Abacus Property Group profits up, but prospects are sedate

One property investment fund and developer showing growth recently in this weak economy is Abacus Property Group (ASX: ABP). It announced a total of $$243.2 million in revenue, up 53.2% from $158.7 million last year. Net profit after tax was up from $8.5 million to $61.05 million.

The real estate investment trust and stapled security’s distribution for this year was 16.5 cents per share, in line with the 16.5 cps paid previously. Basic earnings per security were 13.68 cps, compared with only 2.11 cps in 2012.

The company reported that the increase in net profit was mostly due to a $53 million movement in the fair value due to interest rate swaps in the previous year. These interest rates swaps were established to fix the cost of borrowings, and for this year have led to a larger profit for the company as a whole.

It stated that the tough leasing conditions and the higher market incentives that are used to attract leasing tenants means that for the short-term the market is still somewhat subdued. However, within these conditions, it has been able to acquire properties that were mispriced from relative market valuations. In the medium-term, it sees the commercial property market improving by better economic levels and increased employment.

The commercial portfolio is currently made up of 47 properties with a total value of $888 million. The property segment resulted in revenue of $64.1 million, up 15%. Tenant occupancy rate was 92.8%. Office leasing conditions have been tough, especially in South East Queensland.

Companies like Stockland (ASX: SGP) and GPT Group (ASX: GPT) also are experiencing this slow grind of small improvements despite low borrowing interest rates.

This is expected to continue, with market expectations for incentives rising in Sydney also. Weak business confidence has made it more difficult to achieve positive rental growth and occupancy.

Looking forward into the new year, the company anticipates that rental income will increase as the acquisitions made within this year deliver expected returns.

The stock is part of the S&P ASX 200 A-REIT Index (ASX: XPJ), and since July 2012 has gone up 8.2% to $2.25 compared to that index’s 13.4% increase over the same period.

Foolish takeaway

Property is cyclical and when you are waiting for the turn upward, it may seem like forever. Yet property increases in the long term by an average of 8%-10%, so look for companies that can keep high, steady income averages over the inflation rate, and over time you’ll get paid well for it.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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