ASX-200 stock Abacus Group (ASX: ABG) has forewarned the market to expect a 6.5% drop in the previous book value for the six months to 31 December 2023, when the group’s HY24 results are released on Tuesday, 27 February 2024.
According to preliminary draft valuations on 71 properties or 37% of its portfolio (including both internal and external valuations) the group is estimating a total decrease of $140m.
The weighted average capitalisation rate (WACR) across the Group included:
- Property portfolio increased 37 basis points to 6.1% since 30 June 2023.
- Office portfolio increased 42 basis points to 6.0%.
- Retail portfolio increased 21 basis points to 6.4%.
The recent preliminary draft valuation update follows some curious dynamics in mid-August when the market pushed the group’s share price up 8% despite a significant profit crash.
Investors undeterred by previous revaluation
Despite posting a 14.1% increase in FY23 revenue to $400.7m and reconfirming its FY 2024 guidance and expected distribution (8.5 cents per Abacus share), the group reported a net profit after tax of $25.5m, down a whopping 95.1% from $517.2m a year earlier.
But to put this result in context, it was driven by an unfavourable change in the fair value of investments and derivatives.
The FY23 revaluation process resulted in the commercial investment property portfolio (comprising 21 assets) reducing in value by $248m or 10.5%.
The valuation decline was predominantly driven by the 38 basis points of cap rate expansion to 5.71%.
Self-storage
Meanwhile, the FY23 revaluation process also resulted in the property portfolio of its recently spun-off self-storage investment, Abacus Storage King (ASX: ASK) – comprising 131 assets – increasing in value by $150m or 6.1%.
The short to medium-term development pipeline (comprising 18 development sites) is understood to have an estimated completion value of $579m with an NLA of 117,000 sqm and an estimated cost to complete of $268m.
In addition, the portfolio is said to have $41m of expansion opportunities covering 18,400 sqm.
Strong FY24 outlook
Following the FY23 result, managing director, Steven Sewell reassured investors that both Abacus and Abacus Storage King are well positioned to leverage key enablers and deliver recurring income and value creation over the medium to long term.
“In a more challenged economic environment, where higher inflation combined with restrictive monetary policy settings is impacting capitalisation rates throughout the Commercial property sector, we remain focused and disciplined on directing capital towards assets that provide potential for enhanced income growth and the creation of medium to long term value,” said Sewell.
Image: The group’s recently spun-off self-storage investment, Abacus Storage King increased in value by $150m or 6.1% following the FY23 revaluation process.
