Ann: HALFYR: AUG: Preliminary - Interim Financial Result to 30...

• Release Date: 17/11/15 08:31
• Summary: HALFYR: AUG: Preliminary - Interim Financial Result to 30 September 2015
• Price Sensitive: No
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					AUG
17/11/2015 08:31
HALFYR
PRICE SENSITIVE
REL: 0831 HRS Augusta Capital Limited

HALFYR: AUG: Preliminary - Interim Financial Result to 30 September 2015

THE HALF YEAR IN REVIEW

Augusta Capital Limited's net profit after tax increased 88% to $7.24 million
from $3.85 million in the prior corresponding period. This result includes an
unrealised gain on the revaluation of investment properties held for sale of
$3.78 million.

Distributable profit (a Non-GAAP disclosure which represents the underlying
financial performance) decreased from $3.61 million to $2.66 million compared
to the prior corresponding period. The prior corresponding period included
the completion of the Victoria Dock (Spark) syndication which provided a
significant boost to earnings. The result however is up on the second half of
the March 2015 year.
Earnings from the Funds Management business will, as previously indicated,
have some volatility.

The company successfully completed two new proportionate ownership schemes
and a private placement which generated $3.0 million of gross offeror's and
underwriting fees, as well as creating $0.3 million of ongoing gross annual
management fees.

Income from the directly owned property portfolio increased as the full
impact on leasing was reflected. Net rental income was up by $0.5 million.

7 City Road was sold in August 2015 which had a minor impact on the net
rental income stream in the short term. Augusta has, subsequent to balance
date, acquired 36 Kitchener Street in Auckland for $16.5 million. As at 30
September 2015 occupancy levels had increased from 94% to 99%.

Metroclean Limited performed as expected and provides a potential platform
for future earnings growth.

Operating costs were relatively flat in the directly owned portfolio.
Operating costs increased for the Group as the prior corresponding period did
not reflect the full impact of the outsourced property management contract
with Bayleys. These are $0.44 million higher in this period.

Corporate costs increased by $0.46 million during the period. Additional
resourcing requirements and associated professional fees to address
increasing regulatory compliance obligations were incurred.

Net funding costs decreased by $0.22 million against the prior corresponding
period. This was a result of lower effective interest rates and lower loan
facility fees were incurred to provide the necessary funding to enable
Augusta Capital Limited to underwrite syndication offers. At September loan
gearing was at 35% and net asset backing per share was 89 cents.

Management continues to closely monitor Augusta's PIE status as the market
value of the funds management business grows. Augusta has signalled that it
does not expect to hold its PIE status in the longer term.

The Group's current distribution policy is to retain sufficient operating
funds to cover business as usual capital expenditure.

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 current tax for the
period reflects the underlying tax obligation for the period to date.

Investment Property Portfolio
Portfolio occupancy is currently 99%. Occupancy has increased from 94% in
March 2015. Three new leases have been signed generating $0.13 million of
annual net rental and six lease renewals were also completed retaining $0.55
million of annual net rental.

During the period 7 City Road was sold above carrying book value. Augusta has
committed to a three year underwrite on the vacancies at the time of sale and
is actively working towards leasing up these vacancies to reduce this
exposure.

The sale of the property created additional balance sheet capacity to assist
with driving the funds management business. This capacity has meant assets
such as Kitchener Street can be warehoused, deriving a running yield, prior
to being transferred into a new product offering.

The company's weighted average lease term (WALE) has increased to 6.8 years
from 5.9 years. The prime driver of the increase in the portfolio WALE was
the impact of the sale of 7 City Road, as the WALE on that property was 1.5
years at the time of divestment. As there were vacancies at 7 City Road, the
overall portfolio occupancy also increased accordingly.

Post balance date Augusta has acquired 36 Kitchener Street located in the
Auckland CBD for $16.5 million which it will warehouse until a new product
initiative is launched.

Portfolio Valuations
Directors have assessed that there has been a material impact on Augusta
Capital's portfolio valuations during the six months to 30 September 2015.
Accordingly independent valuations have been sought as at September 2015 for
the Finance Centre. This reflected a positive gain of some $3.98 million or
4.9% above carrying book values for the Finance Centre. Whilst this is lower
than the contract on the Finance Centre it is a positive sign. The Finance
Centre is nearing 100% occupancy, with a strong WALE and anchored by some
strong tenant covenants. It will continue to provide a stable yield in the
interim.

The next valuation assessment will be at the financial year end being 31
March 2016 for both the Augusta Capital portfolio as well as property assets
under management.

Proportionate Ownership Schemes - Managed by Augusta
Augusta Funds Management Limited (a subsidiary of Augusta Capital Limited)
owns the management contract rights to all proportionate ownership schemes.
During the period, the Group completed two property syndications, being the
Southgate Nominees Joint Venture and the Birmingham Drive Nominees Joint
Venture, as well as a smaller private placement on a Brisbane property.
During the period seven managed properties were divested.

The Group now manages approximately 150 property vehicles valued in excess of
$1.3 billion on behalf of 3,000 investors. Properties are spread across New
Zealand and in Brisbane, Australia.

Funds Management Performance
The Funds Management sector performance was solid, underpinned by the
completed Southgate Takanini syndication with Mitre 10 Mega as the anchor
tenant. Upfront fees of $3.0 million were generated ($3.8 million in the
prior corresponding period). Management has been focused on bringing new
deals to the market and such is the nature of the business that revenue flows
after the time and cost has been incurred in packaging deals for syndication.

Augusta provided an equity underwrite on the Southgate syndication and as at
the date of this report, all units have been settled. The ability to
underwrite transactions enables Augusta to be more competitive in the market
place when sourcing new deals and provides assurance to investors that the
deal will proceed. Any stake resulting from an underwrite is accretive and
Augusta will only commit to an underwrite if it is willing to own the
property directly.

Further deals are expected to be completed prior to Christmas. This includes
the Progressive Enterprises distribution centre in Christchurch. A further
Australian investment has now been fully subscribed.

Management's focus is to grow the recurring income stream from funds under
management both organically and by way of acquisition. Current annualised
base management fees are $4.3 million with the ability to generate
transactional fees in addition.

There have been material regulatory changes for Funds Management
participants. Augusta Funds Management has recently applied for a Managed
Investment Scheme (MIS) licence under the Financial Markets Conduct Act
(FMCA). All new investors also need to satisfy the Anti-Money Laundering
(AML) regulations. These new regulations, both the FMCA and AML, have added
significant compliance costs to the business but this is something we embrace
as it acts as a further barrier to entry and also brings greater credibility
to the sector.

Capital Management
Net asset backing per share has increased over the six month period from 83.0
cents per share to 89.0 cents per share driven by the sale of 7 City Road
above book value and the positive revaluation of the Finance Centre.

Cash distributions for the year ending 31 March 2016 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 35%.

Corporate Governance
We were pleased to announce the appointment of Paul Duffy as an independent
member of the Board. Paul has the skills and experience that are well aligned
to the funds management business and has substantial experience and success
in the property field. We look forward to his contribution. Paul will assume
the chair on the retirement of Peter Wilson in December 2015.

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

Outlook
Augusta continues to reshape its direction from a pure property ownership
company to a more diverse Funds Management business. The objective is to
better utilise capital resources to generate income from a range of property
related activities.
We continue to identify quality properties for syndication and this will
continue as a core activity.

The development of further products for a range of investor preferences is
actively under review and we expect to be marketing new initiatives in the
near future.
Understanding the risks and opportunities across the broader property market
requires a disciplined approach, particularly when market demand for quality
property is strong.
We do see investor interest in yield remaining solid for some time as
interest rates remain very low by historical standards and are expected to
remain low in the medium term.

Earnings for the second half of the 2016 financial year will be assisted by
the completion of the property syndications currently scheduled for marketing
in this period. Our expectations are that these will be accomplished.

-ENDS-

For further information please contact:

Mark Francis
Managing Director
End CA:00273538 For:AUG    Type:HALFYR     Time:2015-11-17 08:31:29