FFO swung to $3.2m profit but NTA fell 5.2% as capex drained cash

Capital expenditure on investment properties stepped up to NZ$3.9m, versus NZ$0.1m the prior year, primarily on Munroe Lane.

Cash holdings fell NZ$4.0m to NZ$6.9m. Total assets closed at NZ$113.0m, sitting below Annolyse's historical baseline of NZ$190.6m, which reflects the FY25 disposal of 35 Graham Street and the associated debt repayment. NTA per share fell 5.2% to NZ$0.307 as equity declined NZ$6.1m on the FY26 loss. PBT and NPAT losses narrowed in absolute terms, though a basis-discontinuity caveat from the portfolio change limits clean growth-rate comparison.

FFO of NZ$3.2m and AFFO of NZ$0.2m, with OCF of NZ$3.1m, mark a clear step-up versus the transitional FY25. For a property issuer, FFO is the cleaner cash-earnings read than statutory profit, and FY26 is the first full year since external bank debt was repaid.

Capex absorbed all operating cash and more. Spend of NZ$3.9m equaled 59.3% of revenue and exceeded both FFO and OCF. Pre-lease free cash flow was NZ$-0.8m — far better than the historical baseline mean of NZ$-25.0m, but still negative — and cash declined to NZ$6.9m, narrowing the buffer for further development without external funding.

Book value is still drifting lower despite the cash inflection. Equity fell NZ$6.1m on the FY26 loss, taking NTA per share down 5.2% to NZ$0.307. The accounting loss sitting above the FFO line implies fair-value or non-cash charges are diluting book value even as cash earnings recover.

Second-half shape is unusually skewed: HY26 reported a NZ$1.6m profit, and the full-year NZ$3.2m loss implies an H2 loss of roughly NZ$4.8m, indicating that the bulk of the FY26 fair-value or other non-cash charges landed in the second half rather than spreading evenly.

Occupancy at 75.6% includes the unconditional MILK Orthodontics lease, which is yet to commence. That leaves rental income with disclosed upside once the tenancy is income-generating. Without forward income, AFFO, or distribution targets, the read on FY27 has to come from occupancy progression, Munroe Lane capex run-off, and the next valuation cycle rather than from disclosed guidance.

Debtor days at 0.6 sit at the lower edge of the supplied historical range, working-capital movement is neutral and within Annolyse's historical baseline, and the OCF swing is driven by the rental portfolio rather than a one-off working-capital release. That supports treating the FFO line as recurring rather than timing-assisted.

What does not look durable in the headline is the NPAT outcome, which is heavily shaped by the implied H2 charge not visible in revenue or cash. The FCF-to-NPAT ratio of 25.5% is mathematically improved but reflects two losses rather than a healthy conversion. The effective tax rate moved to 12.2% from 0.0%, contributing to a NZ$0.4m gap between PBT and NPAT outcomes; both PBT-growth and NPAT-growth categories carry a basis-discontinuity caveat from the 35 Graham Street disposal, so absolute-dollar improvement is the cleaner read than percentage growth. The NZ$4.0m cash drawdown to fund capex means liquidity, not earnings, is the binding constraint.

This briefing cannot assess the underlying property valuations, lease economics, or Munroe Lane cost-to-completion that would determine whether the FFO step-up extends into FY27.