Abacus Earnings grow 9% with Self Storage & Commercial expansion

18 August 2021

Abacus’ decision to strategically move towards Commercial and Self Storage assets has helped the Group achieve a 9% growth in earnings in FY21.

The Group’s results, released today show a statutory profit of $370m, up 336% from FY20, due mostly to revaluations in the Self Storage portfolio, which has grown to $2bn of assets and 48% of the total portfolio.

Abacus’ Managing Director, Steven Sewell commented “Abacus had an active year including deployment of $1 billion of capital, completion of a $402 million Entitlement Offer and internalisation of our Self Storage manager Storage King, to become a vertically integrated Self Storage investment platform.”

The growth in AUM has required additional equity which has diluted earnings per share by -5% to 18.4cps leading to a -5.4% drop in distributions to 17.5cps.

Steven Sewell said, “With 97% of total assets now deployed in Commercial and Self Storage investments, the size, nature and market positioning of these key sector investments will permit the Group to deliver recurring income and value creation over the long term.”

The Group has continued to execute on its planned repatriation of equity from legacy investments in non-core sectors and in FY21 has exchanged contracts to sell five small scale industrial and office assets for $107 million, together with repayment of $82 million of residential land and mortgages. Non-core loan assets reduced by 50% during FY21 with non-core residential now representing 3% of total assets, or $116 million.

Abacus’ Chief Financial Officer, Rob Baulderstone, commented “Following an active second half, Abacus has a solid Balance Sheet with proforma gearing of 28.3%, well within the Board’s target gearing limit of 35%. Healthy levels of liquidity position us to support future growth initiatives.”

Given the prevailing market conditions, the Abacus Board expects that the FY22 full year distribution will reflect a payout ratio broadly in line with the target range of 85 – 95% of FFO, but have not provided specific guidance as to this likely amount.

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The REIT commenced the year with a security price of $2.68 against a NAV of $3.32 (-19% discount to NAV) and closed the year at $3.15 against an NAV o $3.43 (-8% discount to NAV). The REIT provided a 17.5c distribution for FY21, equating to a 6.5% yield, which together with a 17.5% lift in unit price would provide investors with a total return of 24.1%.

Key financial and operational highlights for the period are:

Financial highlights:

Group statutory profit of $369.4 million in FY21, up 336% from $84.7 million in FY20
Abacus Funds from Operations (FFO) of $136.4 million, up 9.5% from $124.6 million in FY20
FFO per security of 18.4 cents, down 5.1% from 19.4 cents in FY20
Second half distribution increased by 5.9% to 9.0 cents, following strong operating performance from the Self Storage sector
Full year distribution per security (DPS) of 17.5 cents, down 5.4% on FY20
Distribution payout ratio was 95% of FFO
Proforma gearing at 28.3%, up 180 basis points on FY20
Net tangible assets (NTA) per stapled security of $3.43, up 3.3% from $3.32 in FY20

Portfolio update

Over the course of FY21 and including some post balance date transactions, Abacus has successfully deployed $1 billion of capital into the key sectors of Commercial and Self Storage. This was achieved through a series of acquisitions and joint ventures, funded by a combination of non-core disposals, debt and the December 2020 equity raising. These investments include:

Self Storage – $271 million of store acquisitions and other Self Storage investments including the remaining 75% of our storage operator, Storage King
The Oasis Centre, Broadbeach QLD – acquired the remaining 60% portion for $103.5 million which now takes Abacus to full ownership of the asset
241 Adelaide Street, Brisbane QLD – acquired a 50% interest for $31.8 million
710 Collins Street, Melbourne VIC – entered into a development JV with Walker Corporation to jointly plan development and own the asset where Walker acquired a 50% interest for $56 million

Post balance date:

Sydney Self Storage Portfolio – acquired a portfolio of five assets located in the premium inner Sydney Significant Urban Area for $160 million
Myer Melbourne, Melbourne VIC – acquired a 33.3% interest in 314-336 Bourke Street, Melbourne VIC for $135.2 million

Self Storage portfolio

FFO contribution increased 15.5% on FY20 to $69.6 million.
Portfolio valuation increased by $227.9 million or 19.0%, cap rates compressed 84 basis points to 5.74%.
Self Storage portfolio is valued at $2.0 billion with the number of stores expanded to 100.
RevPAM increased by 6.3% across the established portfolio over FY21, driven by quality of locations and operating platform strength.
Passing yield of 5.8% on established portfolio valued at $874 million.
Multi-pronged growth strategy with $575 million5 invested, including acquisition of the remaining 75% of operating platform Storage King in November 2020.

Commercial portfolio

FFO contribution increased 23.9% on FY20 to $86.9 million.
Portfolio valuation increased by $9.5 million or 0.5%, cap rates compressed 11 basis points to 5.50%.
Commercial portfolio is valued at $2.1 billion.
Active leasing and asset management strategies delivered:
- Office net property income growth of 16% to $69.2 million, and
- Retail net property income growth of 26% to $11.0 million.
Rent collection resilient in COVID-19 context with 98% of office and 97% of retail rents collected in FY21. $1.2 million and $0.8 million of waivers were provided in the office and retail portfolios respectively.

Valuations:

Overall, the total property portfolio has increased by approximately $854m to $3.79bn for the period, driven by $616m of net acquisitions and $237.4 million in property revaluation uplift.

At the end of the period, the portfolio weighted average capitalisation rate firmed 35 bps during the period to 5.65% as at 30 June 2021.

Capital

In December 2020, Abacus completed a fully underwritten 1-for-4.8 Accelerated Non-Renounceable Pro Rata Entitlement Offer at $2.90 per security and raised $402 million to take advantage of future growth opportunities and post balance date increased its banking facilities by $500 million on favourable terms.

FY22 Guidance

The REIT reconfirms that based on information currently available and barring any unforeseen events or further COVID-19 impacts, FY22 full year distribution is expected to reflect a payout ratio broadly in line with the target range of 85 -95% of FFO but have not provided an y specific guidance as to the amount. Assuming a distribution of 18.5cps (to match the FY20 distribution), Abacus would provide a 5.9% distribution based on the 1st July unit price of $3.15.

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