Stoddard Road sale sharpens Asset Plus' cash-flow test

Rental revenue fell 46.6% to NZ$6.4m as divestments and a key tenancy vacancy stripped out income that the prior year still carried. Both the revenue contraction and the PBT swing sit materially below Annolyse's historical baseline for Asset Plus (3-period mean revenue growth -0.9%, range -16.4% to 27.9%; PBT growth mean -8.2%).

Gross borrowings rose 28.1% to NZ$71.4m and total liabilities rose 27.4% to NZ$83.0m, while equity fell 8.2% to NZ$146.5m on the loss. Total assets edged up 2.1% to NZ$229.5m, above the company's historical range (mean NZ$177.7m), reflecting capex of NZ$58.2m poured into development. The declared final dividend was 4.04 cents per share, down from 4.40 cents.

• Management attributes NZ$13.04m of the result to revaluation and disposal losses on top of reduced rental income from divestments and the 35 Graham Street vacancy. This means the headline loss is largely a mark-to-market and exit story rather than an operating cash deterioration, but it has nonetheless erased reported equity at the rate of roughly NZ$13.0m in one year.
• Leverage stepped up materially while the income base shrank. Gross borrowings climbed NZ$15.7m to NZ$71.4m to fund development capex, even as rental revenue halved. Net debt of NZ$66.5m now sits against a smaller, more concentrated income stream, which raises the importance of development delivery and lease-up timing for debt servicing capacity.
• ROE turned sharply negative at -8.9% versus +1.8% prior, below the company's historical range. With NTA per share at NZ$0.404 (down 8.2% from NZ$0.440), the asset base is being reshaped faster than it is earning, and the dividend cut signals the board recognises that.

The available forward context is qualitative: practical completion of the Munroe Lane development was targeted for late April 2023, and debt facilities are renewed to 31 March 2025. Both items matter because the FY23 result is essentially a transition-year print, and the FY24 income line depends on Munroe Lane stabilising and on whether redeployed capital from disposals is reinvested or used to retire debt.

The HY23 interim showed NZ$0.29m of profit on NZ$4.3m of revenue, meaning the second half implies a NZ$13.3m loss on just NZ$2.1m of revenue. That is consistent with revaluation losses crystallising at year-end rather than a clean operational run-rate.

Operating cash flow actually rose 20.7% to NZ$2.7m, and receivable days improved to 1.5 from 16.8, so the cash-collection side of the rental book held up despite the income decline. The NZ$13.0m loss is therefore not a cash-quality event; it is a fair-value and disposal-loss event sitting in the income statement.

That said, the FCF picture is poor on an absolute basis. Pre-lease free cash flow was negative NZ$55.5m, below the company's historical range (mean NZ$-14.8m), driven by NZ$58.2m of investment-property capex. The capex-to-revenue ratio of 912.8% reflects that FY23 is a build year with the income base not yet rebuilt. The working-capital release of NZ$0.5m is favourable versus history but small and likely not repeatable. Investors should not read the OCF improvement as underlying earnings strength; it reflects timing of collections on a shrinking rental footprint.

This briefing cannot assess the durability of FY24 rental income, the realisable value of remaining non-core assets, or covenant headroom, because none of those are quantified in the supplied disclosures.