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Steady year finishes with dividend maintained

Asset Plus Limited is pleased to announce its financial results for the year ended 31 March 2019, reporting net profit after tax of $3.80 million, up from $3.095 million in the previous year.

Operating performance over the past year was steady on a like for like basis for the three existing assets. When combined with the effect of the sale of the AA Centre in July 2018, this resulted in adjusted funds from operations decreasing to $4.74 million for the year compared to $6.15 million in the previous year. This decrease was due to an underutilised balance sheet following the sale of the AA Centre but partially offset by savings from the externalisation of management.

Asset Plus Chairman, Bruce Cotterill said “The last 12 months has been a period of ongoing transition for the company, including the change to an external manager, Augusta Funds Management, but also the shift in focus to a value-add strategy. The first step in implementing that strategy has now been taken with the 35 Graham St acquisition. Our patience has been rewarded with what we consider to be a quality acquisition and we look forward to discussing this further with shareholders at the special meeting on 17 June 2019.”

Other key points from the year are:

• A final dividend of 0.9 cents per share has been declared, maintaining dividends for the 2019 financial year at 3.6 cents per share.
• Portfolio occupancy is 96.7% which is reduced from 97.4% due to the sale of AA Centre.
• The WALT is 5.5 years which is increased from 4.4 years at 31 March 2018 due to the 8 year Countdown renewal at Eastgate, the sale of AA Centre and leasing completed at Stoddard Road.
• Loan to value ratio is 8.5% (26.6% at 31 March 2018).
• Net tangible assets (NTA) of 69.4 cents per share are reduced from 70.6 cps due to an unrealised loss on revaluation of investment property and a realised loss on disposal.
• $34 million of debt was repaid post the AA Centre sale, providing balance sheet capacity. Interest rate swap contracts were also cancelled.

Strategic update

The Board is committed to growing the portfolio in a disciplined manner, with a primary focus to close the gap between share price and NTA.

The proposed 35 Graham Street acquisition fits within Asset Plus’ “value-add” investment strategy. The purchase price represents a strong initial yield of 6.85% but the property has considerable potential for re-positioning at the end of the two-year lease term. Potential re-development options range from a simple refurbishment and re-leasing of the existing floors through to the addition of a further two to three levels of office space. A notice of meeting to vote on the proposed acquisition has also been released today.

An off market approach to acquire the Heinz Watties’ property has recently been received and a period of exclusivity has been granted for the purposes of due diligence. A further announcement will be made following the expiry of the exclusivity period if a sale and purchase agreement is entered into. The potential effect of this sale is discussed further in the notice of meeting released today.

The Board remains patient in the current market to ensure Asset Plus finds the best investments which it believes provide appropriate risk-adjusted returns and align with the new strategy.

Portfolio update

Seven lease renewals were completed at Stoddard Road, covering 21.5% of the rental income. As a result, the WALT for the property increased to 4.02 years (from 3.76 a year ago) and the valuation increased to $39.5 million (from $38.0 million a year ago).

The Heinz Watties Distribution Centre in Hastings saw an increase in valuation to $29.1 million following a rent review during the year (from $27.3 million a year ago). There remains 7.9 years to run on the lease to Heinz.

Countdown has exercised a 4 year right of renewal (RoR). A further 4 year RoR has been agreed subject to payment of the landlord contribution towards works within the tenancy. This contribution has been accrued in FY19. Other key lease renewals during the year include Postie Plus, Paper Plus, Sushi Time, Number One Shoes and Westpac. However, two tenants (NZ Post and McDonalds) also left the Centre. As a result the WALT was 5.07 years (up from 4.70 years) and the valuation decreased from $58 million to $54.5 million.

Financial result

Net profit after tax for the year ended 31 March 2019 is $3.80 million ($3.095 million in the prior year). The prior year was impacted by larger portfolio valuation write-downs and losses on disposal. Adjusted funds from operations for the year were $4.74 million ($6.15 million in the prior year). The reduction in operating earnings was driven by the sale of the AA Centre, offset against reduced funding costs and lower corporate costs under external management. There was also an increase in leasing incentives payable.

Net revenues from the property portfolio have again been flat with no material rental growth in respect to the like for like portfolio. Net rental income reduced by $2.55 million primarily due to the impact of property divestment (AA Centre in July 2018 and 17 Print Place in March 2018). The income reduction was offset against a reduction in funding costs of $1.74 million as $34 million of debt was repaid and the facility limit reduced from $70 million to $20 million.

Administration costs reduced due to the impact of externalisation and the property divestments.

A loss on revaluation of investment property of $1.77 million was recorded, driven primarily by a reduction in the market rental at Eastgate, partially offset by growth at Stoddard Rd and Heinz.

A formal agreement has now been reached with the purchaser of the AA Centre to complete the outstanding stairwell works and a loss on disposal of $0.91 million has been recorded for the year.

Balance Sheet

Debt is currently drawn to $10.5 million which represents a LVR of 8.5% (26.6% in the prior year). Gearing is expected to increase to 38% post the 35 Graham Street acquisition.

NTA is now 69.4 cents per share (down from 70.6 cps in the pcp) driven by the unrealised revaluation loss as well as the realised loss on disposal of AA Centre.

Interest rate swap contracts were terminated during the year as $34 million of debt was repaid on the back of the AA Centre divestment.

Dividend

A final quarter dividend of 0.9 cents per share has been declared, with the record date set for 13 June 2019 and payment on 20 June 2019.

Total dividends paid for the year are 3.60 cents per share which is consistent with guidance.

The dividend is subject to quarterly review, and ongoing assessment taking into account potential future acquisitions, balance sheet utilisation and funding for future developments.

Outlook

The potential acquisition of 35 Graham Street fits with the value-add strategy and restores near term earnings as the balance sheet is more effectively utilised. Management will remain focused on securing further acquisition opportunities and continue to identify opportunities to optimise the existing assets.

The Board is pleased with Augusta’s performance as manager and the progress they have made on formulating and executing a new strategy for the Company. The ultimate aim is to provide sustainable growth in total return for shareholders over the longer term.

ENDS

For further information please contact:

Bruce Cotterill
Chairman, Asset Plus Limited
021 668 881

Mark Francis
Managing Director
Augusta Funds Management Limited, manager of Asset Plus Limited
(09) 300 6161

Simon Woollams
Chief Financial Officer
Augusta Funds Management Limited, manager of Asset Plus Limited
(09) 300 6161