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] On today's call, we have Mr. Mark Francis, CEO of Centuria New Zealand; Mr. Mark Woollams (sic) [ Simon Woollams ], COO Centuria New Zealand; and Mr. Stephen Brown-Thomas, Asset Plus Fund manager. I would now like to turn the conference over to Mr. Mark Francis, CEO, Centuria, New Zealand. Please go ahead.

Thank you. Morning, everybody. Thanks for joining us for the results presentation for Asset Plus FY '24. You're going to hear from me this morning, you'll then hear from Simon Woollams who will delve into the detail of the financial picture, and then Stephen Brown-Thomas will walk through the portfolio update and then, of course, we will be available to answer any questions at the end. So in summary, the loss for the year, as you may have seen, $5.3 million primarily impacted by -- just by the $5 million of revaluation losses compared against a $12.7 million loss in FY '23. At an AFFO level, loss of $670,000 that was $280,000 in FY '23. Net rental income of $3.65 million, marginally up on the previous year, primarily due to the Munroe Lane rent picking off with an offset for the Stoddard Road divestment. And I guess one of the key highlights for the period was obviously the finishing of the Munroe Lane development and the commencement of that lease with Council on 17 May. The key metrics of the portfolio, as you know, only 2 assets soon to become one. But as we sit at March, $180.8 million of value, both the occupancy and the WALE, quite heavily weighed on by obviously by the fact that we're sitting with Graham Street as a building. So occupancy at 41%, WALE at 5.9. Loan value ratio just 18.2% and the NTA at just under $0.39 and we'll get into in later slides how that will look post settlement of Graham Street later in the year. The activity during the year, as I said, really one of the key milestones, obviously, finishing Munroe Lane given us -- thy way you would have also seen our announcement around the Graham Street settlement where Mansons, the acquirer pushed out of the settlement as they had the option to do so under the contract, which set out to 29 November. To do so, they paid an extra $3 million in purchase price and the deposit was increased from 10% to 20%. And then the other thing that occurred, I guess,[indiscernible] of Graham Street during the year was the sale of [indiscernible] 2023. You'll hear from me again towards the end, but I'll hand you over now to Simon to walk through the financials.

Thanks, Mark. Good morning, everyone. This should be relatively straightforward. But on Slide 7, there a striped up the financial performance, so [indiscernible] a loss of $5.3 million. But if I just walk through the financial performance, net renewals up, just under $200,000 and I'll touch on that in terms of the breakdown shortly and administration and cost of [indiscernible] primarily lower management fees due to a lower average portfolio across the year. And finance costs are up a little bit, and I'll touch on that, movements there shortly. And also noting that is a fair value loss of $4.9 million and I'll touch on the breakdown of that, but primarily that's driven by a circa $8 million loss across the year at Munroe Lane. In terms of the tax position, we're now recognizing a recognizing there are losses of $12 million, but we are only recognizing approximately $3 million of those losses on a basis that's the extent of the utilization in the near term. So there's $8.9 million that is not currently reflected in the financial statements. AAFO, as Mark touched on, is a loss of $670,000, so a reduction of about $400,000 year-on-year. And there's more details set out in the appendices for the waterfall and a reconciliation. Moving to Slide 8, the net rental performance, again, pretty straightforward here. You can see the impact of the divestments, both Stoddard Road and Eastgate. So set the full year impact of those flowing through this year and the commencement of Munroe Lane, which is essentially 10.5 months of income, the account started [indiscernible] on the 17th of May and PC was achieved on the 13th of July. In terms of admin and finance costs, I touched on slightly lower management fees generally through -- a slightly lower average portfolio across the year. Obviously, the impact of Stoddard Road flow through the year. In terms of the finance costs, there's a little bit going on here in terms of the classification, but essentially, finance costs are higher by $570,000 driven by higher effective interest rates, marginally offset by a lower average debt balance, noting that when we started [indiscernible], we repaid all of those proceeds of [ $36 million ] to the bank, and we also repaid $7 million -- $7.1 million when we received the second deposit from the Graham Street property. And that's offset by the impact of Munroe Lane, so when it was -- when practical completion was achieved on the 11th of July, we no longer capitalize the interest with respect to that development facility and the converted to an investment facility. And there's obviously higher interest revenue this year, marginally higher interest rates, but also a full year impact of the lockbox facility and funds and retention. Moving on to Slide 10, the balance sheet, again, pretty straightforward here. Obviously, Munroe Lane, recognized at $116 million fair value and Graham Street at 64.7 million, Graham Street fair value assessment is based on the discounted future settlement proceeds -- we will, obviously, the full consideration of $68 million, so the slight uptick and there's a couple of periods with respect to the fair value gain. In terms of the other [indiscernible] items, obviously, it's a lockbox of $4 million, which would be released when Graham Street settles and all the external bank debt is repaid and a $13.6 million deposit, which represents 20% of the Graham Street consideration. The net debt reduced by $38 million across the year, primarily the Munroe and Stoddard Road divestment offset by $7 million drawn down to fund the balance of Munroe Lane. As I touched on earlier, we've got a neutral net tax position. So essentially, our deferred tax asset represents our deferred tax only and not in the earlier comment that $8.9 million of tax losses are not represented in the deferred tax assets. Mark touched on NTA, that's down $0.389, again, primarily driven by this $4.9 million fair value losses in the LVR that is [indiscernible] 18% at balance date down from 31.5% last year. There's also a bit more detail on the portfolio movements, again, pretty straightforward. That's an appended. And moving on to Slide 12, the funding update again pretty straightforward. We've got facilities drawn till the 31st of March 2025, which is the [indiscernible] months beyond the settlement of Graham Street. So as I said earlier, we will be repaying all the external bank debt when settlement occurs, and we're forecasting to have about $25 million of cash on hand, once the settlement has occurred. At present, there's about $11.9 million of debt undrawn, which gives us some [indiscernible] obviously funded the leasing or incentive costs ahead of 35 Graham Street settlement. So that's it from me. Obviously, happy to take the specific finance or funding questions at the end. I'll now hand over to Stephen to run through the portfolio.

Thanks, Simon, and good morning, everyone, and look over [indiscernible] here in terms of updates given we are down to asset portfolio at the moment. So as Mark outlined, perhaps the completion was achieved at Munroe Lane 13th of July 2023, which is a combination of the 4-year journey on the development. The blessing and opening ceremony occurred on 26th of July and Auckland Council occupied from that date, despite when Council occupied, rental commenced on the 17th of May, and it was reflective of some tenant delays resulting in radial completion being slightly delayed until 13th of July. That resulted in circa 7 months of total delay, the original target completion date of mid-December 2022. There was circa 3 months of delay 4 months [indiscernible] as a result of COVID-19 and the government-mandated lockdowns and result in working restrictions and the balance to delay, as I say, resulting from Council tenant for that delays. As we have indicated previously, once we do achieve further leasing at the property, the company won't consider sale of the asset, but it's going to be reflective of market conditions at the time. Moving on to the next slide now, the independent valuation based on the property with just the Auckland Council committed lease in place is now sitting at $116.2 million. You may recall that previous assessments were on as a complete basis and assuming that [indiscernible] leasing was secured, we still have $150,000 of cost complaint as at March and fair values resulting in $116.5 million as balance stake. So that's resulted in $15 million of unrealized development losses recognized up until now with the development cost of $131.2 million as illustrated in the table there. Obviously, that's not also been realized given the assets still held and hopefully as the market improves and cap rates and leasing is achieved and we'll see value accretion on that property with further leasing. Next slide now, Munroe Lane in terms of a leasing update. We have Little Fields Café commenced from kiosk operation on the ground floor lobby earlier this year and they are trading well. That's a satellite operation for them from multiple fields, which is just a couple of blocks away. And [indiscernible], they're running fairly well. And it's obviously a positive addition to the ground floor lobby and activation in that space. We continue our direct marketing initiatives to potential occupiers on the North Shore and across the [indiscernible] Auckland as well as on market advertising and general agency across all agents in the market and [indiscernible] as well. We have seen inquiry increase post completion of the building, which has been positive. It's obviously easier to sell the dream, so to speak, in terms of being able to [indiscernible] people choose a completed space rather than a construction zone and looking at [indiscernible] instead of actual photographs of the completed product. However, an interest on the North Shore and demand does unfortunately remain muted. And obviously, the current wider economic conditions not entirely conducive to giving occupiers to commit to long-term leases at CapEx associated with the relocation and funding our new premises, but there are still a number of parties in the market that we're obviously chasing pretty hard. In terms of full floor occupier, they do remain fairly scarce, but we do have flexibility that Level 6 can be split into 2 or 3 tenancies. And then we've also got split options to some the Level 2 space as well. Auckland Council have previously been trying to sublease Level 5 and a bit to reduce the wider portfolio costs from what we understand they haven't been successful and there are limitations in terms of their ability to sublease that space third-party corporate occupiers as well, given it's connected via the central Atrium, which is opened to the lower levels staircases and it's behind the secure line as well. So we continue to work pretty hard on that leasing, and that is our key focus. We're engaged with all of the agents in terms of target future occupiers and running any opportunities to grab. Moving on to Graham Street now, as Mark has already outlined, the purchaser elected the right to the first [indiscernible] by a further 12 months. It's now scheduled for 29 November 2024 as you noted as well, the deposit has increased up to 20% of the increased purchase price of $68 million and assignment [indiscernible] that's been repaid against debt facilities of the company. And as Simon also noted, the current present value unwinding current at $64.7 million, but we'll obviously get closer to that $68 million as a settlement debt based on that 9% discount rate. So I hand back to Mark to run through the outlook moving forward. Thank you.

Thanks. So look, outlook, which is obviously consistent with previous communications from us. The company will remain in a loss position at least until the settlement of 35-Graham Street. Of course, any leasing it Munroe Lane could alter that. And clearly, as you heard from Stephen, that leasing there is a major focus for the team. We've also indicated, once we do a satisfactory level of lease, then we will look to sell that property. And then following that, the company is in a position of holding some significant cash reserves that are generated and in a position to then contemplate this options, of course, one of which is to windup the returning capital. Important to note that whatever we do, whichever direction we decide to hit obviously would require a shareholder vote to materiality. And then also as previously voted, dividend remains suspended, it's reviewed quarterly. It is likely to stay spend at least until the settlement of Graham Street and until we have better idea of future direction of the company. So no real surprises in any of that. So that's it from us. Happy to throw over to questions from any of you now.

[Operator Instructions] Your first question comes from Rohan Koreman-Smit with Forsyth Barr.

Congratulations on, I guess, slowly ticking things off. Question from me, first of all, have you founded the market yet on buyer appetite for Munroe Lane?

Rohan, Mark here. No, we haven't really. As we said, we're sort of really been focused on just trying to get the leasing to a level that, I guess, puts us in to achieve the price we want at the moment, we wouldn't want to do that at these current levels.

And also on that vacancy, is 1 strategy to provide an underwrite -- just conscious you are coming towards, I guess, the day when Graham Street settles. And then this will be the last thing left and there might be more impetus to get a result?

Yes, it's an option, and it is one that's been discussed at the Board level, but we haven't gone any further than that with it early at this point.

And then just thinking about these tax losses that you have once Graham Street settles, would it be better to sell Munroe Lane as a vehicle rather than just the asset, just given that potentially has value to a buyer?

Yes. That's an option also, which again has been contemplated at Board level.

Perfect. And then you made a comment about dividends coming back on once you've got, I guess, the debt paid down. I guess is that a clear use of capital? Or are you better off, I guess, holding the cash and trying to wind up the vehicle?

Yes. I don't think we've seen that coming back on. We've said that there's potential for them, too. But I think the, probably the key takeaway is that it really depends on which way we're heading with the vehicle in its entirety. And so that's going to be the determinant rather than flicking the dividend back on.

[Operator Instructions] We are showing no further questions at this time. I'll hand back to Mr. Francis for closing remarks.

Thanks, Rohan for your questions. Thanks everybody else for tuning in. And obviously, you know where to find us if you do have any follow-up thoughts or questions. Appreciate your time. That's all from us.

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