,000 plus the $420,000 of capitalized leasing costs. In terms of the tax losses, there still remains $12.1 million of tax losses that are not recognized in any form in terms of deferred tax asset. So that's it from me. I'll pass on to Stephen and happy to take questions at the end.

Great. Thanks, Simon. Good morning, everyone. Look, the key thing to report on this period is our new Aderant lease. Fit-out is well advanced there at the moment, and we're expecting that lease to commence by February 2026 once those fit-out works are completed. Also pleased to report we have now secured a tenant for the ground floor lobby space of circa 130 square meters on a new 12-year term, with that lease expected to commence in mid-2026, subject to fit-out works being completed. That's obviously a positive development. Whilst not material, it's another step in the right direction and hopefully, getting some momentum in regards to that leasing. We are continuing all of our marketing initiatives to attract further leasing commitments, but as we discussed previously, there still remains a paucity of larger scale occupiers in that North Shore market. So it is challenging to secure those larger mandates. We retain flexibility to split the remaining space that we do have into multiple tenancies to cater to any tenant demands. We're also partial -- underway now with partial fit-outs on Levels 1 and 2 and advanced with designs for partial fit-out of the balance of Level 6 so that we can remain competitive against competing sublease space in the market and effectively be in a position to be almost turnkey for potential occupiers, which we believe should hopefully put us in good stead for any forthcoming tenant mandates in the market. So as we sit at the moment, Munroe Lane passing rent is about $5.5 million plus outgoings once the Aderant lease commences in early 2026. And after unrecovered outgoings on the balance of the space, the net rent was circa $5.1 million. We're expecting a fully leased net rental in the range of $7.1 million to $7.3 million once the property is fully leased, subject to obviously securing further occupiers for the balance of the space. So as noted by Mark, once the Aderant lease commences, occupancy goes up to 74%, and at that point, we're going to have just over 3,600 square meters of remaining space available. So our key focus obviously remains on leasing the balance of Munroe Lane as we turn to the outlook now. As we previously communicated, depending on that further leasing of Munroe Lane, it's going to influence the timing for that sale, along with market conditions at the time. And any steps to either sell Munroe Lane or wind up the company will require shareholder approval, and we'd like to ask shareholders to vote on both of those matters at the same time. The Board has also declared a $0.20 per share cash dividend for the quarter ending 30 September, and that's going to be paid in early December. And that dividend remains subject to review moving forward.

So that's it as far as presentation is concerned. Happy to take any questions anyone may have.

[Operator Instructions] Our first question comes from [ John Ashby ] with [ John Ashby ].

You just mentioned -- sorry. I think you made an error in stating that there is a $0.20 per share dividend being paid. That would be nice. But I think you may want to correct that to...

The [ $0.20 ] per share?