The move from being a struggling direct owner of property to becoming a dominant force in the management of property funds is starting to work for Augusta Capital Ltd, which had double-digit returns from fund operations and base management fees in the year to March.
But it ended its biggest transition year with a sharp drop in the bottomline return – net comprehensive income down 42.7% to $7.75 million ($13.52 million last year).
Net revenue was up 10.5% to $19.1 million ($17.1 million), but corporate costs were up 13.7% to $8.14 million ($7.16 million). The company made a smaller gain in the unrealised value of investment properties, $4.12 million ($7.07 million).
Unlike most of the listed property sector, Augusta has become less of a property owner & manager of its own portfolio (though the $93 million divestment of the Finance Centre isn’t scheduled for completion until 2019), more a syndication manager. And it’s also starting to find other areas of funds management to move into.
- 19% growth in adjusted funds from operations (a non-GAAP measure) to $6.75 million, equating to operating earnings of 7.7c/share (6.5c/share the previous year)
- Recurring fees from funds management now a substantial growth component in overall earnings
- Gross management fees up 37% to $7.26 million
- 10% growth in recurring annualised base management fees, now at $5.6 million
- Total assets under management up 9.5% to $1.6 billion – set to become $1.7 billion following settlement of 33 Broadway offering on 30 June
- 5 new syndications completed, raising $203 million in new equity to realise $347 million in new deal asset values, and continuing expansion into Australia
- Net profit after tax down 43% to $7.75 million, a decrease of 43% – related to lower revaluation & disposal gains as the company continued to divest directly held investment portfolio assets, and
- A 4c increase in net asset value/share, from 94c to 98c.
Augusta Capital chair Paul Duffy said yesterday the result gave the market a clear picture of how the company’s balance sheet & future earnings profile were being transformed: “This has been a good year. It’s a strong result where management continued to deliver to a very high standard against a clearly defined growth strategy. The main takeaway is the strong growth in adjusted funds from operations, being driven by the emerging performance of Augusta’s growing funds management business.”
Managing director Mark Francis said the fall in net profit after tax was an anticipated consequence of actively transforming the balance sheet to fund the growth of new funds management initiatives: “By moving away from a traditional, directly owned investment model to a less capital-intensive growth model, we are delivering a more diverse & recurring earnings profile, which will better protect & help grow future value for our shareholders.”
Augusta earned $660,000 of investment asset income from positions taken in the Augusta Value Add Fund No 1 Ltd & NPT Ltd: “This is a new source of income that will continue to be an important feature of future earnings as we grow our total funds under management.”
The Value Add Fund investment was revalued upward by $780,000 (13%) on the original investment of $6 million. Augusta paid above the trade price for the later part of its investment in NPT, and recorded a $2.18 million writedown.
Augusta’s board expects to transform its balance sheet with greater investment in funds management initiatives, but said the company would retain the necessary capability & flexibility to create & take advantage of new opportunities.
Following divestment of the Finance Centre, Augusta will release capital to grow the funds management business, including:
- Warehoused assets – pipeline for new product
- Underwriting capability in respect to new offers, and
- The ability to invest in new products or investments which are managed by Augusta to create an alignment of interests.
Near-term strategic operating priorities include:
- Completing proposals to secure the NPT management contract and thereafter options to turn around its current under-performing assets
- Successfully concluding the 33 Broadway offer (due to settle on 30 June 2017), the settlement of Augusta House and the launch of new investment products that will further diversify offerings
- Ongoing measured expansion in Australia
- Maintaining stringent capital management disciplines
- Maintaining optimal efficiency across how we manage our existing management portfolio.
Augusta paid an overall 5.375c/share in dividends – 5c/share until the company lost its PIE (portfolio investment entity) status, and then, from 1 July 2016, at an annualised distribution rate of 5.5c/share. The board expects dividends to be maintained at 5.5c/share for the 2018 financial year.
Attribution: Company release, annual report.