Abacus Scales in Storage Bodes Well in a Consolidating Industry. FVE Increases to AUD 3.85

We have upgraded our fair value estimate for no-moat-rated Abacus Property Group to AUD 3.85 from AUD 3.70. The increase in our fair value is primarily due to raised assumptions for the amount of capital allocated to acquiring and developing more attractive self-storage assets. Abacus is in the early stages of exiting its higher-risk residential development activities and redeploying the capital to lower-risk self-storage assets. Relative to other commercial property assets, self-storage is high yielding, with the weighted average capitalisation rate of Abacus’ portfolio 7% at December 2018. Investment in new developments and expansions will typically generate yields above 8.5% and 15%, respectively. We have also factored in a reduction in Abacus’ corporate overheads as the firm reduces exposure to property ventures. Abacus currently screens as moderately undervalued, currently trading at AUD 3.65.