afr article & other media coverage

CIY has recently received a bit of media interest. There was a story in the weekend Sun Herald and one in the AFR today.

I have held this stock for a long time now, and happy with the return, but wondering about the future upside to the stock. Do people have any views? Not heavily covered in this forum, which is fine because it doesnt get the rampers involved.

City Pacific Hits Market Radar
AFNR000020031027dzas0004v
Property
Kathy Mac Dermott.
799 Words
28 October 2003
Australian Financial Review
61
English
© 2003 Copyright John Fairfax Holdings Limited. www.afr.com Not available for re-distribution.

A rising share price and massive growth is proving the financial services group is one to watch, reports Kathy Mac Dermott.

Earlier this month when City Pacific emerged as a contender to buy Brisbane's CBD Waterfront Place complex, the financial services group dramatically landed on the wider property market radar.

Despite a surging share price and massive profit growth, the Brisbane-based company has suffered from a lack of liquidity in its stock, largely due to its small shareholder base of non-institutional investors.

While City Pacific's directors are keen to launch its much anticipated property trust, an acquisition is yet to be made for the vehicle.

At the end of the day City Pacific opted not to pursue a purchase of Waterfront Place, which is now being bought by Stockland at a price just over $300 million. But its initial investigation of one of Brisbane's premium buildings and last riverfront development site highlighted the company's firepower and ambitions.

The managing director of City Pacific, Phil Sullivan, expects that by the end of December next year, the company will have $1 billion worth of funds under management and will have trebled its current shareholder base of 1000 investors.

This will be achieved through the marketing of a raft of options predominantly owned by Sullivan and City Pacific's chief financial officer Steve Mackay , via a prospectus offering.

"We will be looking to increase liquidity by offering to our own investor base [in our mortgage trust] possibly 8 million to 10 million of the options," Sullivan says.

"We have a few institutions that are looking at it," Sullivan says.

Mackay says the company can lift its issued shares from the present base of 65 million to 88 million in the current fiscal year and maintain its forecast earnings per share of around 37 ¢ per share.

"We need the institutions, we need the liquidity and we can make good use of the cash that we get as a result," Mackay says.

At City Pacific's recent annual general meeting, its chairman Ian Donaldson said extra capital would be welcome to fund "quality life-style projects" including one development that would require additional capital of $30 million for up to two years.

Sullivan will not elaborate on this particular project, but it is expected to sustain the EPS despite the increase in issued shares.

City Pacific has about $540 million of funds under management, with $500 million of this placed within its mortgage trust. The remaining $40 million is in its City Pacific Private Fund which provides mezzanine lending products.

About 10,000 investors have participated in the trusts, with a high level of ongoing participation.

"Over 50 per cent by number of the investments received monthly would be from consistent investors," Sullivan says.

In 2002-03 City Pacific's vehicles attracted an average of $20 million of investment per month, rising to $30 million this year. Sullivan says this growth is sustainable. "It's a lot easier to grow your business once you've got $500 million under management than it was when it was $100 million under management," he says.

For shareholders in the company, which listed on the stock exchange in July 2001, it's been an outstanding stock.

In its first year as a listed company City Pacific's market capitalisation grew from $11.75 million to $85 million. At the moment it is at $249 million. In 2002-03 City Pacific achieved a net profit of $12.47 million and paid a full-year dividend of 15 ¢ per share. This distribution is forecast to double in 2003-04, with a net profit of $25 million predicted.

About $18 million of the profit will be sourced from the company's core lending activities and the remainder from City Pacific's listed subsidiary CP1 Ltd, which is jointly developing the $650 million Martha Cove residential estate on Victoria' s Mornington Peninsula.

Recently an additional 20 hectares of land was bought for this project for $5 million.

A further 74.4 ha was optioned from the Bain family for $20 million, but is subject to the receipt of development approval by February 2006.

Sullivan says the commercial developments built within Martha Cove will be acquired for City Pacific's property trust, which is earmarked to own between $300 million and $400 million of assets within "a couple of years".

But is it a case of too much too soon? Definitely not according to Mackay.

"Our people are less busy now than when we had $100 million under management. We have 16 staff altogether which is pretty much as it was three years ago," he says. "The systems have evolved."