Key Highlights
Year ended 31 March 2016
Financial Performance
o Net Profit After Taxation of $13.52 million up 30% compared to a profit of
$10.39 million in 2015 year (based on unaudited result)
o The result includes an unrealised gain on revaluation of $7.07 million at
the Finance Centre for the full year
o Normalised distributable cash profit increased by 17% to $5.68 million (up
from $4.86 million)
o Investment property segment performance up 20% or $0.39 million (after tax)
o Funds management segment performance up 16% or $0.44 million (after tax)
o Net asset value (NAV) increased from 83 cents per share to 94 cents per
share. The independent funds management valuation provides a further 14 to 21
cents per share (NAV)
o Cash dividends paid equating to 5 cents per share - a ''pay out'' ratio of
77% based on a normalised operating earnings of 6.50 cents per share
Funds Management - Continuous Growth
o Seven new syndication deals completed during the year generating $7.02
million of upfront revenue
o Higher corporate costs due to increased levels of compliance, additional
resources, project costs and due diligence costs incurred on deals not
proceeding
o Augusta subsidiary, Augusta Funds Management Limited, is now licenced under
the Financial Markets Conduct Act
o Independent PwC valuation of the funds management business completed will
lead to loss of Portfolio Investment Entity (PIE) status from 1 July 2016
o Strong start to FY2017 with the Augusta Value-Add Fund No.1, Ashburton
Central and an Australian syndication completed in the first quarter
o Further pipeline of offers being the Graham Street buildings in Auckland
CBD
Investment Property - Future Divestment
o Higher portfolio occupancy at 97%, up from 94% last year
o Higher WALE at 6.3 years, up from 5.9 years over the past 12 months
o Divestment of 7 City Road returning a capital gain on sale of $0.96 million
o Balance sheet capacity to fully or partially underwrite new deals
Financial Results
The unaudited results for the year ended 31 March 2016 record a profit of
$13.52 million compared to a profit of $10.39 million in the prior year. The
principal components of the result are;
Improved net earnings after tax were driven by;
1. The Funds Management business, up $0.44 million or 16% on last year. This
was due to the successful promotion of seven new investment offerings
generating gross income of $7.02 million.
2. Investment Property performance after tax increased $0.39 million or 20%
on last year - this result was reduced due to the divestment of 7 City Road
offset against Kitchener Street which was warehoused until being sold to
Augusta Value-Add Fund No.1 Limited. The Finance Centre earnings were boosted
due to higher occupancy.
3. A positive revaluation gain of $7.07 million compared with a valuation
increase in 2015 of $4.37 million.
Distributable cash profit (net profit after income tax paid, excluding
revaluations, mark to market of interest rate swaps, deferred tax and one off
transactions) increased by $0.82 million or 17% from $4.86 million to $5.68
million. This equates to earnings per share of 6.5 cents for the year
compared to 5.8 cents per share last year.
This year has been one of building capabilities as new members joined the
corporate team. There has also been a strong emphasis on funds management to
set a platform for a growth in recurring earnings and this led to an increase
in corporate costs of $0.80 million / 13%. This included resourcing for
compliance obligations and licencing under the Financial Markets Conduct Act.
Further material due diligence costs were incurred in respect to deals not
proceeding.
Augusta Capital Limited has also signaled that it expects to lose its
Portfolio Investment Entity status from 1 July 2016 as the market value of
the funds management business exceeds 10% of the total of the Company''s total
assets. An independent valuation completed by PwC indicated a market
valuation range from $28 - $34.8 million. Under NZ IFRS this increased
valuation cannot be reflected in the reported balance sheet.
The future divestment of the directly held portfolio has also been a focus so
as to create balance sheet capacity for future warehousing of assets and
underwriting capability, as well as establishing ''seed'' funding capability in
respect to new investor-ready sector specific funds.
The Augusta Capital Board considers the result to be a solid performance and
note that future revenue from incurred costs prior to 31 March will not be
received until the first quarter of the year ended 31 March 2017 as well as
the recurring management fees generated. This will be a feature of earnings
from funds management generally and will give rise to some earnings
volatility. This volatility is expected to reduce over time as the company
builds its base recurring fees.
The investment property result was impacted by the initial stages of
divesting the directly held portfolio, being the sale of 7 City Road. The
earnings from the Finance Centre were up on the prior year due to higher
levels of occupancy and rents.
The funds management business EBIT was $4.84 million which matches that
reflected in the PwC independent valuation. $7.02 million of transaction fees
were generated. Recurring net management fees remained flat, as sales of
existing managed properties offset portfolio growth.
Metroclean''s revenue increased but this increase in revenue was absorbed by
increased administrative costs.
Overheads in respect to funds management increased due additional resourcing
requirements. A legal counsel as well as a compliance manager were recruited
during the period. Additional costs were incurred in respect to AML
compliance and management''s attention was also dedicated to the application
for a Financial Markets Conduct Act license and the development of a customer
relationship management system. $0.35 million was also incurred in respect to
due diligence costs for deals that did not proceed. This is a cost of
Augusta''s business and demonstrates the lengths taken to ensure all necessary
due diligence is undertaken and Augusta will not proceed on an offering
without completing that due diligence.
Funds Management
Seven new syndication deals were completed generating $7.02 million of
upfront fee income, consisting of offeror fees of $5.12 million and
underwriting fees of $1.90 million. The total value of the assets purchased
across New Zealand and Australia was in excess of NZ$160.0 million and the
corresponding equity raised was over NZ$105.0 million. (Two of the seven
assets purchased were in Australia with a total asset value and equity raise
of A$16.8 million and A$10.8 million respectively).
Augusta subscribed for $12.45 million of the Southgate syndicate on
settlement as a result of the underwrite commitment and this investment was
divested within three months of settlement.
Management fees, including transactional income remained flat year-on-year.
The impact of new deals, FY2015 and FY2016 ($0.28 million) and fee growth on
existing properties ($0.08 million) was offset by sale/loss of management of
properties ($0.29 million) and lower transactional income ($0.05 million).
Management''s focus is to grow the recurring income stream from funds under
management. Current annualised base management fees are currently $5.1
million (last year was $4.3 million) but with additional fees able to be
derived in respect to transactional activity such as leasing, project
management and sales. The new Augusta Value-Add Fund No.1 has created a
further non-recurring earnings stream with potential longer term performance
fees.
Investment Property Portfolio - Directly Held
The uplift in valuations is driven by sharpening cap rates, increased WALE
and occupancy. Market rental levels have remained relatively constant. The
valuations have also been prepared on the basis of a new retail title at the
Finance Centre where all retail tenancies are being subdivided onto a
separate title. The Finance Centre Carpark is now also being valued
separately from the Finance Centre Podium. The new titles are due in the
coming months.
The 36 Kitchener Street property which was held for sale at balance date was
sold into Augusta Value-Add Fund No.1 established by the Group on 1 April
2016. Augusta still holds the bare land at Silverdale which is expected to
settle in June 2016. During the year City Road was sold realising a profit of
$0.96 million after provision for the vendor underwrite on the vacant space.
Leasing and Occupancy
Overall portfolio occupancy was 97% at year end, up from 94% at March 2015.
The company had a weighted average lease expiry (WALE) of 6.3 years at 31
March 2016, an increase on the 5.9 years as at March 2015 due to increase
occupancy.
Portfolio Valuations
Under NZ IFRS accounting standards, the company''s investment properties are
re-valued to fair market value. Independent valuers CB Richard Ellis provided
valuations of the Finance Centre as at 31 March 2016.
A revaluation gain of $7.07 million for the full year was achieved which
equated to a 9% increase in value at the Finance Centre. The average cap rate
based on market rents for the portfolio as at 31 March 2016 was 7.06% (2015
8.09%).
Balance Sheet and Treasury
Total assets were $136.8 million at year end compared to $124.4 million as at
March 2015 and
Liabilities decreased from $55.2 million to $54.8 million.
The contingent consideration payable to the KCL vendors has now been fully
paid.
Borrowings increased by $3 million during the year to facilitate deposit
payments. The company''s constitution limits borrowings to a ratio of 50% of
the gross asset value (GAV). Internal treasury policy is for a long term
target ratio of approximately 35%. At balance date this ratio was 36.5%.
(2015 37.6%). Augusta Capital Limited''s lenders (ASB) require core borrowings
to not exceed 45% of directly held investment property portfolio value. The
core debt ratio was 42.6% as at 31 March 2016.
$10.8 million of core bank debt was repaid on 1 April 2016 on settlement of
the Kitchener Street property reducing the above ratios.
The Group''s banking facilities with ASB run through to June 2017. The
facilities are subject to annual review and extension. $22.5 million of the
$48.9 million drawn debt as at balance date is hedged with various hedging
terms. The weighted average term of hedging is 4.2 years. $43.1 million of
debt is currently drawn as at 20 May 2016.
The sale of 7 City Road created the necessary capacity to warehouse Kitchener
Street prior to the establishment of Augusta Value-Add Fund No.1. This is an
example of what future balance sheet capability can create in respect to
driving funds management growth.
Outlook
Augusta has continued to grow its business through diversification of its
income from directly owned property to funds management revenue that is not
as capital demanding. We expect the future income to provide improved
shareholder returns and want to grow sustainable income to deliver enhanced
dividends.
Augusta''s movement towards a funds management company is expected to be
further advanced when an exit of the Finance Centre is complete. The Finance
Centre has not been held for sale at reporting date as the timing of an exit
cannot be determined but a future exit will create balance sheet capacity for
future warehousing of assets and underwriting capability, as well as
establishing ''seed'' funding capability in respect to new investor-ready
sector specific funds.
We are building our skill base and relationships to develop a more diverse
range of investment products with both capital growth and cash yield
characteristics and have the ability to continue to use our balance sheet
capacity to secure new assets to support the growth of the funds management
business. The recent launch of the Augusta Value-Add Fund No. 1 is a good
example of this direction.
We approach the next year with a stable team and structure. We have
identified quality offers for release and we will continue to apply a
disciplined approach to our assessments.
The Board''s expectation is for the year ahead to maintain the improving trend
in earnings with a key focus on increasing recurring contracted earnings.
The Company plans to hold its annual meeting at the Northern Club, 19 Princes
Street, Auckland on Thursday 25 August 2016 at 2pm.
-ENDS-
For further information please contact:
Mark Francis Simon Woollams
Managing Director Chief Financial Officer
End CA:00282692 For:AUG Type:FLLYR Time:2016-05-20 09:07:56