Ann: HALFYR: AUG: Preliminary Unaudited Half Year

• Release Date: 04/11/13 12:28
• Summary: HALFYR: AUG: Preliminary Unaudited Half Year Result
• Price Sensitive: No
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					AUG
04/11/2013 10:28
HALFYR

REL: 1028 HRS Augusta Capital Limited

HALFYR: AUG: Preliminary Unaudited Half Year Result

Augusta Capital Limited's net profit after tax for the half year ended 30
September 2013 decreased 3.5% to $2.18 million from $2.26 million in the
prior corresponding period. However this result is impacted by an accounting
requirement to consolidate a short term investment in the Brick Street
Nominees Joint Venture that eliminated $0.83 million of revenue in this
period. Further details are provided in this report under "Consolidation of
Brick Street Nominees Joint Venture".

Distributable profit (a Non-GAAP disclosure which represents the underlying
financial performance) did decrease to $3.25 million from $3.35 million in
the prior corresponding period. The decrease in distributable profit was
primarily driven by a greater income tax obligation. The Group previously had
the benefit of the management contract termination fee being tax deductible
thus providing a tax shield in the prior corresponding period.

The higher tax expense was offset by additional upfront syndication fees
derived as well as the positive impact of holding the Brick Street, Henderson
property for 5 months prior to syndication, and which contributed $0.56
million in rental income during the period at a net rental yield of 7.5%.

The company successfully completed two new proportionate ownership schemes,
which generated $1.68 million of Offeror's and Underwriting fees, as well as
creating $115,000 of ongoing annual management fees. This was a very pleasing
start to the year for the funds management business. In accordance with the
terms of the funds management sale and purchase agreement, $0.64 million of
'earn-out' was paid during the period effectively reducing the balance of the
contingent consideration to $0.85 million.

The directly owned property portfolio continued to improve with net rental
earnings increasing by $0.18 million to $3.81 million excluding the
additional net rental income derived from the Brick Street property.

Metroclean Limited performed as expected, contributing positively to earnings
and provides a potential platform for future earnings growth and
diversification. Metroclean has recently picked up some significant new
contracts within the Auckland CBD.

Operating costs were relatively flat across the period. Minimal external
leasing agency costs were incurred during the period. The decision to
terminate the Foodcourt operations cost $0.45 million, but this included
$0.35 million of non cash asset write offs. Corporate costs were unchanged
for the period.

Funding costs increased by $0.36 million due to the additional $18.2 million
drawdown in April 2013 to fund the purchase of the Brick Street property in
Henderson which was sold into the new syndicate on 30 August 2013. Additional
loan facility fees were also incurred to provide funding to enable Augusta
Capital Limited to fully underwrite syndication offers.

The Group's gearing as at balance date was 37.0%. Net asset backing per share
was 77.0 cents.

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. $0.64 million of contingent consideration payments
were made during the period and the Group incurred $1.1 million of capital
expenditure principally on the refurbishment of vacant areas in order to
facilitate increased occupancy.

Consolidation of Brick Street Nominees Joint Venture

Under new accounting standards (NZ IFRS 10 Consolidated Financial Statements)
Augusta Capital is required to consolidate any investment in which it is
deemed to be in a controlling position. As at 30 September 2013, based on the
definitions under the standard Augusta Capital is in a controlling position
with respect to the Brick Street Nominees Joint Venture. This deemed
controlling position as per the accounting standard is due to the fact that
Augusta Capital Limited owns more than 20% in the Joint Venture, Augusta has
power to direct relevant activities and also has the ability to use power to
affect investor returns. Brick Street has been treated as a discontinued
operation in the statement of comprehensive income and as held for sale in
the statement of financial position. Augusta is actively marketing the sale
of its interest in the Scheme and post balance date Augusta has further sold
down its stake in the Brick Street Scheme. The Company's current investment
in the Brick Street Nominees Joint Venture is $2.15 million which represents
19.5%. As this stake has reduced below 20% Augusta Capital Limited will no
longer consolidate the Brick Street Nominees Joint Venture in the future.

Investment Property Portfolio

Portfolio occupancy is currently 90%. Occupancy has remained flat over the
period. Three new leases have been signed generating $0.4 million of annual
rental and three lease renewals were also completed effectively retaining
$0.3 million of annual net rental. Offsetting this was one small lease
expiry, lease terminations at the Foodcourt, a negotiated lease surrender
(however space was immediately re-let) and some monthly carparks which were
returned. Total annualised vacancy costs are currently $1.0 million, and
while negotiations with prospective tenants holds promise occupancy is short
of budget target of 95%. The company's weighted average lease term (WALE) has
decreased to 4.5 years over the past 6 months from 4.6 years. The impact of
any new leasing will not be fully apparent until the next financial year due
to the necessary lead time associated with the completion of fit out works.

On 2 August 2013, Unit A, 17 Lambie Drive was sold for $900,000 which
represented the carrying value before costs of disposal.

Portfolio Valuations

There has been continuing evidence of further strengthening in valuations
with strong selling prices for properties with sound tenant covenants and
long lease profiles. This price strengthening still does not appear to be
taking place in the B grade office sector as yet, however there has been
encouraging leasing interest.

Directors have assessed that there has not been a material impact on Augusta
Capital's portfolio valuations during the six months to 30 September 2013.
Accordingly independent valuations have not been sought as at September 2013
with the next assessment at the financial year end being March 2014 for both
the Augusta Capital portfolio as well as all property assets under
management.

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. During the period, the Group
completed two new property syndications, being the Hugo Johnston Nominees
Joint Venture and the Brick Street Nominees Joint Venture. Also during the
period, the investors in the 587 Nominees Joint Venture voted to sell the
property which was situated at 587 Great South Rd, Manukau, Auckland.

Funds Management

The Group had a solid performance in the funds management sector during the
period. Two new syndication deals were completed including the Carter Holt
Harvey property in Penrose, Auckland which is currently home to the paper bag
division of Carter Holt Harvey Limited, plus the D & H Steel Construction
property in Henderson, Auckland. These two deals created $1.68 million of
upfront fees and enabled the earn out obligation to be reduced to $0.85
million.

Augusta Capital Limited purchased the D & H Steel property located at 12
Brick Street in Henderson for $18.2 million on 2 April 2013 with the
intention of future syndication. It then sold the asset for $18.2 million on
30 August 2013 to the Brick Street Nominees Joint Venture. This is an example
of existing balance sheet capacity being utilised to 'warehouse' property
assets for future syndications.

As at the date of this report, the units in the Brick Street property
syndication held for sale are valued at $2.15 million.

Capital Management

The net tangible asset backing (NTA) as at 30 September 2013 was 77.0 cents
per share. The increase from 74.2 cents per share as at 30 September 2012 was
due to increased property values and a reduction in the contingent
consideration (earn out obligation) as well as a fair value adjustment with
respect to the Group's interest rate swap position. NTA has marginally
increased over the six month period from 76.0 cents per share as at March
2013 to 77.0 cents per share. The NTA is expected to increase to 78.0 cents
per share when the Group is not required to consolidate the Brick Street
Nominees Joint Venture.

Cash distributions for the year ending 31 March 2014 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.

The current Group gearing level (Interest bearing debt (net of cash on hand)
/ Investment assets) is 37.0%. This also includes the impact of the
underwrite position taken up with respect to the Brick Street syndication.
The bulk of the banking facility with ASB expires in June 2015 and the
average interest rate for the half year was 5.57%.

Outlook

Investor interest in the commercial property market has been maintained with
transaction evidence in most categories indicating sales at historically low
cap rates where strong tenant covenants and longer term leases are available.

Given current interest rates and investor interests in yield investments we
expect values to remain buoyant and well located investment properties to be
in demand. These conditions are expected to be positive for our portfolio.

Leasing interest in office accommodation has been subdued although
refurbished space with flexibility in smaller space offerings has been
successful. We will continue to pursue our strategy of prudently investing in
office refurbishment targeting a multi tenant approach. We expect to improve
our occupancy rate in the second half of this financial year.

The Funds Management business has performed well and we expect that subject
to the availability of suitable properties investor demand will remain
strong. Discipline is required in assessing properties for syndication as
well as meeting the regulatory requirements for offerings of this nature.

As indicated at our Annual Meeting this year we look forward to being able to
increase our distributions to shareholders on completion of the "earn out"
under the Funds Management acquisition and an improved occupancy in our
portfolio.
End CA:00243294 For:AUG    Type:HALFYR     Time:2013-11-04 10:28:56