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Strong performance from commercial properties and an upbeat storage business have rung in a solid half-year performance for diversified property group Abacus Property, despite minor settlement issues in their residential projects.
Revenue for the group in the half-year to December 31 grew 47 per cent to $292 million, and net profit rose 2.5 times to $191.7 million. Abacus' share price rose to $3.03 from Thursday's close of $2.98.
Abacus' $1.1 billion core business – its commercial portfolio of retail, industrial and office assets – was the top performer, delivering $50 million to earnings before interest, tax, depreciation and amortisation, at a capitalisation rate of 6.9 per cent.
The company acquired two assets for $90 million in the period including a 50 per cent stake in office building 324 Queen Street, Brisbane, for $66 million.
"Increased recurring and transactional contributions to underlying profit from our commercial and storage portfolios offset a slight reduction in the quantum of profits from our development projects due to the timing of development realisations after a strong 2016," managing director Frank Wolf said.
Those development projects include the group's house and land projects in NSW. The 15-hectare 450-lots Riverlands has just been approved and the rezoning at Camellia in Parramatta is still ongoing.
While it was slow to get housing projects off the blocks, they offered great value to the business, especially with affordability worsening, Dr Wolf said.
"You can look at what the surrounding lots [in Riverlands] are achieving. But the regulatory control in NSW is very slow and the amalgamation of councils is chaotic at the moment, [and will remain so] until that normalises and it will normalise. And the new NSW premier is focused on this."
"Gladys' approach to housing affordability is about increasing supply of apartments."
"Whether she is right or wrong that supply is the solution, there's no question that is the path she is pursuing and these big sites are strategic to her objectives."
Aside from affordability,Abacus, like other developers, had also run into a few glitches.
The company booked solid profits for The Prince apartments in Canberra and Spice apartments in South Brisbane in the half-year results, but 10 units at the 274-unit Spice defaulted prior to settlement. Five resold with no difficulty, Dr Wolf said.
"One of the lessons we've learnt is to offer assistance to buyers to achieve finance and in our projects in Melbourne and Brisbane, The Eminence and Merivale [Street] we've engaged a specialised settlement group, to ask each buyer about their ability to settle," he said.
"So far the noise about settlement issues is far from reality but we are not taking that for granted."
That said, Abacus will consider fewer residential projects.
"So much of our money is in Riverlands and Camellia, once we deal with those sites, we can re-weight our exposure," Dr Wolf said.
Its self storage business also stood out – its EBITDA contribution rose 19.5 per cent to $19 million and rental growth was up 17 per cent.
The group plans to add more assets with a "buy and hold strategy".
"Storage is one of the biggest beneficiaries of urbanisation … when we see more of the affordability issue and living close to the city, storage becomes more important. That is why we [are] buying sites that have enormous upside that are close to the city," Dr Wolf said.
The company has declared a half-year distribution of 8.75¢ a stapled security.