Ann: HALFYR: AUG: Preliminary - Interim Financial Result to 30 September 2014

• Release Date: 07/11/14 09:33
• Summary: HALFYR: AUG: Preliminary - Interim Financial Result to 30 September 2014
• Price Sensitive: No
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					AUG
07/11/2014 09:33
HALFYR

REL: 0933 HRS Augusta Capital Limited

HALFYR: AUG: Preliminary - Interim Financial Result to 30 September 2014

AUGUSTA CAPITAL LIMITED - SIX MONTHS ENDED 30 SEPTEMBER 2014
THE HALF YEAR IN REVIEW

Augusta Capital Limited's net profit after tax increased 76% to $3.85 million
from $2.18 million in the prior corresponding period, however the
corresponding prior period result was impacted by an accounting requirement
to consolidate a short term joint venture investment that eliminated $0.83
million of revenue in that period.

Distributable profit (a Non-GAAP disclosure which represents the underlying
financial performance) increased to $3.61 million from $3.25 million in the
prior corresponding period. This increase was driven by the funds management
business with the recent completion of the Victoria Dock syndication
providing a significant boost to earnings at the end of the half year. The
result also reflected the acquisition of KCL Property and Investment Property
Titles Limited (IPT) on 1 April 2014. Offsetting this was a lower net rental
income stream as a result of material vacancy levels within the directly held
portfolio.

The company successfully completed two new proportionate ownership schemes,
which generated $3.78 million of gross Offeror's and Underwriting fees, as
well as creating $0.175 million of ongoing annual management fees. These
transactions enabled the balance of the "earn out" payment on the acquisition
of the Funds Management business to be paid.

Income from the directly owned property portfolio was reduced by the
vacancies previously indicated to the market.  However leasing success has
been notable and the benefits will flow during the 2nd half of the financial
year.

Metroclean Limited performed as expected, and provides a potential platform
for future earnings growth and diversification across the increased managed
portfolio.

Operating costs were relatively flat in the directly owned portfolio, however
with the new arrangement entered into with Bayleys Property Services
outsourced property management fees were incurred in this period. Leasing and
agency costs were incurred relating to six new leases as well as completing
three lease renewals. As at 30 September occupancy levels had increased from
84% to 94%.

Corporate costs increased for the period as a result of the KCL and IPT
acquisition. Anticipated synergies have not yet been generated as the Group
works through a transitional phase and sets a platform for growth. Transition
costs of $0.4 million have been incurred and further transition costs are
expected in the 2nd half.

Funding costs increased by $0.25 million due to the additional $7.23 million
drawdown in April 2014 to acquire the Funds Management businesses. Loan
facility fees were also incurred to provide funding to enable Augusta Capital
Limited to underwrite syndication offers as well as other costs associated
with the operation of the Funds Management business.

The Group's gearing as at balance date was 40.4%. Net asset backing per share
was 77.4 cents.

The Group's current distribution policy is to retain sufficient operating
funds to cover business as usual capital expenditure as well as funding the
contingent consideration (earn out) payments relating to the purchase of the
Augusta Funds management business in March 2012. $0.85 million of contingent
consideration payments were made during the period and the Group incurred
$1.85 million of capital expenditure principally on the refurbishment of
vacant areas at 19 Victoria Street West.

The distributable profit (Non GAAP) represents the operating earnings
generated that are available for distribution and is the key performance
measure used by the Company and which is reviewed by the Board prior to
distribution approval. It excludes non cash transactions such as asset write
offs, deferred tax, revaluation of investment property, interest rate swaps
and other fair value adjustments which are non-cash.

The result for the prior corresponding period included in the Financial
Summary excludes the impact of the Brick Street Nominees Joint Venture
consolidation and outlines the Financial Summary for the Augusta Capital Ltd
Group, being Augusta Capital Limited, Augusta Funds Management Limited and
Metroclean Limited which are wholly owned subsidiaries of Augusta Capital
Limited.

Investment Property Portfolio
Portfolio occupancy is currently 94%. Occupancy has increased from 84% in
March 2014. Six new leases have been signed generating $1.7 million of annual
net rental and three lease renewals were also completed retaining $0.3
million of annual net rental. This included a new ten year lease to Wilson
Parking of up to 250 carparks. There are promising leads on the remaining
vacant areas within the portfolio and as at the reporting date annualised
vacancy costs are $0.5m. The company's weighted average lease term (WALE) has
increased to 5.2 years from 4.8 years. The full impact of new leasing will
not be apparent until the next financial year due to the necessary lead time
associated with the completion of fit out works and incentive periods.

During the period the remaining Lambie Drive units were divested ensuring the
Group has now fully exited this non-core asset.

Portfolio Valuations
Directors have assessed that there has not been a material impact on Augusta
Capital's portfolio valuations during the six months to 30 September 2014.
Accordingly independent valuations have not been sought as at September 2014
with the next assessment at the financial year end being March 2015 for both
the Augusta Capital portfolio as well as all property assets under
management.

Proportionate Ownership Schemes - Managed by Augusta
Augusta Funds Management Limited (a subsidiary of Augusta Capital Limited)
and subsidiaries KCL Property Limited and Investment Property Titles Limited
own the management contract rights to all proportionate ownership schemes.
During the period, the Group completed two large scale property syndications,
being the Hibiscus Nominees Joint Venture and the Victoria Dock Nominees
Joint Venture, as well as some smaller private placements. During the period
5 managed properties were divested.

The Group now manages 165 property vehicles which equates to in excess of
$1.1 billion of property on behalf of 3,000 investors. Properties are spread
across New Zealand and in Brisbane, Australia.

Funds Management Performance
The Funds Management sector performed well, underpinned by the recently
completed Victoria Dock syndication with Spark (former Telecom) as the
tenant. Upfront fees of $3.8 million were generated which was a substantial
increase on prior periods and is an example of the quality, scale, diverse
range and number of deals the Group can now offer investors.

Augusta provided an underwrite on the Victoria Dock syndication and as at the
date of this report, all units have been sold contractually with the final
settlements to occur in early December 2014. The ability to underwrite
transactions enables Augusta to be more competitive in the market place when
sourcing new deals.

Management's focus is to grow the recurring income stream and funds under
management both organically and by way of acquisition. The platform created
by the recent acquisitions has created capacity to build on the level of
funds under management. Current annualised base management fees are $4.2
million with the ability to generate transactional fees in addition.

Acquisition of KCL & Investment Property Titles
The acquisition of KCL Property Limited (KCL) and Investment Property Titles
Limited (IPT) was completed on 1 April 2014. The transaction establishes
Augusta Capital as New Zealand's pre-eminent property funds manager with
approximately 165 properties and total funds under management of
approximately $1.1 billion. As a result of the transaction, KCL shareholders
Bryce Barnett and Phil Hinton have joined the Augusta Capital executive team.

The recent Victoria Dock syndication is an example of the new direction the
Group wishes to take with quality offerings. Placement opportunities will
still be made available to qualifying investors and two have just recently
been completed with another just launched and on target to settle before
Christmas.

The transition is now nearing completion and Augusta has recently moved to
new offices within the Bayleys Viaduct building.

Arrangement with Bayleys Real Estate
Augusta Capital has entered into a strategic alliance with New Zealand's
largest real estate group - Bayleys. This alliance will see Bayleys provide
property and facilities management of the property portfolio. The intention
is to consider offers to the market on a 50:50 joint venture, co-branded
basis, a range of new managed property offers in both listed and un-listed
formats.

Capital Management
Net Assets have increased over the six month period from 75.0 cents per share
to 77.4 cents per share primarily driven by the sale of property management
rights to Bayleys, and the completion of the Augusta Funds Management earn
out.

Cash distributions for the year ending 31 March 2015 are expected to be 5.0
cents per share, in line with previous share-market guidance. Distributions
to Shareholders are reviewed by the Board of Directors on a quarterly basis.
The Dividend Reinvestment Programme (DRP) remains suspended.

The current Group gearing level (Interest bearing debt / Investment assets)
is 40.4%. This includes the impact of the underwrite position taken up on the
Victoria Dock syndication and will reduce to 37% on completion of the sell
down of units held for sale in early December.

Corporate Governance
As previously signalled, Bryce Barnett has joined the Board as an executive
Director.

We are pleased to announce the appointment of Martin Goldfinch as an
independent member of the Board. Martin has skills and experience that are
well aligned to the diverse business and we look forward to his contribution.

Shareholders will be asked to ratify Martin's appointment at the next Annual
Meeting.

Outlook
The reduction in vacancies has been pleasing and we have not only dealt with
the consequences of vacancies but have secured quality tenants in refurbished
buildings. We would expect that improved earnings and the capital spend will
be reflected in property valuation assessments at March 2015.

The assimilation of the KCL and IPT property businesses has been largely
accomplished. The merger has been well executed at slightly higher costs than
budgeted but we are now very well resourced to grow the scale and diversity
of our earnings.

Market conditions are expected to be favourable in a continuing low interest
rate environment and an investor market with capacity to invest in quality
offerings.

-ENDS-

For further information please contact:

Mark Francis
Managing Director

Augusta Capital Limited | Level 2, 4 Viaduct Harbour Ave | Auckland | New
Zealand
PO Box 37953 Parnell | P:+649 300 6161 | F:+649 300 6162   www.augusta.co.nz
End CA:00257373 For:AUG    Type:HALFYR     Time:2014-11-07 09:33:25