This article is from the Australian Property Journal archive
ABACUS Property Group (ASX: ABP) has sold off a half-stake of Emily Dobson House in Hobart, and will continue to offload non-core and residential projects, which have impacted its bottom line amid soft housing market conditions.
The group’s annual net profit slumped to $194.45 million, down from $246.96 million, while its underlying profit dropped 24% to $139.4 million. Funds from operations likewise was down 24% to $129.2 million. Total revenues and other income were down 15% to $388.2 million. Distributions for the second half was 9.25 cents per stapled security, for a total 18.5 cpss.
Last month the group raised $250 million to chase over $701 million in opportunities in the office and self storage sectors. It then purchased a 32% stake for the 201 Elizabeth St office tower in Sydney’s CBD, in a deal alongside Charter Hall and Canadian group Quadreal, who will together take the remaining 68%, and is currently in due diligence with partner Charter Hall over the acquisition of Australian Unity Office Fund.
“Following a review of current market conditions, project status and outlook, Abacus has refined its strategic direction giving prominence to sectors where we have a clear competitive advantage,” Abacus managing director, Steven Sewelll said.
“Abacus’ future capital allocation framework will focus heavily upon increasing our exposure to the self storage and office markets while reducing our exposure to retail and residential markets at this point in the cycle.”
The strategy will target longer dated, core plus office assets that can be developed into core assets and the group “would be happy to hold for the longer term”.
ABP is targeting distribution growth of 2% to 3% per annum.
The developments business segment result was down $51.8 million from $85.6 million. ABP offloaded a portfolio of three residential projects to an offshore property group at about book value. Remaining assets are in Ashfield and Erskineville, where all apartments have settled, and Ivy and Eve, a joint venture, where 456 out of 475 apartments have sold.
Commercial portfolio segment result fell 23.6% to $91.6 million, largely due to a reduction in the share of profit from equity accounted investments associated with the divestments of 201 Pacific Hwy, St Leonards and an office portfolio owned with Heitman LLC.
The portfolio is values at $1.415 billion and like-for-like rental growth across office assets was 7.1%, driven by the eastern seaboard. ABP expects Sydney’s strong market conditions that have delivered net effective rent and valuation growth to continue, and for Melbourne to absorb an elevated level of supply and maintain low vacancies upwards pressure on rents.
Acquisitions included half shares in 2 King St in Fortitude Valley for $170 million and 459-471 Church St in Richmond for $51 million, and full ownership of 28-30 Orwell St in Potts Point.
The 7,152 sqm 99 Bathurst St building, also known as Emily Dobson House, has tenants that include Simmons Wolfhagen, APRA and Sustainable Timbers Tasmania. ABP sold its half share for $22.5 million, one of several non core assets the group offloaded over the 2019 financial year. Others included a half share in another Hobart asset, the 6,365 sqm building at 79-85 Melville St, as well The Village, Bacchus Marsh, and 95 Mina Pde in Alderley and 169 Varsity Pde, Varsity Lakes in Queensland.
The self storage portfolio delivered a segment result of $100.5 million, up 3%, attributed to increases in self storage EBITDA. Portfolio assets totalled $908 million across 70 assets, with $180 million of acquisitions, developments and operating platform initiatives.
Sewell said the self storage markets across Australia and New Zealand continue to experience the impacts from several attempts to consolidate the sector.
“Following the recent institutionalisation of the market as investors increased their awareness of self storage as a viable asset class resulted in several participants investing heavily into the sector looking to increase their market share of the self storage sector.
“This increased transactional activity and heightened interest has continued to deliver strong capitalisation rate compression across the sector. It is anticipated this strong market will continue as this alternative asset class benefits from higher passing yields than high quality assets in more traditional sectors.”
Divestments of 50% interests in super convenience retail assets, Ashfield Mall in Sydney and Lutwyche City Shopping Centre in Brisbane, were completed. Like for like rental growth across the retail portfolio was 4.8%.
