Ann: FLLYR: AUG: Preliminary Report on Unaudited

• Release Date: 09/05/14 15:30
• Summary: FLLYR: AUG: Preliminary Report on Unaudited Financial Result
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					AUG
09/05/2014 13:30
FLLYR

REL: 1330 HRS Augusta Capital Limited

FLLYR: AUG: Preliminary Report on Unaudited Financial Result

Preliminary Report on Unaudited Financial Result for the year ended 31 March
2014

Financial Results

Unaudited net profit attributable to Shareholders for the year ended 31 March
2014 is $1.99 million. This compares to a profit of $5.44 million in 2013.
This outcome reflected marginally increased operating earnings from the
directly owned investment portfolio, less a $2.19 million decrease in
property valuations ($1.86 million increase in 2013). The funds management
results include $0.41 million of acquisition costs incurred in respect to the
purchase of KCL Property Limited and Investment Property Titles Limited
previously announced and settled on 1 April 2014.

Distributable cash profit (net profit after cash tax paid, excluding
revaluations, mark to market of interest rate swaps, deferred tax and one off
transactions including lease surrender payments received, asset write offs
and acquisition costs) for the year was $4.63 million (2013 $4.99 million)
representing a 7% decrease on the prior year. The prior year benefited from
reduced current tax payable due to losses carried forward.

Net rental income increased from $7.1 million to $8.05 million as the full
year impacts of leasing in the Finance Centre were reflected, but this result
included one off lease surrender fees received of $1.05 million and rent
received from the Brick Street Property investment of $0.55 million during
the 5 months of ownership prior to syndication.

Two new proportionate ownership schemes generated $1.68 million of additional
Offeror and Underwriting fees, as well as creating an ongoing annual
management fee stream. This was a solid result for the funds management
business. In accordance with the terms of purchase agreement, $0.636 million
of 'earn-out' was paid during the period reducing the balance due to $0.848
million. On completion of the Bunnings Silverdale syndication announced
earlier this week the amount remaining due will be $0.535 million.

Corporate costs increased by $0.21 million to $2.1 million due to increased
professional fees incurred and an increase in personnel costs.

Funding costs increased by $0.63 million through additional loan facility
fees and funding of the Brick Street property investment for 5 months.

The Group incurred $2.7 million of capital expenditure during the year
principally on refurbishment of vacant areas. This expenditure was generally
not reflected in valuations as new tenancies had not been concluded at that
time.
The Group's current distribution approach is to retain sufficient operating
funds to cover business as usual capital expenditure as well as funding the
earn out  payments arising from the purchase of the funds management
business.

On 1st April 2014 the settlement of the KCL Property and Investment Property
Titles Limited transactions were completed. This resulted in the issuance of
2,500,000 shares at an issue price of 80 cents.
As a result the shares on issue increased to 83,778,908 on that day and the
Net assets per share post issuance was 0.75 cents.

Property Portfolio

The company continued its strategy of re-investing in the core portfolio and
capital expenditure of $2.7 million for the year reflects this. We will
maintain the quality and variety of tenant offerings to secure rental growth.

The Company sold a Lambie Drive unit for $900,000 and purchased the Brick
Street property on 2 April 2013 to be sold into a new property syndicate on
30 August 2013.
The Bunnings Silverdale property held as an asset for sale at 31st March was
sold into a new property syndicate established by the Group on 8 May 2014.
Included in the purchase is land which is valued at $1.6 million.
On 8 May 2014 the Group entered into an unconditional agreement to sell Unit
D, 17 Lambie Drive at a price marginally above carrying value.

Leasing and Occupancy

Six new leases and five lease renewals, with an annual net rental value of
$0.96 million were arranged during the year. Leasing success was partly
offset by one lease expiry, three lease surrenders and one lease termination,
which represented $1.27 million of rent on an annualised basis. Overall
portfolio occupancy was 84% at year end, down from 91% at March 2013. The
principal impact of this reduction being the vacating of 4 floors at 19
Victoria Street by Brookfields Lawyers.

Rental growth was primarily driven by CPI rental reviews. Market rental
reviews remained subdued but management is confident of securing increased
rental rates in respect to new lease deals completed at the soon to be
refurbished vacant space at the 19 Victoria Street West property. Two recent
leasing deals are evidence of this trend.

The company had a weighted average lease expiry (WALE) of 4.8 years at 31
March 2014, a slight increase on the 4.6 years as at March 2013. Whilst the
occupancy levels significantly reduced in March post the Brookfields Lawyers
lease surrender, some tenants exercised their rights of renewals which have
significantly reduced the lease expiry risk over the coming 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 Jones Lang LaSalle provided valuations of the company's portfolio as
at 31 March 2014.
A revaluation loss of $2.19 million was incurred for the year representing a
2.2% decrease in carrying book values. Whilst there was slight firming in cap
rates, the loss in this period of an anchor tenant was significant.
Management is confident that the valuation of 19 Victoria Street will
restored post refurbishment and leasing of the 4 recently vacated floors
The average cap rate for the portfolio as at 31 March 2013 was 8.31% (2013
8.39%).

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. The average revaluation uplift
for the year ended 31 March 2014 for the syndicated portfolio was 2.2%. The
average cap rate (yield) for the year also firmed to 8.23% from 8.37% last
year. The portfolio of Augusta property syndicates had a total value of
$235.85 million as at 31 March 2014, with a weighted average lease term
(WALE) of 9.0 years and occupancy of 99.7%. Including the Bunnings Silverdale
property, total syndicated assets are valued at $256.7 million.

Balance Sheet and Treasury

Total assets were $126.2 million at year end compared to $107.5 million as at
March 2013. This increase reflected the $22.35 million purchase of the
Bunnings Silverdale property, less the revaluation downgrade in respect to
investment properties $2.19 million
Liabilities increased from $44.2 million to $65.5 million due to the drawdown
of additional bank debt to fund property acquisition. There was also an
increase in the deferred taxation liability, due to depreciation claimed
during the year.

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
46.6%. Prior to balance date the ASB Bank Limited provided a waiver to the
LVR covenant for the period of one year. The settlement of the Bunnings
syndication on 8th May will reduce the borrowing ratio to 37%.

The bulk of the Group's core banking facilities with ASB run through to June
2016 . The Group has recently restructured the loan facilities resulting in a
marginal decrease in margins. The new facilities are subject to annual review
intended to give a two year facility at all times.

The Group's gross gearing as at balance date was 46.5% (2013 36.2%). (8 May
2014: 37%)
Net asset backing per share was 75.0 cents (2013 76.0 cents). (1 April 2014:
75.0 cents)

Augusta Funds Management Limited

Two new syndication deals were completed generating $1.68 million of upfront
fee income including the Carter Holt Harvey paper bag packaging divisions in
Penrose, Auckland and the D & H Steel property located in Henderson,
Auckland.
The Bunnings Silverdale transaction settled on 8th May provided $0.88 million
in establishment and underwriting fees.

Acquisition of KCL Property & Investment Property Titles Limited

As previously announced the acquisition of KCL Property Limited (KCL) and
Investment Property Titles Limited (IPT) was completed immediately post
balance date on 1 April 2014. The addition of these new property syndication
businesses has added an exciting new component to your company. As well as a
further 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 Funds.
The transaction establishes Augusta Capital as New Zealand's pre-eminent
property funds manager with approximately 170 properties and total funds
under management of approximately $1.18 billion ($350m as at 31 March 2014).

As a result of the transaction, KCL shareholders Bryce Barnett and Phil
Hinton will join the Augusta Capital executive team. Mr Barnett will be
appointed to the Augusta Capital board in conjunction with the appointment of
a fifth director to ensure the board composition remains majority
independent.
The acquisition price of $15 million for the KCL business comprises $10
million in cash and $5 million in AUG scrip.
Shares were issued at $0.80 cents and will equate to approximately 7.14% of
the issued capital of Augusta Capital (assuming the earn outs under the deal
are met). There are retentions of approximately $802,000 of cash and $3
million of AUG shares which are linked to earn-out targets required of the
shareholder vendors of KCL Property.
The IPT business has been acquired from Bayley Corporation Limited for
$444,470.
Reflecting the size, complexity and geographic spread of the combined
portfolio, 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 as well
as a number of other mutually beneficial arrangements. These include a plan
to offer 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.
The Bayleys facilities and property management contract has been sold to
Bayleys for $4.77 million. This cash consideration reduces the net cost of
the transaction for Augusta to approximately $10.67 million.

Implementation of the transition process continues to proceed smoothly.

Outlook

The 2014 year has been significant for shareholders with the completion of
the purchase of two property syndication businesses without the need to seek
shareholder contribution and the establishment of a long term income stream,
personnel with proven skills in the sector and scale for the business.
The association with Bayleys through the property management outsourcing
arrangements and the strategic alliance going forward are expected to provide
opportunities not previously available to Augusta.
While the result for the year reflects the consequence of a loss of a key
tenant and the costs of the new business acquisition, the outlook for the
company is positive and the focus for this coming year will be to
successfully complete the new business integration and successfully lease the
vacant space that has driven valuation reductions in 2014.
End CA:00250289 For:AUG    Type:FLLYR      Time:2014-05-09 13:30:01