Australian Unity Office Fund (ASX:AOF) is Yield Play with a Difference

Australian Unity Office Fund (ASX:AOF) is a yield play that’s hard to ignore. This interview with Jason McIntosh appeared on Ausbiz on 8 April, 2021.

Host: So tell us about Australian Unity Office Fund. Now, this is interesting given what commercial property has been through.

Jason: AOF is a small to mid-tier office fund with a market cap of around $380 million. It’s a yield play with a potential recovery growth angle. The fund owns nine properties across Brisbane, Sydney, Melbourne, Canberra and Adelaide. Most of this is office, with a bit of warehouse.

I think the big question is: what’s the recovery in office space usage going to be like? It’s a big unknown. We don’t know what the office environment is going to be like in the future. But I think a lot of that uncertainty is already priced in. And that’s why the share price is well off its highs.

When you look at the fundamentals of the company, it’s got a yield of a little over 6% and it’s trading at a 15% discount to NTA. And this isn’t unique to AOF. Some of the other office players also have similar numbers, so office could be like an interesting space generally.

But what caught my eye with this one is that out of the office trusts I’ve looked at, it’s got the most interesting emerging momentum profile, and that’s what got my attention.

The RBA is saying no rate hikes until 2024 so when you look at it from that perspective, a 6% yield is hard to ignore. And even if we just see an unwinding of the discount to NTA, you’ve got growth potentially as well.

Office does come with risk. But I think with the current pricing, that risk is largely minimised. I think there’s a good total return story there over the next couple of years. And if the pendulum continues to swing back towards a more normal open economy, the office property trust space, AOF in particular, could be well worth looking at.

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