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Australian Unity Office Fund FY17 Report


Summary

Australian Unity Office Fund released its annual results on Tuesday announcing that it exceeded its forecasts in income and capital growth. In a clear case of under promise and over delivery, the Fund achieved a Statutory Net Profit of $60.6M, up from their PDS forecast of $18M, though predominantly due to an increase in market valuations of $48.3M.

AOF contains a portfolio of 8 commercial assets containing 97,580 sqm with a total value of $441M.

AOF achieved a 4.2% increase above its PDS Forecast in FFO to 17.1 cpu and increased its NTA from $1.96 to $2.23 as a result of an uplift in valuations.

The Fund is trading at approximately $2.27 per security.

Funds from Operations

The Fund generated FFO of $24M which is an increase of $900K on the PDS forecast. The improvement in FFO was primarily a result of better than forecast leasing outcomes which contributed to $1.9M in additional revenue, and lower than forecast borrowing costs -$380k. These gains were offset by lower than planned adjustments for tenant incentives and leasing commissions.

Balance Sheet

The Balance Sheet showed a positive variation of $39.5M due predominantly to $48.3M in valuation gains (CapEx+Fair Value Adjustments), but offset by reductions in cash (-$6.4M), higher distributions ($-4.8m) and higher borrowings ($-4.7M).

The increase in valuation was mainly driven by cap rate compression with the average cap rate moving from 7.8% in Dec 16 to 7.5% in June 17.

Portfolio

The portfolio comprises assets across most states with a higher concentration in NSW and SA. The NSW assets (which comprise 50% of the portfolio) are located in secondary markets of Parramatta and Macquaire Park, mostly with single tenant exposures.

One of the key risks in the portfolio is the occupancy by the State Government of 100% of 10 Valentine Ave, Parramatta. The Govt have an option to hand back half of this space with notice issued prior to Dec 2018. Given that the Government are pre-committing to other new buildings in Parramatta, there is a risk this space may become vacant.

The portfolio has approximately 6.5% vacancy across the board but with a high vacancy in Brisbane (14.7%), all of which is broadly in line with the market.