The Australian Unity Office Fund (ASX: AOF) is an Australian real estate investment trust (REIT) which wholly owns a strong diversified portfolio of nine office properties valued at approximately AUD 640.99 million as of December 31st, 2018 and with a total net lettable area of 107,604 sqm, located across metropolitan and Cannabidiol (CBD) markets in Sydney, Adelaide, Melbourne, Brisbane and Canberra.
On February 7th, 2019, the company announced Results for the 2019 Half Year, ended 31 December 2018, highlighting financial results, portfolio management update, leasing and valuation summary, market overview and the outlook for the way ahead.
Talking of the key financial metrics, the statuary net profit has been posted at AUD 13.1 million for 1H FY2019, a decline of AUD 13.2 million relative to AUD 26.3 million in 1H FY2018, due to higher valuation increase in 1H FY2018. The Funds from Operations (FFO) also stood at AUD 14.2 million and Distribution at AUD 12.9 million for the period, both up by AUD 1.1 million as compared to 1H FY2018, mainly resulting from rental hikes and impact of owning 150 Charlotte Street, Brisbane for the full half year.
The company’s total debt facilities stayed at AUD 220.0 million at the end of 1H FY2019, same as 2H FY 2018, and diversified by three separate trances and two leading banks- Commonwealth Bank of Australia (CBA) and National Australia Bank (NAB). However, the total borrowings hedged at 59.3%, and the Gearing rose marginally, reflecting capital expenditure and fitout incentives during the period. The interest cover ratio was derived as 4.65x for 1H FY 2019, well above the debt covenant of 2.0x and marginally lower than 5.05x recorded for 2H FY2018.
For the concerned period, the cash inflows from operating activities remained staggeringly high on account of sizeable rental income received. On the contrary, there were financing burns at AUD 12.6 million, majorly caused by Borrowing costs and Distributions paid out.
As of December 31st, 2018, the portfolio occupancy also increased to 95.1% along with approximately 4,600 sqm of new leases completed, depicting around 4.2% of the portfolio by area. The period also witnessed inclusion of high-end tenants like NSW State Government, Boeing Defence Australia, Telstra, Commonwealth Government. Besides, Sydney and Melbourne experienced sustained net absorption and falling vacancy rates, generating active rental growth for the period.
As per the first half year performance, AOF seems well positioned to assess value-add potential and tap into acquisition opportunities to deliver on its objectives and complement the existing robust portfolio, while reaming tactful towards company’s cost of capital. The focus is mainly on leasing current vacancy, reducing short-to-medium term lease expiry risk as well as and growing FFO. It has set a guidance objective for FFO per unit and Distribution as 17.2-17.4 cpu and 15.8 cpu respectively for FY2019.
On the Australian Securities Exchange (ASX), AOF is listed with a market capitalisation of AUD 444.53 million. With the closing of the trading session on February 7th, the AOF stock was trading at AUD 2.750, up 0.733% by AUD 0.020.
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