Valad Announces 139% Increase in Underlying Earnings; Reaffirms FY08 Forecast
SYDNEY: Valad Property Group (ASX: VPG) today announced underlying earnings of A$74.7 million for the six months to 31 December 2007, an increase of 139% on the previous corresponding period. Distributions for the period were 6.25 cents per security, up from 5.40 cents per security and underlying earnings per security were unchanged at 5.00 cents. Valad reaffirms its forecast earnings and distribution per security for FY08 of 12.5 cents, subject to market conditions not deteriorating further.
“Valad traditionally has an earnings skew towards the second half of the year and this year is no different. Our 1H08 EPS represents 40% of expected full year earnings. We have had an excellent start to the second half of FY08 and remain comfortable that we will meet our earnings and distribution forecasts,” said Valad’s Chairman Stephen Day.
“Each of our four business lines including Property Ownership, Development & Trading, Funds Management and Valad Capital Services (VCS) are tracking well and have provided the Group with solid broad-based performance. Our presence across 13 countries enables us to manage earnings by focusing on the sectors and geographies where opportunities exist,” added Mr Day.
Capital Management:
* No unfunded debt expiring in FY08
* On balance sheet gearing (net debt / total assets) of 32%; look through2 gearing of 41%
* A$1.2 billion of debt available including over A$450 million available for general corporate purposes
* Fund debt is plain vanilla, non-recourse to Valad and backed by property assets
* Plan to maintain gearing at lower end of target range (40% to 50% on a look through basis). Non-core asset sales, establishing VCS fund product and other recycling opportunities may see gearing temporarily drop below range.
Jennifer Lambert, Valad’s Group Chief Financial Officer, said, “In the six months to December we have raised more than A$2 billion in debt from seven banks for our balance sheet, joint ventures and funds. Since December 2007 we have raised more than A$400 million on the same basis. Valad maintains strong relationships with major financiers and we remain comfortable with our financial position. We are also pleased to advise that none of our facilities are subject to cross collateralisation, indemnities or guarantees.”
Operational Highlights:
* Property Ownership – 145 properties on balance sheet and within JVs valued at A$1.8 billion and generating solid recurring earnings
* Development & Trading – 43 development projects with completion value of A$2.3 billion delivering pipeline of earnings.1H08 profits were derived solely from UK assets. Expect earnings from Australia and NZ to contribute in 2H08
* Funds Management – Excellent start to 2H08 with more than A$1.2 billion of debt and equity raised into four funds; anticipate 2H08 fund margins to improve in light of new fund and strategic joint venture initiatives
* VCS – Tracking ahead of forecasts in terms of both coupon and profit share; plans to introduce third party equity by end of calendar year Valad is benefiting from having a well diversified, simple business structure.
The Property Ownership business performed strongly achieving 46% of 1H08 EBITDA. The portfolio is weighted to Australia and New Zealand with approximately 60% of the Group’s total property assets by value and number.
Commenting on the Group’s property ownership in the UK, Peter Hurley, Valad’s Executive Chairman – Europe said, “Valad has been reasonably insulated from the full force of the UK market downturn given our value-add approach. Cap rate increases have been somewhat offset by Valad’s focus on properties where there are lease-up and repositioning opportunities. This drives higher rents and has a positive impact on valuations, all other things being equal.”
The Trading & Development business contributed 10% of 1H08 EBTIDA. These earnings were generated entirely from the UK where the Group successfully delivered on its trademark model of opportunistically acquiring, adding value to and divesting property assets. This is demonstrated by the sale of six properties sold at a premium to the price that Valad acquired them in July 07.
The Funds Management business contributed 17% of 1H08 EBITDA, with the global platform now comprising 17 major funds.
“We have a market leading funds management platform, as evidenced by our ability to raise A$1.2 billion in debt and equity from Australian and global investors in the first two months of this year, in an environment where all fund raising is challenging. This achievement is a clear reflection of investors’ recognition of our proven value-add approach,” said Mr Day.
The Group has been particularly active launching funds in both Australia and Europe/UK during 2H08.
Valad’s Nordic Aktiv Fund 2, a follow on to the successful Nordic Aktiv Fund 1 raised A$150 million of equity and A$320 million of debt in early January 2008. V Plus, Valad’s open ended platform for diversified value-add property investment, raised A$215 million in equity in January 2008, bringing total equity in the fund to A$442 million. Valad’s UK Opportunity Fund was launched in late January, raising A$340 million in debt and equity, with a mandate to capitalise on counter-cyclical arbitrage opportunities in the UK market. VOF12 was launched in February 2008, seeking to raise A$29.5 million from retail investors with the offer fully underwritten by nabCapital c.A$30 million.
The VCS business contributed 28% of 1H08 EBITDA. The business is tracking ahead of forecasts both in terms of coupon and profit share. The business is now advancing plans to introduce third party equity to this business by the end of the calendar year which will free up capacity, generate fee income and expand our product suite.
Outlook:
“Our outlook is strong. We are confident in our ability to maintain and grow earnings based on our diversified business platform of four key business lines across 13 countries.
“Valad is well positioned to ride out current difficult market conditions and can react quickly and opportunistically. We will continue to maintain prudent capital management and keep gearing at the lower end of our target range,” said Mr Day.
The Group’s strategy over the next six months will involve:
* Consolidating and capitalising on our businesses in existing geographies – Australia, NZ, UK and Europe;
* Continuing to integrate our UK/European platform;
* Improving margins across the business;
* Focusing on high ROE opportunities;
* Utilising proven development and value adding skills;
* Leveraging investor bases across regions; and
* Realising strategic opportunities through our Kimco alliance.
