Asset Plus Limited (APL) Earnings Call Transcript & Summary

Thank you for standing by and welcome to the Asset Plus financial results conference call. [Operator Instructions] I would now like to hand the conference over to Mr. Mark Francis, CEO of Centuria NZ, Manager at Asset Plus. Please go ahead.

Thank you. Good morning, everybody. Thanks for dialing in. Appreciate it's busy results today, so thanks for your time. Look, we'll walk through the presentation, which no doubt you've got in front of you and we have to take some questions at the end. So I guess, look, a period probably best summarized by flat valuations and reducing rental income line largely driven by the Graham Street building going vacant at the council lease and we'll talk more about that particular property later in the presentation. After tax net profit, obviously, $2.93 against $15.95 the prior year, which was of course driven by some pretty significant reval gains, which we had in FY '21, which obviously weren't present in FY '22. AFFO down to 4.22% from 5.82% the prior year. And again, net rental, as you can see, down also down 22%, largely driven by that council exit from 35 Graham Street. Munroe, which we'll come to a bit more detail shortly, continues to track on budget, albeit we have had some small delays as a result of COVID and completion now sort of scheduled for anywhere in that sort of second calendar quarter of '23. But as you can see, we see the no material impact on returns from those delays. The next slide, Graham Street, obviously, a pretty significant event for the company with the shareholder vote to occur on 3, June as a result of the size of that transaction, obviously being north of 50% of market cap requiring a vote and as I we'll talk a bit more about that later. We saw a 0.5% or $1.2 million decrease in property values, primarily writing off work at the Graham Street asset. And dividends, as you know, when we currently on hold now Q4 dividend paid and then that reflected 97% of AFFO for the period with that review quarterly got hold. WALE reduced to 2.21, again largely impacted by 35 Graham Street and of course once these gets [indiscernible] in the next month, that will drop further. But of course, will dramatically change or will dramatically change at the conclusion of the Munroe development with its to council. LVR as you can see steadily checking out as we fund Munroe Lane, so 25.7% and we'll talk more about where the debt lands at the conclusion of Munroe and of course, with the settlement of Graham Street and Eastgate where that leads us post all of those things occur. And again, our occupancy, these numbers are a bit, I guess store at the moment, down 58% from 98% drops further to 42%. And then here obviously, quite a different picture once Munroe is completed. NTA [indiscernible] $0.448 to $0.44 per share. Next slide really has sort of we covered in the previous slide, which is a pretty good summary for you. Simon will talk to the financial slides shortly and can drill down on sort of where that $16 million or how that was made up, because obviously, it's a bit of a moving target at the moment as Munroe progresses. But yes, otherwise, we've been that slide pretty well covered. Strategically moving forward, as you appreciate, here we focus on completing Munroe line and dealing with the balance of the vacancy at that property and I'll come to that a bit more detail shortly. And of course, a significant event getting Graham Street sold, reduces the risk profile of the company significantly and puts the company in a position where it's got a lot more options at a balance sheet level if that's concluded. I'll hand over to Simon Woollams, CFO, just kind of walk you through the next few slides and then I will pick up the property slides again and then conclude and then roll out into service.

Thanks, Mark. So in terms of the financial performance, pretty straightforward, really, obviously, as Mark alluded to key driver of the reduction is the net rental picture at Graham Street Auckland Council located in the calendar year, so that's down just over $10 million on a gross rental basis year-on-year, which is specially the prime driver for the net rentable income. Admin costs are pretty flat year-on-year, I'll touch on it shortly and directly call out, I suppose, from a market -- finance cost and just to clarify the treatment here is our funding costs associated with our working capital investment, so I suppose expense on the P&L and we're now starting to draw down plus downside on our developments at facility at Munroe Lane still capitalized. So that just clarifies little bit of expansion there in terms of accounting treatment. I'll provide a bit more detail on to movements shortly on a future slide, but down $1.2 million, stellar growth was up $2 million in investment for Graham Street just over $3 million. In terms of -- we also had a reversal of our spend impairment in the prior year. It relates to a legacy asset seem to fully recover. Those costs now are just good to restate that receivable and cash tax is actually lower this year accordingly as a result of I suppose, lower operating result, noting last year, we actually had a deferred tax adjustment, there's no depreciation recovery on sale. We also to set out at the back, but obviously, that's down $1.6 million income after share. Again, that's primarily driven by the impact of Graham Street. In terms of net rental at property level, pretty straightforward there. Eastgate is up. It was slightly -- is primarily due to lower COVID impacts this year, with Stoddard Road fraction down this year had a higher COVID impacts because the lockdown was more substantial relative to 2021. In terms of admin costs, obviously they are pretty flat [indiscernible] up, couple 100,000 driven by obviously higher primarily by Munroe Lane development, which has been progressing throughout the financial year. And as I touched on before, funding costs are up $400,000 as we begin drawing down on investment facility to reach a certain point. We had to contribute a minimum amount of equity into the Munroe Lane development now reached a milestone and now drawing down still which is capitalized. In terms of balance sheet, I'll touch on net rental property shortly and forward NTA is down slightly primarily driven by the small net write-down on that portfolio levels. Our payout ratio is at an FY level was 97% for the year. In terms of balance sheet specification at downstate, Eastgate and Kamo has been classified as held for sale. Graham Street, whilst we signed sales agreement is on 12th of April that didn't rate the definition of held for sale as it balance to and then stage is materially higher this year as we progressively drawn to some of the Munroe Lane developments and hearing I suppose the total level is just under 26%. In terms of the funding, there's a bit more disclosure as we announce that would mean with the line facility, which is primarily driven by the coming divestment of Eastgate, whereby the [ ICR ] covenant will not be tested for a 12-month period from April '22 to March 2023. And thereafter, once Munroe Lane is obviously completed in deriving rent, the ICR then steps up accordingly on a basis and that's obviously the leasing profiles. In terms of portfolio movements just touch on these said Eastgate, the health sale and that kind of delivers the committed sale price and Kamo $2.9 million that is reflects tenant valuation. Store growth up $20 million, which -- that's really great, obviously there, macro cut from a property that's been performed very solidly always pretty much interesting for us, but small cap rate compression is the prime driver. Graham Street, we can touch on this a little bit more in respect to the most meeting, but the fair value of $59 million is obviously being derived on a discount cash flow basis. So $65 million being net settlement and sale price in 2023 with the property being vacant that discounts back at 5.5% discount rate $59 million ended 31 March. And obviously, that will progressively unwind as we close the settlement effectively reflects the time value of money. And then Munroe Lane at 67.5%, so that's needed cost. There's no [indiscernible] from payment, but is probably audit process, about 67.56 the cost inputs. In terms of COVID, substance before, so the total impact of portfolio is just under [ 209,000 ] for the year, last year it was 400,000. So in terms of a split, it's approximately 100,000 in Eastgate and the balance about 109,000 to the debt [Technical Difficulty]. Well, thanks everyone and I hand back to Mark now for portfolio update.

Thanks mate. So this won't take terribly long Eastgate as you appreciate, obviously, unconditionally sold settlement to occur within the next sort of 4, 5 weeks. And as you can see, they're obviously all of the proceeds from that going to debt reduction. Stoddard Road as Simon mentioned here, always traded very well for us. It continues to trade well. There's good tenant demand. Look, we have got a decline a while there largely driven by the warehouse -- was obviously containment his term is taking away the renewal in 2025. And also it's a priority for us to see if we can get that agreed early. And then there's one small obviously coming out this year account for that 3.7% above the -- but as I say retention very, very good at the center. And look, I think our carrying value there [indiscernible] cap rate despite what we're seeing in the market at the moment, still probably on the conservative side. Graham Street, as I said, significant event for us to exit that contract price, as you know, $65 million, that with a pretty extended settlement term which nets back to $59 million. And obviously, the vote to occur on through June to vote that through. And as you can see that last comment, you heard that from Simon, if you look through the sort of various moving parts in the next 2 years, really, we end up at around 10% geared post East Gate, Graham Street and the Munroe completion. That next slide is pretty self explanatory and its ahead take questions on this asset at the end if you wish. Over to Munroe, the project continues to track well. We have obviously got the benefit of a fixed price contract with Icon, which is largely insulated us against what's been a pretty tiring period for the construction sector or any one building anything. We have had some delays, as I mentioned and that one $5 million efficient cost to date, obviously coming out of the contingency of the project and completion in second quarter of 2023. Asset complete valuation up just a little bit at $147.5 million and we got -- we obtained our Green Star rating theoretically during the period as well. So as you will recall, the fixed level asset the base for car park, there's about 750 meters of ground floor or sort of retail car space, of which we've got about a quarter in negotiation or site at the moment. The top floor of 2,700 meters, we are in dialogue with a couple of tenants for that. And there is early interest on the other -- the balance of those spaces to the 950 meter space as well. And then, of course, the whole thing by council, we've got just over 67% of the property. So the numbers there at the bottom pretty self explanatory, still pretty much in line with what we have said through the duration of the project really with a 5.8% year on cost and development margin account 10%. Kamo is in the market currently and we have got a number of parties on that with genuine interest. So working hard to close that out. So more to come on that, obviously, as we conclude something that is in the for-sale column. So I guess for the outlook, I said at the outset really it's the story is really about completing Munroe Lane, getting the balance on that property leased up and concluding on time or as close to as we possibly can, of course, getting Graham Street voted through next week. Look, the Board, we're to compare is Board and management very focused on delivering the best outcome for shareholders, however that may look. So we've got on mind as to what the best outcome will be. But as you appreciate, particularly with Centuria and Centuria heads the largest shareholder here, so we're very motivated to see good outcome to shareholders. And in the interim, as you appreciate dividends on hold, but subject to agree on a quarterly basis. So that is the summary, also got a couple of appendixes there, but very happy to throw out to questions now if there are any.

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

Can you hear me, okay?

Yes.

Yes, I'm clear. Excellent. Just a couple of simple ones for me, as we covered off my questions in the run through. But just in terms of Munroe Lane, can you just remind us what the contingency is and therefore the remaining contingency? And what sort of cost risks sit with APL versus the contractor I appreciate it's largely fixed cost project, but there will be some things which are obviously outside of the contract that's controlled?

Yes, I suppose that as I say, we have got fixed price contract with Icon, which highlight was a very wise move. So APL is really not exposed to cost escalation. It's time delays is where we have got some exposure. There's -- we have contingency of around $5 mill. So there's probably sort of $3 million to $3.5 million of that still available. I think answers your questions?

Got it. And in terms of those time delays, COVID related time delays, they sit with you guys?

Time does, yes.

Yes, yes, okay. And on Stoddard Road, can you just remind us, what percentage of total or the warehouse makes up? And then just the sort of expectations, I appreciate it's an ongoing negotiation, but any expectations for the timing of that lease renewal and what your other options might be?

Yes, so yes, the warehouse is significant, I think it's just under 50% from the exact number finally, but the action took center. Look, it's just at a time frame at the moment where it's probably just it's more hand way -- just a little bit too soon to get them to engage on an early renewal, but they continue to trade well there, I mean the whole center trades very, very well. So we certainly don't have any suggestion that they don't want to be there longer term, but it's just a question of when is the right time to engage and we will certainly be looking to do that to engage early and get an extension in place or a renewal in place.

[Operator Instructions] We are showing no further questions at this time.

Okay. Well, if that's all, thanks very much for joining us. Appreciate your time. It's nice busy day for everybody. So yes, appreciate it and find us if you do have any follow-up questions.

That does conclude our conference for today. Thank you for participating. You may now disconnect.