Listed landlord Asset Plus suffered a 78 per cent interim net profit after tax drop, from $11.5m to $2.5m and it has downsized a $350m Auckland CBD office project because of the pandemic.
Investment property revaluation gains of $8.87m were booked in the half-year to September 30, 2020 but devaluations of $100,000 were recorded in the latest period to September 30, 2021.
"Profit and other comprehensive income net of tax for the period ended September 30 is $2.52m, $9.01m or 78 per cent lower than the prior year, primarily due to property revaluations which took place in September 2020," the company said today.
At 35 Graham St in Auckland, the company has significantly scaled back plans: instead of adding three extra floors and substantially more car parking to create an asset with a potential end value of $350m, Asset Plus will probably just do up the existing building.
That is a major turnaround and a reversal of the position where it had decided to go ahead only recently.
That is because of the pandemic's effects on office workers and the leasing market, more subdued than previously when the company conceived the plans.
"Given market parameters and the recent impacts of Covid-19, it is highly likely that a modest refurbishment of the existing building will be pursued. This will likely be progressed in part, irrespective of any tenant pre-commitment," the company announced today.
"The re-emergence of Covid-19 has again subdued leasing activity and business confidence; however management continue to look through the short-term impact of the virus, acknowledging that real estate is a long-term investment and the office plays an integral role in the large majority of companies' accommodation strategies," it said in the investor presentation on the CBD property previously tenanted by Auckland Council.
Gross rental revenue fell from $6.64m to $6.49m and direct property-owning expenses rose from $1.9m to $2m.
Adjusted funds from operation fell from $2.65m to $2.57m.
Administration fees were also higher due to management fees charged on the portfolio, largely as a result of Munroe Lane development spend at Albany where Asset Plus has its biggest construction project in process.
The business has two big developments: it has started at Munroe Lane at Albany where it is building the new Auckland Council northern service centre. It is soon to start at 35 Graham St which has most recently been used as a Covid vaccination centre.
As well, it owns Christchurch's Eastgate shopping centre, and property in Stoddard Rd and Kamo.
It has unconditionally sold Eastgate but the settlement has been deferred to April 1 next year.
But the business flagged pandemic issues with leasing 35 Graham St.
Resource consent for the development, adding three extra floors, was granted early this year. A variation of that consent was approved for more parking and to increase the floor-to-floor heights.
Colliers are the master leasing agent and are "actively pursuing all tenants with expires or renewals within the forecast completion window for both the preferred development option, as well as the smaller-scale refurbishment option", Asset Plus said today.
Net revenues from rental dropped after the council left the Graham St offices where it was half what it had been.
Asset Plus gave its tenants rental abatements and relief which reduced operating income 2.1 per cent.
The company, whose managing director is Mark Francis, expects to give tenants $500,000 rent abatements and relief for the full 2022 year. But it said that loss would be partially offset by more income from other operations.
The Munroe Lane project has been hit by lockdown delays.
The completion date was to be next December but that has been delayed through extension of time claims. Practical completion is not due till March 2023.
No liquidated damages are anticipated.
The impact of the August to September lockdowns "was [the loss of] 25 working days, back-to-backed as a delay event. Actual costs of the shutdown totalled $372,000 and will be funded from the project's contingency".
"Icon Construction and subcontractors operating at approximately 75 per cent to 80 per cent capacity under level 3 restrictions, which will delay the project further. Project progressing in line with budget," Asset Plus said today.
The company, chaired by Bruce Cotterill, is trading around 29c, down 9.4 per cent annually and well below its 65c in January last year before the pandemic hit.
It has a market capitalisation of $107m.