Asset Plus profit falls 81 per cent: expenses up, rent down, revaluations negative, tax bill up
Previous plans Asset Plus had for 35 Graham St. It has now decided to sell this building.
Video / Augusta Funds Management
Falling revaluations and rent, rising expenses, an empty office building and a rising tax bill pushed the Asset Plus full-year profit down by 81 per cent.
Net profit after tax fell from $15.95 million in the full year to March 31, 2021, to $2.93m in the same 2022 year after gross income fell from $13.9m to $11.93m and last year’s $9.19m fair value investment property gains turned into a -$1.22m devaluation or writedown.
Expenses rose from $3.95m to $4.2m and having a half then completely empty office building didn’t help at the company managed by Centuria NZ, owned by ASX-listed Centuria Capital, trading around A$2.28 there.
“Net rental revenue reduced by $2.22m due to the reduced income at 35 Graham St,” Asset Plus said yesterday, referring to that empty Auckland CBD office block vacated by Auckland Council.
From late June last year, the rent halved, then in December when the building was empty after the council left, all rent dried up.
Operating expenses at the company chaired by Bruce Cotterill rose because of increases in rates and insurance.
Tenants at the company’s Christchurch mall, Shirley’s Eastgate, and a Mt Roskill strip suburban retail centre got pandemic rent abatements. That cut income further.
The company also clocked a valuation loss of $1.2m on its Graham St building.
The tax bill was $550,000 more than previously at $553,000 for the latest year, because of the impact of the released deferred tax liability on the Eastgate mall of $1.14m. There was no depreciation recovery on the sale of that property either, Asset Plus said.
Asset Plus has conditionally sold 35 Graham St to Mansons TCLM for $65m, subject to shareholder approval on June 3. Settlement isn’t due until December 1 next year, but Mansons can push that out a year if they want although it will cost Mansons an extra $3m to do that.
Asset Plus couldn’t lease the building.
“There has been a structural shift in office leasing sentiment and investor appetite in the office leasing sector as a result of Covid-19 which has impacted on our ability to lease the property to date either under a light refurbishment scenario, or full redevelopment scenario,” it said yesterday.
The inability to get prior lease commitments under either development scenario for the property had put further capital constraints on the company because the property could not be developed without significant prior tenant pre-commitment, it said.
“The company does not have the balance sheet capacity, nor income profile across the company’s portfolio, to hold the asset vacant for an extended period of time,” it said.
Nor was a capital raise feasible at this time, because of the discount of the trading price to the company’s net tangible asset per share. So selling was the best option, given the company’s inability to keep an empty building for an extended time.
In April 2019, it announced it had bought the offices for $58m, then it made plans to spend $350m there, adding extra floors, stripping much of it back and doing it up.
Resource consent was granted to add three new levels on the existing office building, taking it from 12,900sq m to 25,800sq m. Changes had been designed to cantilever over the category B listed BJ Ball building in a series of steps. That historic building has a distinctive mural on its wall which the council noted Asset Plus would retain.
But then it ditched those plans.
Asset plus has 73 tenants, five properties and those are valued at $216.5m. The portfolio is only 58 per cent tenanted because Graham St is empty. Last year, the portfolio was 98 per cent tenanted.
The company has loan facilities of $130m of which $74.3m was not drawn. Gearing is 25.7 per cent.
BNZ had been supportive of the strategy to sell non-core assets and develop the Albany site, the company said. It has sold its Eastgate mall and $40m of debt is due to be repaid immediately once that is settled. A further $6.5m of debt is to be repaid if shareholders agree the Graham St building should be sold.
The company’s result came out yesterday at 5.05pm when the Budget dominated the news. Its shareholder meeting to vote on selling the Graham St building is on the afternoon of Friday June 3, just before the long Queen’s Birthday Weekend.
Asset Plus said the “key driver” of its profit fall was that 2021 included large revaluation gains with no similar gains this year.
It also told shareholders its big new Albany development for Auckland Council had been delayed because of Covid effects. It was not now due to be finished until April next year. But delays did not materially impact returns from the development, it said.
A new image showed Icon with two tower cranes on the site.
Chairman Bruce Cotterill said the full-year reflected a portfolio with a large weighting to two development properties, at Albany and in Auckland CBD.
The Graham St sale would offset balance sheet constraints and give a pathway back to a conservative gearing position, he said.
“The board remains committed to delivering the best outcomes for shareholders which this sale represents given current market conditions. Given these conditions, the board will continue to review future opportunities as they arise,” he said.
Shareholders will get no fourth-quarter dividend but so far, the payouts for the year represented a ratio of 97 per cent of adjusted funds from operation, the company said.
Asset Plus is trading at 28c, down 12.5 per cent annually, well below its 40c around June 2020. It has 3623 million shares on issue, giving a market capitalisation of $101m, making it the smallest listed property vehicle on the NZX.