Ann: HALFYR: AUG: PRELIMINARY HALF YEAR RESULT

• Release Date: 02/11/12 12:11
• Summary: HALFYR: AUG: PRELIMINARY HALF YEAR RESULT
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AUG
02/11/2012 10:11
HALFYR

REL: 1011 HRS Augusta Capital Limited

HALFYR: AUG: PRELIMINARY HALF YEAR RESULT

Half Year Report for Six Months Ended 30 September 2012

THE HALF YEAR IN REVIEW

Augusta Capital Limited's net profit after tax increased to $2.26 million
from $0.61 million in the prior corresponding period. The main drivers of
this increase were net income arising from the acquisition of Augusta Funds
Management Limited and the absence of asset write-downs.

The company successfully completed three new property syndications within the
six month period, which generated a combination of offeror's fees and
underwriting fees totalling $1.37 million.

The investment property portfolio also performed strongly on a like for like
comparative basis, with the impacts of leasing in the Finance Centre now
being fully reflected.
As a result cash generation also increased by 76% during the period to $3.35
million from $1.9 million in the prior corresponding period.
The Group incurred $0.73 million of capital expenditure during the period
with the majority going towards the refurbishment of vacant areas in order to
facilitate increased occupancy.

Financial Review

Distributable income (Group net profit before unrealised property
revaluations, unrealised gains or losses on interest rate swaps and deferred
tax impacts) increased to $3.35 million (prior corresponding period $1.90
million). This earnings increase was the result of the impact of the
acquisition of Augusta Funds Management and associated internalisation of the
company's previous external management contract. The result was also enhanced
by the full impact of new leasing, especially the Countdown Metro Supermarket
and significant fee income from syndications that occurred in this 6 month
period.

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.

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 start to the year
for the funds management business and will be difficult to replicate in the
second half period. 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.

Metroclean Limited performed as expected, contributing positively to earnings
and provides a potential platform for future earnings growth and
diversification. As Metroclean is based on site within the Finance Centre it
can provide a highly responsive service to our tenants.

Operating costs were relatively flat across the period. Effectively cost
savings due to divestments and property management no longer being incurred
(due to internalisation) were offset against Metroclean's operating costs. No
leasing costs or lease incentive costs were incurred during the period, as
lease deals were structured towards fit-out related capex rather than
providing incentives.
Corporate costs increased by $0.63 million, with the bulk of this increase 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 formally borne by the manager. Offsetting this, no
management fees were incurred during the period. 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. Effective interest rates remained flat.

The Group's gearing as at balance date was 35.7%. Net asset backing per share
was 74.3 cents.

Investment Property Portfolio

Portfolio occupancy was 91.5% as at 30 September 2012. Occupancy has remained
relatively flat over the period with no significant lease expiries occurring.
The majority of space which became vacant during the period has subsequently
been leased again. There were no tenant failures during the period. Total
annualised vacancy costs are currently $0.9 million and management is focused
on concluding new tenancies to reduce this further. The company's weighted
average lease term (WALE) decreased from 5.5 years to 4.6 years at September
2012. This was driven by a partial divestment at Lambie Drive and no material
long duration leases were signed in the past 12 months.
Three new leases were signed during the period and three renewals were
successfully negotiated. However three lease expiries occurred during the
period hence the overall occupancy did not materially change.

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.

Portfolio Valuations

There has been recent evidence of a strengthening in valuations with strong
selling prices for properties with sound tenant covenants and long lease
profiles. This strengthening does not appear to be taking place in the office
sector as yet. Directors have assessed that there has not been a material
impact on Augusta Capital's portfolio valuations during the six months to 30
September 2012. Accordingly independent valuations have not been sought at
September 2012 with the next assessment at the financial year end being March
2013 for both the Augusta Capital portfolio as well as all property assets
under management.

Funds Management

The Group had a strong performance in the funds management sector during the
period. Three new syndication deals were completed 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 ability to underwrite deals utilising Augusta's balance sheet capacity
has meant that sale and purchase agreements can be entered into on an
unconditional basis, which is an advantage in attempting to secure new deals.
The added advantage is the potential underwriting fees which can then be
derived.

Capital Management

The net tangible asset backing (NTA) as at 30 September 2012 was 74.3 cents
per share. The reduction from 77.0 cents per share as at 30 September 2012
was due to the impact of the management contract termination fee payment in
March 2012. NTA has marginally increased over the six month period from 73.5
cents per share as at March 2012 to 74.3 cents per share.

Cash distributions for the year ending 31 March 2013 are expected to be 4.0
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.

Our current gearing level (Interest bearing debt / Investment assets) is
35.7%. The bulk of the banking facility with ASB expires in June 2015 and the
average interest rate for the half year was 5.46%.

Outlook

The New Zealand economy has continued its improving trend and this is evident
in the property market although there are regional differences with the
Auckland and Christchurch markets showing strong demand.
The demand for commercial property has improved and with interest yields at a
low level, the opportunity for enhanced yields from property investment has
resulted in good transaction volumes.
The office market is less active but we have seen improved demand for good
quality accommodation in the Auckland CBD and we believe this will be a
continuing trend.
The Funds Management Business activity will be dependent on the quality of
the offerings and the yield available to investors. We are already seeing
evidence of yield contraction so it will be essential to maintain a
disciplined approach to ensure we provide high quality opportunities to our
investors.
The year ahead will see us further consolidate our new more diversified
strategy which has, in our view, already justified the steps approved by
shareholders to extend our investment base.

-ENDS-
End CA:00229258 For:AUG    Type:HALFYR     Time:2012-11-02 10:11:46