Abacus Property Group: Result 2012
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Abacus Property Group owners have recently banked another 8.25 cent per security final unfranked distribution (ex date already passed). This brings the annual total to 16.5 cents, in line with last year, placing Abacus on a 8.1% yield. Underlying earnings for the year increased 7% to $76.9m but fell on a per security basis due to new securities on issue following Abacus’s merger with the Abacus Storage Fund (see Abacus and Storage Fund to merge from 18 Jan 12 (Long Term Buy – $1.90)).
| Year to 30 June | 2012 | 2011 | Change (%) |
|---|---|---|---|
| Underlying profit ($m) | 76.9 | 72.2 | 7 |
| Underlying EPS (cents) | 19.2 | 19.4 | -1 |
| DPS (cents) | 16.5 | 16.5 | 0.0 |
| Gearing^ (%) | 28.6 | 25.8 | 2.8* |
| Occupancy - Non-storage (%) | 94.3 | 92.8 | 1.5* |
| Occupancy - Storage (%) | 82.1 | 83.6~ | -1.5* |
| Rent growth - Non-storage (%) | 3.7 | 3.0 | 0.7* |
| NTA ($ per security) | 2.34 | 2.43# | -4 |
| ^ net debt to assets, ~ December 2011, # Adjusted to reflect adoption of AASB 10, * Absolute change | |||
The value of its investment property portfolio fell marginally as capitalisation rates increased to reflect the subdued property market, resulting in lower net tangible assets per security of $2.34. That said, the fundamentals of the portfolio remain sound; rent increased 3.7% over the period and occupancy (excluding storage) increased to 94.3%. This augurs well for future distributions. The newly integrated storage portfolio was also able to increase rents but occupancy dropped.
Abacus continues the process of unwinding its unlisted funds business. Progress has been made on asset sales in its Hospitality Fund, with Abacus selling the Diplomat Hotel in Canberra for around book value. Additionally Abacus sold around $150m worth of investment property, at above book value, to release cash to invest in higher quality property. Joint ventures, such as its agreement with Heitman, are the group’s preferred vehicle for new purchases as they enable it to develop a more diverse portfolio whilst using less capital.
Gearing at a group level increased over the period to 29% due to the integration of the more highly geared storage portfolio, and we’d prefer to see it closer to 25%.
Whilst the property market remains subdued active manages such as Abacus are likely to add the most value. The fall in NTA though, highlights why we’ve been conservative on valuation, preferring to buy at a steep discount to NTA. At a current discount to NTA of around 13% we’re forgoing upgrading until a wider margin emerges. The security price has risen 7% 13 Jun 12 (Hold – $1.90), HOLD.
Note: The Growth and Income portfolios own securities in Abacus Property Group.
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