Australand Results Year Ended 31 December 2007 Strong

The Group’s full-year operating profit after tax, excluding unrealised gains in property revaluations, was $163.2 million, up 5% on the prior year.

Key highlights included:

 Improved full-year operating profit before tax (“PBT”) from all businesses:
 Commercial & Industrial PBT up 75% to $70.1 million;
 Investment Property PBT up 11% to $106.7 million; and
 Residential PBT up 1% to $106.3 million.
 Full-year Dividends/Distributions up 3% to 17.0 cents per stapled security.
 Earnings per Stapled Security, on operating profit after tax, up 2% to 17.6 cents.
 Net tangible assets per stapled security up 9% to $1.70.

GROUP OPERATING HIGHLIGHTS:

In announcing the result, Australand’s Managing Director and CEO, Bob Johnston, said, “We are pleased with the full year result.   Momentum established in the first half maintained through the second half of the year to deliver an increased operating profit after tax.

“The Commercial & Industrial business delivered an outstanding result with an operating profit before tax of $70.1 million for the 2007 financial year, up 75% on the prior year,” said Mr Johnston.

The Commercial & Industrial (C&I) business delivered $583.8 million in revenue, consisting of $528.7 million of revenue from 385,000 sqm of commercial and industrial space and $55.1 million of revenue from five land subdivisions.   At the same time, C&I increased its forward workload by 13% and expects to deliver 424,000 sqm of commercial and industrial space in 2008.

Mr Johnston said the Investment Property business also delivered strong operating income of $106.7 million, up 11% on the prior year.  A gain on sale of property of $10.7 million and property revaluations of $106.0 million were also achieved. Year-on-year recurrent income growth was 3.5%, excluding properties sold during the 2007 financial year.

“The investment portfolio grew 26% to $1.9 billion and is well positioned to generate further recurrent income growth from its existing high quality portfolio with a 99.9% occupancy profile.”

Mr Johnston said operating profit before tax for the Residential business increased 1% to $106.3 million, with strong contributions from Western Australia and Victoria which, together with a solid result from Queensland, offset the tougher Sydney residential market which remained challenging throughout 2007.

“The Residential development pipeline increased 11% from the prior year to an estimated end value of $6.8 billion, comprising 17,352 lots,” said Mr Johnston.

“Additions to the Residential pipeline had been made in key growth corridors to further diversify the geographic and product profile and position Australand well for growth in the medium term.”

 

CAPITAL MANAGEMENT:

Australand had net debt at 31 December 2007 of $1.5 billion and a gearing level of 40.4%.

Australand’s Chief Financial Officer, Tiernan O’Rourke, said the Group maintained an optimal capital structure during the 2007 financial year, which provided financial flexibility for its operations.

“Our debt had a maturity profile of 1.7 years and was 79% protected by fixed interest rate hedges, which protects the business against interest rate volatility,” said Mr O’Rourke.

The average cost of debt for the 2007 financial year was approximately 6.6% and the interest cover ratio was 3.3 times.

Mr O’Rourke stated that, as at 31 December 2007, Australand had a total of $152 million of debt facilities maturing this year, of which 74% had already been renewed since the start of 2008.

“Australand is well positioned with 97% of total debt secured by our portfolio of high quality assets, strong operating cash flows and solid banking relationships.   Australand’s financial fundamentals were strong and well supported by a strong balance sheet”, said Mr O’Rourke.

 
STRATEGY:

Mr Johnston said Australand’s focus was on delivering sustainable growth in earnings for security holders and outlined the following key areas of focus to deliver growth over the medium term:

• Leveraging its existing strong Residential and C & I developer platforms to create organic growth;

• Growing its existing funds management platform and capital partnering relationships to launch a new fund for C & I assets and a residential development fund in 2008;

• Expanding its footprint selectively into the industrial and logistic sectors in Asia; and

• Being prudent with its capital management by recycling capital and managing gearing levels.

OUTLOOK:

The recent volatility in capital markets creates some uncertainty in providing profit guidance for the 2008 full year.

Providing market conditions do not deteriorate significantly, Australand expects to deliver 2-3% earnings per security growth in operating profit after tax, excluding property revaluations, for the year ending 31 December 2008.  The Group expects to maintain distributions at the 2007 increased rate of 17.0 cents per stapled security.  

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Marc Pallisco

A freelance property analyst and journalist, Marc is a co-founder of realestatesource.com.au.

Marc Pallisco

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