Release Date: August 20, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Achieved DPS guidance at $0.056 per security, equating to an attractive yield of over 8.5%.
- Occupancy levels maintained at a strong 98%, with income underpinned by major retail and healthcare anchor tenants.
- Like-for-like net operating income rose by 4.8%, demonstrating growth.
- Successfully executed a share buyback program, repurchasing $8 million worth of securities.
- Gearing reduced to 33.5%, providing flexibility for future opportunities.
Negative Points
- FFO for FY24 stands at $28.6 million, reflecting a reduction due to asset sales.
- The cost of debt is managed at a competitive 4.83%, which may still be considered high in a challenging interest rate environment.
- Divested six assets at a modest discount to book value, indicating potential valuation concerns.
- Guidance for FY25 is lower, with a range of $0.05 to $0.052 per security, reflecting higher borrowing costs.
- The transition to 80% healthcare weighting may take 12-24 months, indicating a period of strategic adjustment.
Q & A Highlights
Q: Just on your rerate to 80% healthcare, it's pretty tight in terms of selling down into retail assets, or will you be looking to acquire some more healthcare?
A: This is something that we expect to occur realistically over a 12- to 24-month period, possibly a little bit longer. We will be carefully considering select retail assets to dispose of that do not have a genuine healthcare or social infrastructure overlay. We do see quite a range of deal flow opportunities in the healthcare side and will reassure investors about that this week. Many of our discussions are occurring off-market, so it's not widely known what these deals are, who they are with, and what they represent.
Q: You divested more assets in the second half, buybacks ongoing. How do you view what your best use of capital is while also trying to balance potential acquisitions and the value-add program?
A: The priorities for the capital are: number one, reducing debt; number two, completing the buyback, which we've assumed goes to December; and number three, looking for accretive acquisitions. We have been managing the balance sheet by chipping away at debt and executing the buyback, and as we move through the last stage of the cycle, accretive acquisitions will become more compelling.
Q: Can you provide more details on the divestment program and its impact on the portfolio?
A: We have progressed through the divestment program, selling $84 million of assets or in division of a further $100 million identified for disposal this financial year. The assets sold have shown only a small discount to book value. The divestment program focuses on assets that have progressed through the value-add lifecycle, providing opportunities to deploy proceeds into accretive strategies.
Q: How are you managing the cost of debt and interest rate fluctuations?
A: We have successfully managed our weighted average cost of debt at a competitive 4.83% for FY24. Hedging was extended in July 2024 to cover the next two years, aligning the maturity of our debt facility. We have controlled debt costs and maintained a marginal cost of debt at BBSY of 145 basis points, ensuring prudent management of our debt obligations.
Q: What are the key leasing milestones achieved recently?
A: Significant leasing milestones include a new 10-year lease at Mowbray, which includes increased space rent to capture turnover rent, and the expansion of tenancy housing at Broadway Plaza with a renewed 10-year lease. These deals have improved the valuation of these assets and contributed to the portfolio's growth.
Q: Can you elaborate on the strategic shift towards healthcare and its rationale?
A: The investment case for healthcare is compelling due to greater access to stock, enhanced cross-sectional advantage, and a wider range of operator relationships. The healthcare portfolio provides significant shareholder benefits through a longer WALE, lower income volatility, and lower capital volatility. We believe this shift will stimulate interest from a wider range of investors and enhance our proposition.
Q: How do you plan to balance the portfolio between healthcare and retail assets?
A: We do not intend to walk away from retail entirely but rather seek and deliver masterplan alternatives that introduce genuine healthcare or social infrastructure as part of the scheme. The remainder of the fund will comprise retail assets that can contribute a genuine healthcare or social infrastructure overlay and other uses such as medical storage, lab space, and life sciences research.
Q: What are the near-term activities and results in capital management?
A: We have extended our $75 million hedge from September 2024 to September 2026 at a fixed rate of 3.595%. We have increased the headroom to circa $100 million post-dispositions, further strengthening our liquidity position. Our strong financial foundation and strategic initiatives have positioned us well to navigate future challenges and growth opportunities.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
