Australian Unity Office Fund (AOF) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Australian Unity Office Fund HY Results Call. [Operator Instructions] I would like to now hand over the conference to Ms. Nikki Panagopoulos, Fund Manager. Thank you, Nikki.

Thank you. Good morning, everyone. Thank you for joining us, and welcome to financial year 2023 half year results announcement for the Australian Unity Office Fund. My name is Nikki Panagopoulos, and I'm the Fund Manager for AOF and I'm joining you from Melbourne. I'm joined by Simon Beake, the Portfolio Manager for AOF, who is in Sydney. Earlier today, we published various documents on the ASX, including the interim report for the half year ended 31 December 2022, Appendix 4D, AOF's property book and the investor presentation, which we will go through this morning. Following the presentation, we will have time for Q&A. Let's turn to Slide 2. Before we start, I would like to take this opportunity to acknowledge the traditional custodians of the land our properties are located on and pay my respects to elders, past, present and emerging. I come to you today from the Wurundjeri land here in Melbourne. Today, I will provide you with an update for the first half of financial year 2023 activities, update you with the financial results and provide an update on guidance and outlook. Turning to Slide 3. During the half year, AOF successfully executed on its strategy to maximize returns for unitholders through asset sales and active management, including progressing leasing and asset refurbishment. During the presentation, I will provide you with more detail on the successful sale of 3 assets, delivering approximately $220 million of proceeds; active management across the portfolio with refurbishments progressing at 10 Valentine Avenue and 150 Charlotte Street; distribution guidance for the March 2023 quarter of $0.025 per unit; and I will speak to AOF's well-positioned balance sheet, which is expected to have over $40 million of cash and no drawn debt, providing an opportunity to return capital to unitholders through a special distribution. Let's now turn to Slide 4. We successfully sold approximately $220 million of assets, a great result for unitholders. 30 Pirie Street, Adelaide were sold for a gross sale price equal to the 30 June 2022 independent valuation of $73 million. 2 Eden Park Drive, Macquarie Park was sold for a gross sale price of $68.825 million, reflecting an approximate 10% premium to 30 June '22 independent valuation. Both of these assets have settled with net proceeds used to repay debt. On 16th of February, we unconditionally exchanged 5 Eden Park, Macquarie Park for a gross sale price of $80.75 million, reflecting an approximate 1% premium to the 30 June 2022 independent valuation. Settlement is expected in March 2023. Executing on these 3 sales has demonstrated our commitment to maximizing returns to unitholders. Turning to Slide 5. Post-settlement of 5 Eden Park Drive, AOF's portfolio will consist 5 assets with the total value of $316 million. The portfolio will comprise of 2 value-add opportunities valued at $170 million complemented by 3 high-quality, multi-tenanted assets. The multi-tenanted properties are 468 St Kilda Road, Melbourne; 96 York St, Beenleigh; and 64 Northbourne Avenue, Canberra valued at $146 million, have a WALE of 4.5 years and occupancy of 93.3%. Turning to Slide 6. The value-add properties provide refurbishment and repositioning opportunities. At 10 Valentine Avenue, Paramatta, the marketing and leasing campaign has commenced. Base build work has started with the first full floor upgrade completed and works progressing on the remaining floors. Design documentation for the lobby, end of trip and services upgrades are being finalized with the tender process expected to commence in the coming months. At 150 Charlotte Street, Brisbane, the asset is currently 98% occupied with a 1.7 year WALE and constant plans for the asset refurbishment are being finalized. Together with costings to commence the base build upgrade, including lobby refurbishment and lift upgrades. Turning to Slide 7. AOF provided funds from operations of $0.074 per unit and distributions of $0.05 per unit. The results benefited from strong leasing outcomes at the multi-tenanted assets and property New South Wales continuing to occupy approximately 3,000 square meters at 10 Valentine Avenue. Net tangible assets of $2.22 per unit reflects valuation movement at 150 Charlotte Street, 46 St Kilda Road and 2 and 5 Eden Park Drive. Drawn debt of $103 million is expected to be fully repaid from the proceeds of the settlement of 2 and 5 Eden Park Drive, with the fund expecting to have over $40 million of cash and approximately $80 million of undrawn debt facilities available. Let's now turn to Slide 8. AOF provides distribution guidance of $0.025 per unit for the March 2023 quarter, and we'll continue to provide distribution guidance on a quarterly basis until further notice. AOF will continue to deliver on leasing and occupancy outcomes with a proactive approach to portfolio construction, asset sales and active asset management. The asset sales provide the potential to return capital through a special distribution with any potential special distribution to be announced prior to 30 June 2023. We remain focused on maximizing returns for unitholders. In closing, I thank you for your time today and for your investment in AOF. We look forward to continuing to focus on maximizing returns for unitholders. This now concludes the formal part of our presentation, and I will pass you back to the moderator for Q&A.

[Operator Instructions] We have our first question from Milo Ferris from Ord Minnett.

Just a few questions from me. You took 3 assets to market by an EOI campaign. Any update on that? And are you still looking to sell assets?

Thanks, Milo. There's some good questions there. Yes, no, we took 3 assets to market, and those opportunities were considered and assessed by the Board, but for a number of reasons didn't progress, and that's for a number of confidential reasons. So I can't give any more information on those 3 assets. Your second question, sorry, was...

Just if you're still looking to sell further assets.

At this point, I think as we've said in our presentation, we will continue to maximize returns for investors, and that is through maintaining a proactive approach to portfolio construction, and that may include asset sales and asset management.

Perfect. And then just how much CapEx is required for 10 Valentine and 150 Charlotte?

Yes, we're currently working through the -- as I said in the presentation, 150 Charlotte. We're currently working through the final design and documentation. And so the costings on that haven't been finalized. And with 10 Valentine Avenue, we have gone through the base build upgrade, which is just to clear out the base build because there's probably New South Wales lift that will -- with the -- sorry, I've just gone blank. We've left that with the furniture in situ. So the first part of that is to clean and demolish or remove all that furniture and then the aspect -- the second part of the refurbishment will commit the capital as our leasing progresses. We're still working through the finalization of the design documentation for the end of trip, lobby and services, and we don't have those costings finalized yet.

All good. And then just a final one for me. Would you be looking to reduce your debt facility?

One for -- I'll pass to Simon now just to give him an opportunity to answer that. So one for Simon. Absolutely.