Asset Plus Limited (APL) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Asset Plus Interim Results Announcement. [Operator Instructions] I would now like to hand the conference over to Mr. Mark Francis, Managing Director. Please go ahead.

Thank you. Good morning, everybody. Thank you for dialing in. You will hear from myself and Simon Woollams, our CFO. And we also have Stephen Brown-Thomas, Fund Manager and Development Manager on the call as well. So, you've got a presentation in front of you. I'll start with a quick recap of key activity. Look at the portfolio metrics. Simon will walk through the financials for the period. And then I'll sort of round out with a portfolio update and outlook. And then we'll move to questions. And as I say, you've got Stephen here as well for any property-specific questions. Look, so key activity for the period, obviously, most notably, the $60 million capital raise, which was completed. As you're all well aware, $12 million of placement, about $48 million through via rights issue. We've navigated our way through COVID. We'll touch on that a little bit later in terms of the detail around that in terms of subsidies provided to tenants and what we did to retain tenants. The Munroe Lane Development obviously now they're unconditional, subject to that capital raise being completed and the ticking off of the finance provision and work is now underway there. The Graham Street leasing campaign is underway. And I'm going to talk a little bit more about that later in the presentation as well. We have secured a number of renewals at Stoddard Road have retained 100% occupancy there and that asset continues to trade well. In Kamo, a pipeline opportunity in terms of future development, obviously, a small land acquisition, but a multitude of options going forward with what we do with that site. Over to key metrics for the half year. So you can see portfolio obviously up as at September 30 date, off its lows at March '20. That March '20 rebound number, obviously, quite heavily COVID affected. And then we had September [ vals ] as part of that capital raise, as you appreciate. The portfolio stands at 5 properties, 72 tenants. The WALE has just dropped by 3 years, but occupancy has remained flat at 98%. Comprehensive income for the period, significantly up, obviously driven by just under $9 million of property revals. And AFFO level also up on just over $2 million last year, $2.63 million for the corresponding period this year. As you're all well aware, obviously, there were a number of abatements given during COVID probably not as many given as the market had expected. And we got through that pretty well, I think, just over $0.5 million in concessions made and which represented 5.5% of total rental income. That was obviously offset for everybody by the reintroduction of building depreciation, which obviously helped to offset that the after-tax effect of those abatements. And I'm pleased to say that those abatements now are all are all completed and agreed and put to bear essentially. I'm going to hand over to Simon at this point to walk through the next 2 or 3 slides in terms of the financials.

Thanks, Mark. Good morning, everyone. In terms of rental income, as Mark alluded to, rental payments are the key driver for debt reduction against the corresponding half period. And I'll touch on that shortly in more detail with the AFFO presentation. Obviously, noting also that there are some portfolio movements with respect to the acquisition of Graham Street and also the divestment Heinz Watties property in Hastings, which we set out on the next slide. In terms of adjusted funds from operations, that's up to $2.63 million. So it's obviously slightly back in respect of the rental income line net of abatement. But in the prior corresponding period, we had about $800,000 of transaction costs, which unfortunately didn't proceed. In respect to our payout ratio, obviously a little unique for this period in sense of the material capital raise completed. So the 89% payout ratio obviously reflects the dividend with this announced, which we have in December, which is based on obviously increased capital by 362 million shares [unissued] . Moving on to the sort of my quick snapshot of the workflow in terms of movements. So we've stood out the divestment and acquisition impact. So they're more or less offset, slightly down near those 2 transactions. And then there's an income impact of about $400,000 on an after-tax basis and expected new abatements. So $550,000 of abatements granted. And I'll touch on that with respect to those shortly, and obviously, we previously called out $815,000 incurred on transaction costs in the prior corresponding [ path ]. Obviously, now we're building depreciation back. We had a tax benefit of just under a couple of hundred thousand there. So all in all, that led to an increase in the AFFO up to $2.63 million. I will note that we're fractionally ahead, about $50,000 ahead of our forecast AFFO as part of the capital raise presentation. That is primarily due to rental abatement spend that went better than we forecast at the time the capital raise or just private capital raise or can win into the level 3 again. So we were reasonably conservative with our assumptions. But thankfully, most of the tenants are up to trade in some shape or form through that [ alert ] level. And then moving on to the financial position. Pretty self-explanatory and pretty much in line with our forecast as well, noting that part of capital raise was completed pre balance date, reducing debt down to $27 million. And then subsequently, on the second of October, retail entitlement offer sale and we repaid all the debt. So the NTA effectively from that date kind of was $0.44 with those additional shares [ unissued ]. And we'll now set about $5 million in the bank. And then looking forward now Munroe Lane, unconditional. We'll look to below [ those prices ] at both debt cash initially and in drawdown on our new funding structure, which is in effect, in 3 tranches: a working capital facility, an investment facility, and finally a development facility looking to complete Munroe Lane by November 22. In terms of Slide 9, just a quick portfolio update. Look, you've probably seen this slide before, most of it is effectively indicated in the presentation about the capital raise. So I won't go through too much of the detail. But it's marked out to set out the key [driver] for the half was obviously an $8.9 million uplift in the property that is a prime component that was Graham Street, but also for some rates at just [indiscernible]. And then moving on to Slide 10. In terms of the portfolio summary, inside there, fairly self-explanatory Graham Street and a WALE of 1 debt viewed indicated. That represents existing lease out for another 9 months out to June '21 and then [ definitely ] comes with current half way, for the next 6 months to December 2021. So portfolio [ 12% ] at [ $12.4 million ], which is obviously reduced over the half because of the reducing term lift on the Graham Street lease and that occupancy remains constant at 98%. I will know that outside of the $153 million is about $5 million of work in progress, which relates to the Munroe Lane Development, and also to initial feasibility works with respect to Graham Street. And on the right-hand side there is obviously our lease profile. That will see the material one there being Graham Street coming up in the next financial year. And then further outside the relevant warehouse in Countdown expires over time. And so the point noted that the top 10 10 profiles will obviously fundamentally change in the future. The Auckland Council at the Graham Street represents 33% at present, but noting that, that chart excludes the Munroe Lane Council at present time. That's all for me, obviously, have to take some questions on the financial matters at the end, but I'll hand back to Mark now to give you an update on the portfolio and development.

So yes, we'll just drill down to each asset quickly. So Munroe Lane, obviously, key aspect there being the condition -- the finance condition being fulfilled and work's now underway off the back of the equity raising. Icon appointed to do the construction. 80% of the construction are now locked down and the balance 20% has been obtained or will be obtained much of the retail design site-wide in early 2021. And we had the site leased in, which was a lovely occasion at the site [ with rain ]. Construction was, as I say, underway and November '22 as the target completion date, and we're now in the market with agents. Looking to secure tenancies for the balance of the space that Councils aren't taking. Eastgate. So as you know, we've secured a new tenancy with Bargain Chemist on a 6-year lease that took out a number of vacancies within the center. Foot traffic and sales are actually up on prior periods. As you know, also, we have signed a deal with restaurant brands for a new drive through fast food on the fringe of the site, and that's going to deliver a 20% development margin and 6% return on cost and due to be finished middle of next year. So Eastgate is actually tracking okay despite the production of retail isn't good. Stoddard, again, like a lot of retail, back in production and trading exceptionally well. A number of renewals there and market rent renegotiations that put to bid, [ 70% ] or 100% occupied and trading well. And we've got a lot of knocks on the door for this asset from potential buyers. Graham Street, only 3 quarters of a year left to run on the main council lease. You'll see we've extended part of that lease ground and basement for a further 6 months out to the end of next year for a fixed rental of $1 million with large resource intended for the -- for the Graham plan redevelopment scheme with the additional floors, and it's hoping to have that by the end of the year. Leasing campaign led by Colliers is underway, and there are a number of tenants looking at the proposition. Although being realistic, obviously, it's going to be in the new year before we get any real traction with anybody, given how much runway is left in 2020. The outlook, as I say, Munroe, obviously and the execution of that is a key focus. We're delighted to be underway on it. Now it's a case of closely managing that project. And like I just said, the other key focus clearly is on securing some [ 10% ] of precommitment for Graham Street to determine which way we go with the redevelopment of that asset. We are -- went looking at other opportunities. And we're mindful of the fact that the vehicle does still lack scale, and we're very cognizant of the need to bulk it up over time. So we are looking at different opportunities pathways for that. The Board tell me they're very happy with our performance as manager. And I think if you look at the 3 key initiatives, like, Graham Street, Munroe, and Kamo all the key drivers of what will be the start of the turnaround of this vehicle. So that's probably it from us in terms of presentation. Happy to take any questions at this point.

[Operator Instructions] Your first question comes from Grant Lowe from Jarden.

Yes, just a couple of quick ones for me. Just around, if you could give any color around the leasing or the precommitment for Graham Street, what -- how that's going? And also the potential time line for divestment of Stoddard Road potentially, what the time line for that might be?

Yes. Look, on the leasing, I'd say and so as you know, Colliers have been appointed master agents on that. They're working with a number of parties. Obviously, I can't really disclose who they are. But there are a number of them in that range from corporate to government departments to a number of smaller businesses. So there's a whole range being talked to. And sort of -- they vary from potential occupiers of a fully redeveloped asset to potential occupied of it on a referred basis over those sites. And I'm probably would be the [indiscernible] so I'm not -- there's nothing much I can say at this point. But there is a number of conversations underway. Divestment really will be led, I think, by probably once we know the outcome of Graham Street and the extent to which we're going to develop it. So as Simon sort of the commented before about the payout ratio that it is a very, very salable asset. And like we've indicated in the past, longer term, Eastgate and Stoddard probably don't have a home in this portfolio, but timing of those investments will be driven by, I guess, how much traction we get on Graham Street and the need for capital there, if we need it anymore or not.

Okay. That's great. Can you just remind me on the time line for a decision on Graham Street?

Well, there isn't really a time line other than the fact that we've got an expiring lease at the end of next year. But -- so sometime between now and then, we will make a decision as to whether this is going to be fully redeveloped adding 10,000 meter type proposition? Or is it a refurbishment a slight touch of refurbishment of the existing building and leasing it in its current footprint.

Your next question comes from Rohan Koreman-Smit from Forsyth Barr.