Ann: FLLYR: AUG: PRELIMINARY FULL YEAR RESULT

• Release Date: 17/05/13 11:53
• Summary: FLLYR: AUG: PRELIMINARY FULL YEAR RESULT
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AUG
17/05/2013 09:53
FLLYR

REL: 0953 HRS Augusta Capital Limited

FLLYR: AUG: PRELIMINARY FULL YEAR RESULT

KEY HIGHLIGHTS

o Net Profit After Taxation of $5.44 million compared to a loss of $0.65
million in 2012.

o Distributable profit increased 37% to $4.97 million

o Profit on revaluation of portfolio of $1.86 million representing a 2.0%
increase in portfolio value to $97.5 million

o Lower portfolio occupancy at 91% and WALE at 4.6 years.

o Net asset backing increased from 74 cents per share to 76 cents per share

o New businesses acquired generated $1.22 million of earnings before tax

o Countdown Metro Supermarket trading above expectations with turnover rent
triggered in the first full year of trading

o Purchase of D & H Steel Construction property in Henderson on 3 April 2013
for $18.2 million. This property was purchased for future syndication

o Strong start to FY2014 with the Carter's Penrose syndication offer strongly
supported and the D&H Steel Construction syndication offer planned for July /
August 2013.

RESULT COMMENTARY

Earnings

The company has reported net profit attributable to shareholders for the year
ended 31 March 2013 of $5.44 million. This compares to a loss of $0.65
million in 2012. This outcome reflected increased earnings from the directly
owned investment portfolio, an $1.86 million increase in property valuations
and the financial benefits generated from purchasing Augusta Funds Management
Limited on 30 March 2012.

Normalised distributable profit (net profit after tax, excluding
revaluations, mark to market of interest rate swaps, deferred tax and one off
transactions including the termination fee) for the year was $4.97 million
(2012 $3.64 million) representing a 37% increase on the prior year.

Net rental income increased from $6.2 million to $7.1 million as the full
year impacts of leasing in the Finance Centre were reflected, and leasing
costs reduced to $0.23 million from $0.49 million in the prior year.

Three new proportionate ownership schemes generated $1.37 million of
additional Offeror's and underwriting fees, as well as creating $170,000 of
ongoing annual management fees. This was a very pleasing result for the funds
management business. In accordance with the terms of the funds management
sale and purchase agreement, $0.52 million of 'earn-out' was paid during the
period effectively reducing the balance of the contingent consideration to
$1.48 million from $2.0 million. On completion of the Carter's Penrose and
D&H Steel Construction syndications the value of the contingent consideration
would reduce to circa $0.85 million.

Corporate costs increased by $0.76 million, with the bulk of this increase
being a result of the internalisation of the management contract as well as
some rebranding costs. This increase included all personnel costs and office
administration costs formerly borne by the manager. Offsetting this, no
management fees were incurred during the period, compared to a management fee
expense of $0.92 million in 2012. Following the internalisation of the
management contract on 30 March 2012, management fees are no longer payable
by the company.

Funding costs increased due to the additional $5 million drawdown in March
2012 to fund both the purchase of Augusta Funds Management and to terminate
the management contract. One off facility fees were incurred in respect to
the Group providing an underwrite facility in respect to new syndication
deals.
Effective interest rates remained flat across the 12 month period.

The Group incurred $1.1 million of capital expenditure during the year with
the majority going towards the refurbishment of vacant areas in order to
facilitate increased occupancy and to drive future rental growth.

The Group's current distribution approach is to retain sufficient operating
funds to cover business as usual capital expenditure as well as funding the
contingent consideration (earn out) payments arising from the purchase of the
funds management business. The Group also currently has the benefit of the
management contract termination fee being tax deductible thus providing a tax
shield in this period.

Property Portfolio

The company continued its strategy of re-investing in the core portfolio and
capital expenditure of $1.1 million for the year reflects this. Over the past
four years this has been the Group's strategy and the office floors at
Brookfields House are now fully occupied. The future strategy will focus on
maintaining the quality and variety of tenant offerings as well as driving
rental growth. Post balance date the Group purchased the D&H Steel
Construction property in Henderson, Auckland for $18.2 million. This asset is
held for sale and is planned to be syndicated in the near future.

Leasing and Occupancy

Six new leases and six lease renewals, with an annual rental value of $1.57
million were arranged during the year. Leasing success was partly offset by
four lease expiries, which represented $0.41 million of rent on an annualised
basis. Overall portfolio occupancy was 91% at year end, down from 93% at
March 2012. This decline was due mainly to a large lease expiry during the
year at 7 City Road. This building's occupancy has declined from 98% to 92%.

Leasing success was achieved at Brookfields House which is due in part to the
significant capital expenditure invested in refurbishing the building. The
stated intention last year was to actively seek to lease vacant space and to
this extent that goal was achieved with all office floors fully occupied at
year end.

The company had a weighted average lease expiry (WALE) of 4.6 years at 31
March 2013, a decrease on the 5.1 years as at March 2012. Whilst the WALE and
occupancy levels marginally reduced across the year, some key tenants
exercised their rights of renewals post balance date, which have
significantly reduced the lease expiry risk over the coming financial year.

Significant Retail Lease

Subsequent to balance date the company has entered into a Heads of Agreement
with a major retail chain. Under the agreement the retailer is to take a 6
year lease over a circa 1,000 square metre retail tenancy at the Finance
Centre in Auckland. The tenancy is situated directly above the Countdown
Supermarket at the Finance Centre. Augusta has been operating this tenancy as
a Foodcourt for the past several years, but has derived only a negligible
amount of rental income from it. The Foodcourt will be closed down on 31 May
2013. The new retail lease will provide a significant boost to the occupancy,
rental income and valuation of the Finance Centre. Lease commencement is
planned for 1 September 2013. The agreement remains subject to the
prospective tenant's board approval.

Rent Reviews

Six rent reviews were concluded during the financial year, across leases
representing $1.18 million of annual net rent. An average increase of 5.1%
was achieved. The best results were where fixed CPI rent review mechanisms
were in place. Growth in office rents remained subdued during the financial
year.

Portfolio Valuations

Under NZ IFRS accounting standards, the company's investment properties are
re-valued to fair market value at the end of each financial year. Independent
valuers CB Richard Ellis and Colliers International NZ provided valuations of
the company's portfolio as at 31 March 2013.

A revaluation profit of $1.86 million was recorded for the year representing
a 2% increase on carrying book values. This is an encouraging sign and is the
result of firming cap rates, the impacts of recent leasing specifically in
the Finance Centre including the Countdown Metro supermarket and also the
impact of refurbishments undertaken.

The average cap rate for the portfolio as at 31 March 2013 was 8.39% (2012
8.58%).

Proportionate Ownership Schemes - Property Not Owned Directly
Proportionate Ownership Schemes are not owned directly by Augusta Capital
Limited. Augusta Funds Management Limited (a subsidiary of Augusta Capital
Limited) owns the management contract rights to all proportionate ownership
schemes, also known as property syndications.

The average revaluation uplift for the year ended 31 March 2013 with respect
to the syndicated portfolio was 2.4%. The average cap rate (yield) for the
year also firmed to 8.38% from 8.60% last year. The portfolio of Augusta
property syndicates had a total value of $211.04 million at March 2013, with
a weighted average lease term (WALE) of 9.0 years and average loan to value
ratio (LVR) of 44%. Including the Carter's Penrose and D&H Steel Construction
properties, total syndicated assets are valued at $243.74 million.

Balance Sheet and Treasury

Total assets were $107.6 million at year end compared to $104.0 million as at
March 2012. The main factor in this increase was the $1.86 million
revaluation uplift to investment properties on top of the $1.1 million
incurred on capital expenditure during the year including tenant fit out
works and other minor upgrades to the portfolio.

Liabilities in turn increased from $44.2 million to $45.5 million mainly due
to the drawdown of additional bank debt to fund deposits for property
acquisition. As at balance date the Group had paid $1.5 million in deposits
relating to future property acquisitions. There was also an increase in the
deferred taxation liability, as all tax losses have now been utilised.

The company's constitution limits borrowings to a ratio of 50% of the gross
asset value (GAV), and Augusta Capital Limited lenders (ASB) require
borrowings to not exceed 45% of GAV. Our Internal treasury policy is for a
long term target ratio of approximately 35%. At balance date this ratio was
36.2%. Prior to balance date the ASB Bank Limited provided a waiver to the
LVR covenant for the period of one year. The Group's LVR increased to 45.5%
post balance date when it purchased the D & H Steel Construction property in
Henderson, Auckland for $18.2 million and this transaction was fully debt
funded increasing drawn down debt to $55.7 million. It is not anticipated
that the company's debt levels will remain at these levels beyond August
2013, by which time the D&H Steel Construction property is planned to have
been syndicated.

The bulk of the Group's core banking facilities run through to June 2015 with
ASB and provides long term funding visibility and is a reflection of the
improved financial position and diversity of income streams that the company
has achieved over the past three years.

The Group's gearing as at balance date was 36.2% (2012 36.6%).

Net asset backing per share was 76.0 cents (2012 74.0 cents).

Augusta Funds Management Limited

The Group had a strong performance in the funds management sector during the
year. Three new syndication deals were completed generating $1.37 million of
upfront fee income including the JB Hi-Fi retail store in Hamilton, the ASB
Support Centre property at 360 Dominion Road, Auckland and a new retail
property in Hastings with Farmers and TSB Bank as the tenants.

The Group is in the process of completing one further syndication deal, being
the Carter Holt Harvey property in Penrose, Auckland, which is expected to
close fully subscribed on 24 May 2013. This property houses the paper bag
division of Carter Holt Harvey Limited and was a sale and leaseback
transaction. Carter Holt Harvey has committed to an initial ten year lease.

The D & H Steel Construction property in Henderson purchased by Augusta
Capital Limited on 3 April 2013 was also purchased for future syndication.
Management is actively working to source future deals which provide both
upfront fees as well as a recurring management fee income stream into the
future.

The acquisition of the assets of AFM Management Limited (formerly Augusta
Funds Management Limited) was completed on 30 March 2012, in conjunction with
the termination of the management contract. The addition of Augusta Funds
Management's property syndication business has added an exciting new
component to your company. As well as a diversification of our earnings from
rental income into funds management fees, the acquisition will potentially
enable us to deliver higher earnings growth, and a higher return on
Shareholder's Funds.

Outlook

The 2013 financial year has been one of increased stability in markets
generally and for the commercial property sector specifically. Markets have
been assisted by continuing low interest costs and the investor appetite for
yield. Greater regulatory oversight with respect to property syndications is
welcomed and the new requirements for issuance of Prospectuses are positive
for the Group and should enable investors to have greater confidence in the
information available to assist their investment decisions. The extension of
the Group's investor base and the continuing support for the Augusta product
has been pleasing.

The year ahead is not expected to bring much change to the commercial
property sector. Demand is expected to continue to reflect modest growth in
the economy and a generally risk averse approach by investors. Augusta will
continue to focus on well located properties that retain strong tenant demand
and which meet current code requirements, particularly the seismic standards.

Augusta has achieved what it set out to do in 2013 and will maintain its
conservative approach to building a business that has some diversity of
income and the ability to grow earnings on existing capital.

The Company plans to hold its 2013 Annual Meeting at the Northern Club, 19
Princes Street, Auckland on Thursday 15 August 2013 at 2pm.

-ENDS-

For further information please contact:

Christopher Francis
General Manager
Augusta Capital Limited
T (09) 300 6161
F (09) 300 6162
E [email protected]
End CA:00236354 For:AUG    Type:FLLYR      Time:2013-05-17 09:53:14