report 2019 - augusta funds managementnorthland waikato bay of plenty hawkes bay canterbury lower...
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A N N UA LR E P O RT
2 0 1 9
255-257 Gympie Road, Kedron, Brisbane, Queensland, Australia
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12
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$54.4m
$169.3m
$42.9m
TARANAKI
BRISBANE
OTAGO
Total sum of the New Zealand and Australian portfolio:
Total of New Zealand and Australia properties under management:
Portfolio by location
74
1.8$ billion
Properties
Properties
Properties
Sum of valuations
Sum of valuations
Sum of valuations
28
1
6
2
4
9
4
$1,039.2m
$21.9m
$64.7m
$26.5m
$74.1m
$243.4m
$67.9m
AUCKLAND
NORTHLAND
WAIKATO
BAY OF PLENTY
HAWKES BAY
CANTERBURY
LOWER NORTH ISLAND
Properties
Property
Properties
Properties
Properties
Properties
Properties
Sum of valuations
Sum of valuation
Sum of valuations
Sum of valuations
Sum of valuations
Sum of valuations
Sum of valuations
View from 35 Graham Street, Auckland.Au
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Key Points from the Last Financial Year 08
01 Annual Review 11
Chairman and Managing Directors Letter 12
Strategy Update 16
Business Model 18
Material Variances Year On Year 20
Key Financial Information 22
Capital Allocation 24
Funds Management Focus 26
Augusta Industrial Fund 28
Asset Plus 30
Technology Investment 31
New Single Asset Funds 32
Augusta Residential and Augusta Tourism 33
02 Our People 35
Director Profiles 36
Senior Management of Augusta 38
Development Team 40
Corporate Governance 43
03 Financial Statements 55
Independent Auditor’s Report 84
Shareholder Statistics 88
Directory 90
Contents
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Con
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Key Points from the Last Financial Year
due the higher earnings from the funds management business, including the launch of the Augusta Industrial Fund.
116
34
%
%
Adjusted Funds from Operations1
(Non GAAP) to $7.7 million, equating to 8.8 cents per share (6.6 cps in the prior year).
launched raising
launched raising
Augusta Industrial Fund
Two new single asset funds
$171
$84
of equity across two capital raises.2
of equity.
mill
ion
mill
ion
net of tax increased
against the prior year to $6.95 million
Exit of final two Finance Centre assets
Continuing to invest in specialist talent to support business growth and new fund initiatives
1 Adjusted funds from operations (AFFO) is non-GAAP financial information and is a common investor metric, calculated based on guidance issued by the Property Council of Australia. Augusta considers that AFFO is a useful measure for shareholders and management because it assists in assessing the Company’s underlying operating performance. This non-GAAP financial information does not have a standardised meaning prescribed by GAAP and therefore may not be comparable to similar financial information prescribed by other entities. A reconciliation of the net profit after tax to AFFO is included in the annual report on page 23 which has not been independently reviewed by the auditors.2 Augusta Capital co-invested a further $19 million of equity on a long-term basis.
Profit and total comprehensive income for the year
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– primarily driven by retained earnings. This does not reflect the market value of the Funds Management business.
11%
Value Add Fund closed
Net assets per share has increased to
- this will reduce to $19m / 10% in FY20.
investment in Augusta Industrial Fund
$23 mill
ion
generating an
internal rate of return for investors.
from $0.96 in the prior year
98¢
All 4 offers were over-subscribed
Transition of Asset Plus management contract
Secured seed assets for the Augusta Tourism Fund and a future pipeline of opportunities
Balance sheet capability to support new initiatives
.75
.80
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Key M
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A N N U A LR E V I E W
Section One.
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Dear Shareholder,
The 2019 financial year was incredibly busy and rewarding.
The operating result is the strongest in the company’s history, with record operating earnings delivered for the year ended 31 March 2019.
This result occurred during the final period of our transition from a directly held asset vehicle into a specialist and diversified funds management model.
The results show the transition is paying off. Total Comprehensive Income After Tax was $6.95 million, representing a 116% increase on the prior corresponding period.
This was driven by strong income growth in the period comprised of a 47% increase in recurring management fee income to $9.32 million in addition to a 94% increase in transactional income to $4.13 million from the managed portfolio. The transactional income was delivered via a total of 65 transactions.
Adjusted funds from operations delivered an increase of 34% per cent to $7.74 million from $5.79 million in FY18.
In FY19, we raised $255 million of external equity, welcoming a number of new investors. In addition, $70 million of equity was underwritten by the company. The manged portfolio now stands at $1.8 billion across 56 funds being 2 multi-asset property funds and 54 single asset managed schemes across NZ and Australia.
It is important to note that this year’s result was delivered with a very different revenue profile to previous years, due to the effective redeployment of capital to support business growth. Rental income reduced as we exited the Finance Centre.
In the last annual report, the allocation of capital to drive growth and the relevant return on capital was outlined as the key strategic objective for Augusta. We are pleased to report that the Company has again demonstrated the ability to deliver on this strategic plan by continuing to launch and grow new fund initiatives, delivering an increase in recurring earnings and building strong pipelines for the launch of future funds.
Management has been focused on building the foundations required to drive this growth trajectory forward by maximising the balance sheet to support new fund opportunities and investing in the specialised talent required to deliver long-term, sustained growth at pace.
In the managed portfolio, fifteen divestments were completed during the 2019 year totalling $158m. This is consistent with our active management strategy to seek opportunities and realise gains when the investment horizon has been reached. We have also been successful in providing opportunities for investors to recycle their realised capital.
Key FY19 operating highlights: • Stage 1.0 of the Augusta Industrial Fund (June 2018)
• Establishment of the St Georges Bay Road scheme (September 2018)
• Secured two seed assets for the upcoming Tourism Fund (December 2018)
• Final exit of the Finance Centre (March 2019)
• Stage 2.0 of the Augusta Industrial Fund (March 2019)
• Establishment of a new Australian scheme (March 2019)
• Four over-subscribed offers were completed during the year, rising $255 million of external equity
The year of IndustrialThe launch of the Augusta Industrial Fund has made a significant contribution to the financial result as we completed two compelling capital raises. The Fund was established in June 2018 with an initial raise of $75 million and a second capital raise of $115 million was completed in March 2019, each being over-subscribed.
Four over-subscribed offers were completed during the year, raising $255 million of external equity. In addition, Augusta also committed long-term $19 million to the Industrial Fund, equalling a 10% stake. Investor demand remains strong, but so does the competition for product. Our competitive advantage is that we have a diversified buying mandate across our managed funds.
$5.6 million of earnings was derived from the Fund in FY19 and the balance sheet played a role in the Fund’s establishment and growth. Augusta warehoused the Hub asset prior to the Fund’s establishment, was an underwriter in respect to both capital raises and has committed to a 10% long term stake. Transaction fees were also derived in respect to the establishment of the Fund and subsequent acquisitions. Recurring management fees from the Fund now stand at approximately $1.8 million.
Letter from the Chair and Managing Director
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A pipeline for TourismIn the previous Annual Report, fund opportunities within the tourism and residential property sectors were identified as a key focus for Augusta in FY19, and we can now report that a strong foundation is in place for the future Tourism Fund to be launched shortly.
Significant work continues to be completed on the initial seed assets for the Tourism Fund.
The development at Cook St, Auckland of a Jucy Snooze Hotel continues to progress with a preferred contractor appointed and the building consent process nearing to a close.
At Man Street, Queenstown a procurement process for the hotel operator has been completed and negotiations are now being moved forward with the preferred operator. A contractor is also likely to be engaged on an early contractor involvement basis in the near term.
It is currently expected that the Tourism Fund will be launched in the third quarter, subject to the above key milestones being successfully completed.
In addition a number of other potential assets continue to be investigated and the Lakeview development is expected to provide stock for the Tourism Fund in the medium to long term.
The recently announced Lakeview project, of which Augusta will be a 25% partner, is the most significant hotel and residential opportunity in Queenstown with over a decade of future development, of which Augusta has the first right to acquire stages within the development. It compliments the two seed assets currently held and under development, establishing an attractive pipeline for the fund.
Negotiation of the development agreement with Queenstown Lakes District Council continues and any investment is subject to agreeing both the development terms and the partnership agreement terms.
“Our delivery of record results for FY19 demonstrates that our transition to a pure fund management model is paying off.”
NZME. - Building A, Graham Street
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Letter from th
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Man
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irector (Con
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Balance sheet composition to support growthAside from investing, warehousing and underwriting, the balance sheet dynamics now also consist of development exposures that enable us to generate opportunities in the fund management business.
The fair value of investments in managed product now stands at $41.9m across both the Industrial Fund and Asset Plus. As mentioned above, two tourism assets are currently held on balance sheet pre-launch of the upcoming Tourism Fund and this includes the funding of the necessary development works. A further example of creating a pipeline for future growth.
The Value-Add Fund was concluded during the year generating an 11.75% internal rate of return for investors. As a 10% shareholder Augusta was aligned with the investors and a $1.1 million performance fee was earned on the back of the Fund’s success.
Asset Plus, like all of our managed entities, is a long-term commitment and we have been patient in the investment selection process. The potential acquisition of 35 Graham Street (subject to shareholder vote) fits with the strategy by providing a running yield in the interim prior to a potential redevelopment in the medium term. We continue our search for further acquisitions and are motivated to create shareholder wealth through execution of the value-add strategy.
Investing in our people and our systems – key to our growth Augusta is a people business and having the right team in place is integral to driving the business forward. In FY19, we continued to invest in the acquisition of specialist talent to add depth and diversity of capability to our team as we broaden our product offerings.
The launch of new initiatives is not capital intensive (aside from our co-investment stake) but attracting and retaining capable people is essential to delivering on our strategic objectives to stimulate increased revenue and investment opportunities.
We have invested significantly in the necessary development management expertise, and the asset management team continues to grow also as we pursue value growth for our investors.
The width of the team also encompasses investor relations, marketing, legal and compliance, IT and
finance. Aside from the outsource of the property management, the remainder of the management of the portfolio is completed inhouse.
Technology is also a growing focus for our business and we see huge opportunities in areas such as automation and investor engagement. We have been and will continue to invest in this area in support of growing revenue opportunities, and realising business-wide operating efficiencies.
BoardKevin Murphy joined the Board in March 2018 and has been a valuable addition. Kevin’s banking and funds management background bring a dimension to the Boardroom table that fits with our strategic direction.
OutlookThe 2020 financial year for Augusta Capital is so far shaping up to be another strong period. In line with our strategic growth plan, the pipeline is well stocked with potential future funds or property acquisitions. Management are investigating and completing due diligence on a wide range of potential opportunities across both single and multi-asset funds. The strength of the results in FY20 will be subject to successful agreement and completion of those initiatives.
We have available balance sheet capabilities and carry a low-level of debt, leaving the business well positioned to deliver continued growth.
“We have continued to deliver on the strategic plan with the launch of new funds and strong pipelines in place for future growth.”
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The near-term priorities are set out below: • Tourism Fund launch – progress developments
prior to launch and look for additional tourism based opportunities.
• Progress Lakeview negotiations as we move towards development.
• Asset Plus – further acquisitions in line with strategy.
• Potential launch of Value Add Fund No. 2 – residential land development.
• Continuous improvement in how we operate and engage with investors.
• Active management – maximise opportunities within the managed portfolio.
• Building further strategic partners as we broaden our product offerings.
• Continue to seek further acquisition opportunities for existing funds and/or the establishment of new schemes.
The dividend has been increased post-balance date to 6.5 cents per share on an annualised basis, which is reflective of the increased earnings profile and potential opportunities, and this will continue to be reviewed on a quarterly basis.
In closing, we would like to extend our thanks to all shareholders for your continued support as well as to our directors and strategic partners. With your support the Augusta Capital brand is building in strength within the investment community, which is something we are all very proud of.
The Augusta Capital team has also had a very busy year and we thank our people for their efforts not just in respect to the management of the $1.8 billion portfolio, but the creation of new fund initiatives.
We look forward to updating you at the annual general meeting later this year.
P.J. Duffy Chairman 24 May 2019
M.E. Francis Managing Director 24 May 2019
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Strategy UpdateActivity
• Completion of two offers – 96 St Georges Bay Rd & Gympie Rd, Kedron in Brisbane
• $84m of equity raised (both offers oversubscribed)
• Divestment of assets
What it means for Augusta
Offeror Fees $2.8m.
Underwriting Fees $0.75m.
Total annualised recurring management fees now
at $4.7m.
• Portfolio value is now $300 million (9 properties)
• Completion of two capital raises - $171 million of external equity raised
What it means for Augusta
Total income in FY19 was $5.6m, including investment income, offeror, acquisition, management and
transactional.
Current annualised base management fee of
$1.8m.
10% long-term stake in fund.
• 35 Graham Street acquisition post balance date1
• Search for future acquisitions
What it means for Augusta
Transition complete. Patient approach and due diligence. 18.85% stake held by Augusta.
1 The acquisition of 35 Graham St remains subject to approval of Asset Plus shareholders.Au
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• Defining future strategy
• A unique opportunity within the NZ property sector
• Established April 2016
• Wound up April 2019 generating an IRR 11.75%
Coming soon.
• Two seed assets held on balance sheet (54 Cook St, Auckland & 17–19 Man St, Queenstown)
• Lakeview - future pipeline of Tourism product
• Fund launch in FY20
What it means for Augusta
Fund to be launched in the 3rd quarter of FY20.
Assets developed on balance sheet prior to
sale of Fund.
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Strategy U
pd
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tinu
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Use of Balance Sheet(Facilitate Growth)
Warehousing assets
Developments
Underwriting offers
Investment income
Intangible assets and Goodwill
New Deals(Investment in Growth)
Deal fees
Underwriting fees
Funds Management(Manage growth)
Recurring management fees
Development management
Transactional income
Current Activity
• Warehouse asset or pipeline for new managed product.
• Project delivery. 2 material developments in the Tourism sector with a further pipeline.
• Capital allocation to underwrite equity now live, 10% or greater investment in managed funds, creating alignment of interests.
People
• Significant investment in people to launch new funds. Material due diligence, funding, prospective financial information, offer documentation and AML (this involves the majority of the Augusta team).
Activity
• Derive offeror and acquisition fees.
• Underwriting income from allocating balance sheet.
People
• Focus on specialist capability to lead sector specific funds.
• In addition to the senior management team, there are dedicated asset management (6 people), finance and treasury (11 people), legal and compliance (3) as well as investor relations, IT and administration teams (7).
• Team of 5 managing developments as well as sourcing future opportunities.
• Asset team and development team lead all transactional activity (tenant negotiation working with external parties).
• High level of investor engagement, effective communication.
Activity
• Active asset management across a diversified portfolio of asset classes.
• Base management fees from managing $1.8 billion. Manage 74 properties or 54 schemes and two funds, $700 million of debt in managed schemes and over 4,500 investors.
• Development and project management, leasing and sales.
• Reporting to investors, meetings, secondary sales.
Business Model
Manage equity
Treasury management
Investor relations
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Material variances year on year- nature of the business changes
$5.96 million of offeror & acquisition fees
$4.13 million of transactional income
$5.2 million of net management fees*
$2.1 million of underwriting fees
of external equity raised by managed funds
Transactional income boosted by performance fee
Increase in recurring base management fees driven by Industrial Fund & Asset Plus
of equity underwritten
$255 $70mill
ion
mill
ion
An increase of $2.23 million or 60%
An increase of $2.00 million or 94%
An increase of $0.99 million or 24%
An increase of $0.64 million or 44%
$
* After payment of property management fees to Bayleys Property Services.Au
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$1.75 million from Asset Plus and Industrial Fund
$10.59 million of corporate costs
New COO appointment and investment in development team to support strategic ambitions
$2.98 million of net rental from Finance Centre and Hub asset*
A reduction in funding costs to $1.5 million
Investment income reduced due to exit of Value Add Fund
Investment in people
Finance Centre exit fully complete at balance date
A decrease of $0.015 million or 1%
An increase of $1.72 million or 19%
A decrease of $2.67 million or 47%
A reduction in funding costs of $1.27 million or 46% due to debt repayments
* These assets have been divested.
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Material varian
ces year on year (C
ontin
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)
Augusta's Net Revenue Profile ($m)
Funds Management Deal Fees
Net Property Rental Income
Investment Income
Funds Management Income
($M
)
Net Revenue
2015 2016 2017 2018 2019
13.62
16.96
19.10 18.89
22.04
3.68
4.57
5.37 6.66
7.02
3.285.71
6.329.31
0.711.77
1.76
6.665.15
7.98
6.02
5.65
2.98
Five Year Summary
Year Ended 31 March 20192019 ($m)
2018 ($m)
2017 ($m)
2016 ($m)
2015($m)
Net Revenue – Investment Portfolio 4.74 7.42 6.73 6.66 5.37
Net Revenue – Management Fees 5.19 4.19 3.76 2.43 2.54
Net Revenue – Transactional Income 4.13 2.13 1.73 0.85 1.14
Net Revenue – FM New Deals 7.98 5.15 6.66 7.02 4.57
Corporate & Administration Costs (10.59) (8.87) (8.14) (7.16) (6.36)
Net Funding Costs (1.50) (2.77) (2.16) (2.93) (3.09)
Total Comprehensive Income for the Year, Net of Tax 6.95 3.21 8.00 13.52 10.39
Adjusted Funds From Operations (AFFO) - NON-GAAP 7.74 5.79 6.75 5.68 4.86
AFFO – cents per share 8.84 6.63 7.71 6.50 5.80
($m) ($m) ($m) ($m) ($m)
Total Assets 102.0 140.9 134.8 136.8 124.4
Total Liabilities 15.9 56.7 49.4 54.8 55.2
Shareholders’ Equity 86.1 84.2 85.4 82.0 69.2
Shares on Issue (m) 87.53 87.53 87.53 87.42 83.78
Cash Dividends Paid (cps) 6.00 5.50 5.38 5.00 4.75
Net Tangible Assets Per Share (excluding intangible assets and goodwill) ($) 0.75 0.71 0.80 0.75 0.64
Net Assets Per Share ($) 0.98 0.96 0.98 0.94 0.83
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Key
Fin
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form
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Key Financial Information
*Other unrealised or one-off items - detail
Contingent Consideration Discount Adjustment - - - (0.03) 0.90
Fair Value (Gain)/Loss on Investments (0.42) 1.79 (0.78) - -
Transaction costs 0.64 0.66 1.41 - -
Comprehensive Income - Unrealised Gain/(Loss) on Investments - - 2.18 - -
Derecognition of intangible asset 1.65 0.49 0.83 - -
Non-operating current tax expense 0.82 0.64 - - -
Other Movements (0.02) 0.09 0.01 0.17 0.32
Other unrealised or one-off items 2.67 3.67 3.65 0.14 0.58
The below table outlines the material year on year movements;
2019 $m
2018 $m
Variance $m Commentary
Net Management Fees 5.19 4.19 1.00 Base management fees up due to Augusta Industrial Fund (AIF) and Asset Plus
Transactional Income fees and performance fee income
4.13 2.13 2.00 Transactional income up primarily due to divestments and performance fee
Net Deal Fee Income 7.98 5.15 2.83 4 offers completed in FY19
Investment Income 1.76 1.77 (0.01) Exit of Value Add Fund No. 1 offset by investment in Industrial Fund and Asset Plus
Net Rental Income 2.98 5.65 (2.67) Lower due to the divestment of the Finance Centre
Net Revenue 22.04 18.89 3.15
Corporate Costs (10.59) (8.87) (1.71) Investment in people
EBIT 11.45 10.01 1.44
Net Finance Costs (1.50) (2.77) 1.27 Lower debt profile post divestments
Net Profit Before Tax, Reval & One-Offs
9.95 7.24 2.71
AFFO 7.74 5.79 34%
AFFO CPS 8.87 6.63 34%
2019 ($m)
2018 ($m)
2017 ($m)
2016 ($m)
2015($m)
Adjusted Funds From Operations (AFFO) Reconciliation
Total Comprehensive Income for the Year, Net of Tax 6.95 3.21 7.75 13.52 10.39
Adjust For:
Loss/(Gains) from sales of investment property (0.52) (0.11) 0.02 (0.96) -
Fair value Loss/(Gains) on investment property - (0.80) (4.12) (7.07) (4.37)
Depreciation on owner occupier PP&E 0.23 0.30 - - -
Fair value Loss/(Gains) on the mark to market of derivatives (0.39) 0.02 (0.55) 0.47 1.44
Non-FFO deferred tax expenses (1.2) (0.50) - (0.42) (3.18)
Other unrealised or one-off items* 2.67 3.67 3.65 0.14 0.58
Adjusted Funds From Operations (AFFO) 7.74 5.79 6.75 5.68 4.86
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Key Fin
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(Con
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Capital Allocation
long term investment in Industrial Fund
of equity underwritten
$7
$52
.50million
million
Hub asset sold to Industrial Fund
Activity to 30 September 2018:
Asset Plus $17.9m Asset Plus
$18.3mValue Add Fund
$4.1m
Value Add Fund
$1.8m
Intangible assets & goodwill $21.7m
Intangible assets & goodwill $21.1mWarehoused
property $44.9m
Finance Centre $39.4m
Finance Centre $39.4m
Other Assets $12.9m Other Assets
$16.7m
Augusta Industrial
Fund $8.0m
March 2018 September 2018
(1st half of FY19)
and $0.5m investment exited in the second half of FY19
Debt drawn: $42.4m
Undrawn debt: $8m
Total debt facility: $50.4m
Debt drawn: $6.5m
Undrawn debt: $32m
Total debt facility: $38.5m
9.2% 12.7%
15.4%
31.9%
28.0%
15.9% 17.4%
7.6%
20.0%37.4%
2.8%1.7%
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Increase in Industrial Fund stake to
debt repaid
underwrite
- 2nd AIF capital raise (2nd half of FY19)
$23
$15$17
million
million
.50
.98
.80million
Purchase of 2 Tourism assets (to seed fund)
Exit of Finance Centre
Activity to 31 March 2019:
Asset Plus $18.2m
Intangible assets & goodwill
$20.2m
Warehoused property $30.5m
Other Assets $9.3m
Augusta Industrial
Fund $23.8m
March 2019
(March 2019)
(2nd half of FY19)
Debt drawn: $11m
Undrawn debt: $20m
Total debt facility: $31m
$30.5 million
29.9%
9.2% 17.8%
23.3%
19.8%
$19.0m long term investment and $4.8 million expected to be exited in FY20.
Asaleo - Castle Rock Business Park, Mary Muller Drive,
Hillsborough, Christchurch.
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Cap
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(Con
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Funds Management Focus
Assets Under Management
$ millionsNo. of
properties
Augusta Industrial 300.7 9
Asset Plus 123.1 3
Pipeline Assets Tourism 30.4 2
Single Asset Vehicles New Zealand 1,144.3 42
Single Asset Vehicles Australia 169.3 12
Other 36.5 6
Total 1,804.3 74
Split by Industry
$ millionsNo. of
properties
Industrial 659.9 33
Office 566.8 7
Retail 531.7 31
Tourism 45.9 3
Grand Total 1,804.3 74
12 Brick St, Henderson, Auckland
Split by Location
$ millionsNo. of
properties
Northland 21.9 1
Auckland 1,039.2 28
Waikato 64.7 6
Bay of Plenty 26.5 2
Taranaki 54.4 4
Hawkes Bay 74.1 4
Lower North Island 67.9 4
Canterbury 243.4 9
Otago 42.9 4
Brisbane 169.3 12
Grand Total 1,804.3 74
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Fun
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Man
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Focu
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Creating value for our investors through transactional activity
Key Events
AirwaysThis redevelopment project involves constructing a new air traffic control centre (ATC) - $15.75 million construction cost.
Spotlight StoreManagement of new development in Christchurch for Spotlight Group.
33 BroadwayCompleted development which is now home to Mercury Energy. $144 million as if complete value.
Tourism Asset DevelopmentsSecured assets and currently funding developments.
Value Add FundAll 5 assets now sold and capital return to investors generating an 11.75% internal rate of return.
2019
$’000
Sale Fee Income 15 divestments totalling $200m and generating $1.4 million of fee income 1,404
Leasing Fee Income $0.76 million of leasing income 759
Project Management Income $0.44 million of project management fee income 441
Other Fees 80 secondary market transfers 111
Development Fee Income Primarily 33 Broadway and Airways (Christchurch) 321
Performance Fee Income Value Add Fund concluded generating a 11.75% internal rate of return and performance fee of $1.1 million to Augusta
1,097
Net Transactional Income 4,133
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Augusta Industrial Fund
What does investor confidence in Augusta’s industrial fund look like? Two over-subscribed capital raises in less than a year.
Our two Augusta Industrial Fund offers have given investors the opportunity to access a sector that has outperformed all other commercial property sectors over the past five years. With a minimum investment level of just $10,000, the first capital raises in June 2018 launched a $121 million fund with four assets and 15 tenants.
Nine months later, our second capital raise was a similar success. The raise closed again oversubscribed, growing the fund to $296 million and taking the portfolio to nine properties and 47 tenants. The fund now has a 67 per cent weighting towards the Auckland market where demand for good industrial property remains very strong.
The fund’s growth illustrates our strategy to provide sustainable and stable returns through a carefully weighted mix of tenants, industries and locations. All sit within the strong performing industrial sector of the New Zealand property market, with seven properties in Auckland and one each in Wellington and Christchurch.
Fund metrics are important in helping manage the risk profile of the portfolio. The fund provides a 99 per cent occupancy rate and an excellent weighted average lease term (WALT) to expiry of close to six years. The weighted average lease term calculates the average lease length across the portfolio, weighted by income level. It is a measure of the longevity of income offered and the potential for properties in the portfolio to become untenanted, which may put income returns at risk.
A major benefit of the fund is the diversification across properties and industries, greatly reducing the risk profile. The portfolio includes a diverse range of tenants across stable sectors including logistics, healthcare consumables, manufacturing, furniture and homewares, electronics, consumer products and printing. These tenants include prominent national and international names such as Toll, Downer, Linfix, MacPac, Fujitsu, Fletcher Steel and Pacific Steel. Having tenants spread across sectors manages risk, by reducing exposure to an industry downturn, such as a fall in demand for construction materials.
With forecast income returns of 6.5 per cent per annum, strong risk management disciplines apply both within the current portfolio – and the assessment of future acquisitions. Like our investors, we use debt wisely to generate sustainable returns, with our strategy allowing for a long-term gearing target of 35-45 per cent.
Ben Harding Head of Asset Management and AIF Fund Manager
“Where to next? The immediate focus remains managing the existing portfolio extremely well to maximise current investors returns and take advantage of opportunities within the portfolio.”
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With our goal of stable returns, plus the potential for capital growth, we take a risk averse process to identifying future acquisitions. This includes weighing up the fit of a potential property within the current portfolio, its location – with preference given to sites in the “golden triangle” of Auckland, Hamilton and Tauranga – and proximity to key infrastructure including motorways, ports, airports, rail and central business districts.
Our aim is to target properties with long lease terms or other opportunities. We also look beyond the properties’ current form, to consider the growth potential that could be unlocked through a change of use or zoning in the future. This includes property on land with heavy industrial zoning, which may be rezoned to a higher and better use in the future, enabling a wider range of uses more aligned with current demand.
Where to next? The immediate focus remains managing the existing portfolio extremely well to maximise current investors returns and taking advantage of opportunities within the portfolio. As signalled during our second capital raise, a longer-term goal remains listing Augusta Industrial on the NZX Main Board. This would only occur if the scale of the fund and market conditions make it an appropriate option which will benefit investors as well as Augusta Capital as a cornerstone investor.
Portfolio size: $300 million
Number of assets: 9
Number of tenants: 47
WALT: 5.8 years
Occupancy: 99%
Passing yield (valuation): 6.64%
Investor return: 6.5% pre-tax cash return
Date established: June 2018
Equity raised (two raises)* $190 million
Total Fees & Income paid to Augusta
Total fees & income in FY19 $5.6 million
Current annualised management fees $1.8 million
* including Augusta stake.
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Asset Plus+
In March 2018 Augusta secured the management contract for Asset Plus Limited. Augusta is Asset Plus’ largest shareholder owning 18.85% of the company. This is a significant capital commitment as well as the purchase of the management contract. The past 12 months have been a period of transition, strategy setting as well as the search for value add propositions.
The potential acquisition (subject to shareholder approval) of the Auckland Council tenanted 35 Graham Street, Auckland property fits Asset Plus’ new strategy by providing an immediate uplift in earnings as well as redevelopment potential over the medium term. Augusta will derive an acquisition fee on settlement, while the annual base management fee will increase by $0.29 million as well as an increase in property management fees.
The Graham Street property has considerable potential for a re-positioning at the end of the two-year lease term to the Council. Potential options include various levels of refurbishment and re-leasing of the existing floors through to including the addition of a further two to three levels of office space. If a proposed redevelopment is completed in the future then Augusta will derive development management fees.
The Asset Plus and Augusta Boards are committed to growing the portfolio in a disciplined manner and the search for further opportunities continue.
The strategy for Asset Plus is;
1. To provide investors with an investment in adiversified portfolio of New Zealand commercialproperty with a ‘Yield Plus Growth’investment strategy.
2. Target long-term total returns greater than thebenchmark return threshold detailed by the S&P/NZX All Real Estate Index while maintaining a strongbalance sheet with a long-run average debt to assetsratio of approximately 35%.
3. Invest in assets (and recycle capital out of existingassets) based on sectors, locations and exposuresthat are attractive based on property, demographic,business or economic trends and which, as a portfolio,diversify risk across multiple sectors, regionaleconomies and tenants.
4. Asset Plus will adopt an active managementphilosophy encompassing asset and financialmanagement, strategic investments, acquisitions anddivestments and the judicious development of newand existing assets.
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Technology Investment
Both Augusta Capital and our managed funds have come through a period of significant change and growth. We are adapting to changes in both the global and local markets, and evolving to serve our shareholders and investors better.
Technology is part of this evolution. As head of technology for Augusta, Brendan Clough explains, “taking advantage of technology, is largely about figuring out how it can augment Augusta’s personal touch and improve the experience for both our investors and our staff.”
“Everything we do is relationship based, from securing an investors first investment in one of our funds, to keeping our investors informed about the performance of the fund, and its underlying properties and maintaining touch points through publications, events and meetings. As we grow, our investor base is expanding so our priority is to put systems in place that enable us to continue to deliver the connected and meaningful experiences that investors have always had.”
Augusta is implementing a best in breed Customer Relationship Manager (‘CRM’) system. This investment allows Augusta to capture investor details, preferences, and investment goals to provide staff a truly 360 degree view of each individual. This will allow us to both personalise contact to each specific investor, while streamlining processes that ensure the level of service is consistent and world-class.
“We may, for example, have a group of investors very interested in opportunities in a specific region, industry sector or only wholesale offerings. We will be able to tailor communications on investment opportunities and education, ensuring contact is relevant and timely for them.”
Data captured via this system will allow us, in the near future, to provide an online portal for investors to login in and easily access their personal investment details, see powerful visualisations around their Augusta investments, vote online on fund resolutions, and receive notifications around upcoming meetings and events.
“Our challenge is to ensure technology improves their experience with us, creates value for them and complements, but never replaces the personal touch we’re so well known for.”
In addition to a new CRM system Augusta is also exploring how technology can allow staff to be more productive and collaborative regardless of location. With ‘flexibility by design’ being a key pillar of Augusta’s tech strategy, we are aiming to enable staff to be their best without being tethered to a desk. Whether this is through the adoption of cloud document management systems, new video conferencing solutions that automatically transcribe meetings, or simply removing the need for desk-phones.
“From my perspective, what gets me really excited is how significantly we plan to change how staff complete work at Augusta. Through the power of process automation, artificial intelligence (‘AI’) and smart connected devices we have a very real opportunity to remove or seriously minimise the need for staff to complete manual non-value add work. It really is an exciting time to be part of an organisation where we are putting these pieces in motion.”
“Taking advantage of technology, is largely about figuring out how it can augment Augusta’s personal touch and improve the experience for both our investors and our staff.”
Brendan Clough IT Manager
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96 St Georges Bay Road
Purchase price: $116 million
Current valuation: $120 million
Number of tenants: 7
WALE: 11 years
Occupancy: 100%
Passing yield (purchase price): 6.50%
Investor return: 7% pre-tax cash return
Date established: September 2018
Equity raised: $68.5 million
The recently completed substantial commercial complex at 96 St Georges Bay Road consists of four levels of high quality office accommodation along with two levels of basement carparking. An impressive central atrium allows natural light to stream through and the well thought out floor plates also allow for future flexibility in the long term to vary tenancy sizes. Key tenants include Xero, Harrison Grierson and Independent Liquor. The developer, Mansons has also provided a 10 year warranty to eliminate any unforeseen capital expenditure.
Kedron
Purchase price: A$21.52 million
Number of tenants: 5
WALE: 7.34 years
Occupancy: 100%
Passing yield (purchase price): 6.47%
Investor return: 6.1% after tax
Date established: March 2019
Equity raised: A$14.8 million
255-257 Gympie Road has three well-presented two storey buildings with a total of 4,579 sqm of net lettable area over a 8,909 sqm site with low 33% site cover and 136 car parks. The location of the property is a major strength with the established and popular inner Northern suburb of Kedron only around 7 kms from the Brisbane CBD and the white collar demographic of the area providing substantial demand for childcare facilities.
Key tenants include Creche and Kindergarten Association Limited, INA Garden Villages Pty Limited, Accoras and DuluxGroup (Australia) Pty Limited.
New Single Asset Funds
Augusta Residential and Augusta Tourism
Augusta’s funds management strategy is all about diversity, anchored by our core competencies in asset management, development and funds management.
We‘re always looking at how we can give investors exposure to new sectors and new thinking in established sectors and a new source of returns.
Augusta Residential and Augusta Tourism are cases in point. They both have property as the central proposition, but each one responds to different market needs, risks and opportunities.
Augusta Residential is a work-in-progress with detailed research and risks analysis underway. We are looking at the changing dynamics and demographics for home ownership and the potential investment opportunities these provide.
It is an evolving market at both ends of the demographic spectrum. For younger New Zealanders, the reduced affordability of home ownership is making long-term rentals less of an exception and more of a rule. For their parents, the prospect of freeing up equity from the family home, but maintaining an independent lifestyle is also attractive. Through Augusta Residential we are aiming to develop a fund which provides innovative investment and lifestyle options. Initial investments will most likely focus on a fully funded land bank, although we remain in the research phase.
Augusta Tourism’s establishment as a fund is well underway. In November 2018 Augusta acquired 54 Cook Street in Auckland from Augusta Value Add Fund No. 1 Ltd. This property was the first seed asset for the tourism fund, and we have an agreement with tourism operator Jucy Snooze to convert the property into a “pod” hotel for the budget conscious market.
In Queenstown, Augusta Capital also purchased a five-star hotel development project, late last year, including the land, design, intellectual property and site work.
The intention is to acquire a 25 per cent stake in a partnership which is developing Lakeview, the former Queenstown camping ground. The consortium is led by Melbourne developer 94 Feet Property. The 3-ha site will be developed over 10 years and Augusta will have the first right to acquire parts of the development which will be sold into Augusta Tourism and potentially the Augusta Residential Fund.
We anticipate investors will welcome exposure to the tourism sector through a fund established to invest in tourism infrastructure, including hotels.
Our confidence reflects the strong performance of the sector with a record 3.7 million visitors in 2017 and forecasts of 5.1 million international visitor arrivals by 2024. Government studies have shown that almost 10,000 new hotels rooms will be required to meet demand across New Zealand’s main visitor destinations including Auckland, Rotorua, Wellington, Christchurch and Queenstown.
Investors and developers have responded to 2016 forecasts that showed 9,700 new hotel rooms would be required by 2025 across Auckland, Rotorua, Wellington, Christchurch, and Queenstown to meet visitor demand. However, updated analysis has continued to identify the supply and demand imbalances which support further investment.
– core skills transferring to new investment horizons
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Section Two.
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Director Profiles
Paul Duffy Independent Chairman Dip Urb Val
Paul Duffy has over 36 years’ experience in the property investment/development industry, including CEO/executive director of DNZ Property Fund (now named Stride Property) for 13 years. During his career, Paul held the position of general manager of Fletcher Property Limited and was joint managing director of US Real Estate Subsidiaries for the Abu Dhabi Investment Authority. In this role he oversaw the formation of a large real estate portfolio in the United States and Europe. Paul is currently a director of Asset Plus Limited, Leighs Construction and a number of other private companies.
Paul became a director on 2 November 2015 and is the chairman of both Augusta Capital and Augusta Funds Management.
Mark Francis Non-Independent Executive Director BCom (Fin)
Mark is the Managing Director of Augusta Capital and has served as a director since incorporation on 10 October 2006. Mark has a Bachelor of Commerce in Finance from the University of Otago and a background in finance and property in roles with Hendry Hay MacIntosh, Force Corporation Limited and Village Roadshow Australia Pty Limited. Mark formed Augusta Group Limited in 2001 and began property syndication through Augusta Funds Management in 2003. Mark is the largest shareholder in Augusta Capital is also a director of Augusta Industrial Fund Limited.
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Kevin Murphy Independent DirectorChartered Accountant, FCA
Kevin became a director of Augusta on 29 March 2018. He was formerly the Managing Director of TSB New Zealand (until January 2018) where he helped grow a small regional bank into the sixth largest retail bank in New Zealand with assets in excess of $7 billion. During his time as Managing Director he also served as a director of Fisher Funds, Payments NZ and the New Zealand Banking Ombudsman. Mr Murphy was previously the Vice President of Chartered Accountants Australia and New Zealand (CA ANZ). He currently serves as a director of SBS Bank and its subsidiary Finance Now Limited. He is also a director of Adele Senior Living Limited.
Bryce Barnett Non-Independent Executive Director Chartered Accountant, FCA, F.PINZ, MNZM
Bryce’s career started as a Chartered Accountant for the Inland Revenue before becoming Chief Accountant of the Moller Group of Companies. Bryce has held executive positions including Managing Director within publicly listed and private companies each with a strong emphasis on property. Bryce went on to form his own company, KCL Property Limited in 1994, which was acquired by with Augusta Capital in 2014. He became a director of Augusta Capital on 2 October 2014. His property experience over the last 48 years includes; commercial, industrial, larger format retail and residential development and investment in New Zealand and Brisbane, Australia. In 2017, Bryce was awarded both a Chartered Accountants Fellowship and is a Member of the New Zealand Order of Merit in recognition of his contribution to governance and philanthropy.
Mark Petersen Independent Director Dip Urb Val
Mark is a professional director and corporate adviser who has worked in the commercial property sector for the past 36 years. Initially working as a registered valuer, Mark’s background includes development management, project management and investment management. Mark was Managing Director of NZX listed Shortland Properties Limited from 1989 to 1999 and he is currently a director of CentrePort Limited, Wellington’s container port company and its subsidiaries. He is also an advisory Board member for Te Tumu Kainga, a trust administered by the Maori Trustee for the provision of affordable housing. Mark is a former director of Wellington Waterfront Limited, a former director of Australian property focused private equity funds which were established and managed by Grant Samuel and is a past Chair of the NZ Hockey Federation. Mark joined Augusta as a director on 19 February 2015. In 2018 he was also appointed chairman of the Augusta Industrial Fund Limited.
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Senior Management of Augusta
Simon Woollams Chief Financial Officer BCom (Accounting), CA
Simon joined Augusta in 2007. He is a Chartered Accountant and has a strong financial background, including roles with BDO and ANZ Bank in the property and finance teams, and has experience from the UK.
“Our balance sheet plays a key role in the business and we use it very actively. This is not just about making sure we get a good return on capital. It is also about the long-term story in terms of the creation of the value.”
“It is something I spend a reasonable amount of time on - not just the balance sheet today, but our forecast balance sheet. My role is ensuring we can support the various transactions we have on the go at any one time.“
“We are constantly having conversations with the banks around different scenarios and how they may play out. For me and my team, transparency with them is very important. They can see our planning, our risk management strategies and our forecasting, because of this, they have been very supportive. There are a number of elements throughout the balance sheet for both Augusta and the managed vehicles which support progress with our strategy but also value generation for our shareholders and investors.”
Adelle McBeth Head of Operations
Adelle started working for KCL Property in 2004 while studying at The University of Auckland before joining the team full time in 2007. She divides her time between the New Plymouth and Auckland offices, ensuring uniformity and consistency between the two teams. Adelle’s main responsibility has been investor relations including overseeing investor experience, all investor communications and activity, and working with the Finance and Asset teams to ensure our management focus remains investor centric.
As Investor Relations Manager, Adelle and her team are the first point of contact for potential investors wanting to know about investing with Augusta or general enquiries from existing investors. Adelle meets many of Augusta’s investors and potential investors throughout the country during our investment equity raises. “We have a special relationship with our investors, many of whom started out with KCL Property and stayed loyal when we merged with Augusta. We have people who have invested with us for more than 20 years and we are proud to know the majority by name, even through our growth periods we have stayed true to this personal approach. There is nothing more satisfying than hearing a new investor has invested off the back off an investors recommendation. This network we have created is testament to the expertise and culture of the team we have built and our investor centric philosophy.”
Now in a new role as Head of Operations, Adelle leads the Human Resource function with a strong focus on people and culture. This role includes developing and implementing strategies around recruitment and staff development that enhances the investor centric culture Augusta has built. “It’s important for the business that our organisational values are invisibly embedded in our culture and are upheld, and it’s my job to ensure this happens.”
In this year’s report, we are taking the opportunity to introduce some of our senior talent through a more in-depth profile.
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Luke Fitzgibbon General Counsel & Company Secretary LLB (Hons), BSc
Luke joined Augusta in January 2016 from Chapman Tripp where he spent 8 years in the corporate team where he advised on securities laws (including for Augusta’s syndications), mergers and acquisitions as well as general commercial and corporate advice.
Luke has been involved with Augusta and its key events well before starting as an employee. As a specialist in securities law, mergers and acquisitions in Chapman Tripp, he advised Augusta on capital raisings and then the merger with KCL.
“Being close to the business is excellent. Being involved, understanding what drives the business, understanding all the factors that support success and understanding the investors and shareholders is quite different to working with a bunch of legal minds. You get so many perspectives and it is a lot easier to add legal value to the mix being in here, with my hands in the engine.”
With a mandate to manage all of Augusta’s legal risks, he says his best work is unseen.
“The best way to add value for our shareholders and investors is to ensure legal issues and problems don’t materialise, risking value. There is a natural tension between Augusta shareholders and fund investors. Shareholders put money into the business, they provide the capital to buy the assets which ultimately go into the fund which in turn generate an income for the investors. There is a co-dependency there and we aim to get the balance right. Our shareholders also co-invest in our funds through Augusta, so in many ways they have a shared interest with our investors.”
“We believe we have the balance right and our repeat business would tend to support that.”
Joel Lindsey Chief Operating Officer BProp (Real Estate) / BA (Geography), M.PINZ
Prior to his return to New Zealand in 2014, Joel worked at Aviva Investors (London) where he worked his way from Analyst to Fund Manager and ultimately held the position of Senior Director – Real Estate. In that position, he was responsible for management of the £4 billion Aviva Life & Pensions real estate investment portfolio. On his return to New Zealand, Joel has worked at Panuku Development Auckland and was, until recently, the Head of Business Development and Project Director.
After Joel joined Augusta as Chief Operating Officer in July 2018, he was given an informal job description to match the formal one. It was three words: “Go for it.” He has been doing that ever since, drawing on a wealth of twenty years of property funds management experience.
A large part of his time is focused on asset and portfolio management to ensure assets are performing to their potential. “We don’t sit on assets as a passive manager, every asset has to earn its keep. A lot of team time is spent collectively discussing strategy and how we can drive value for both investors and shareholders.”
Joel fully subscribes to the Augusta values of treating investors’ dollars with care – preserving capital while generating competitive returns on it. “At Augusta we understand that many of our retired investors will have a limited source of income, so therefore we talk about risk management all the time. A fund manager bears an important fiduciary obligation as we are helping sustain people’s financial livelihoods. My mantra is never make assumptions when performing due diligence and turn every stone to drill down into the detail to ensure risks are covered.”
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Development Team
Investing in quality people has been an integral part of Augusta Capital’s growth strategy. That’s especially so as we have expanded on our historical syndication-based model (based on single assets) to bring investors more diverse investment opportunities through portfolio-focused funds.
Our development team has grown from one to five within the past two years, with a directive to source or create opportunities which fit our diverse investment mandates. Some will provide the bricks and mortar behind our industrial or tourism funds. Others may be initially owned by the listed business leveraging Augusta’s balance sheet capability ahead of seeding into a new fund under development, such as residential. All will be brought into Augusta’s fund management arm after a careful process of risk management and opportunity evaluation.
There is a return on the people investment through the value they generate for Augusta’s shareholders and the investors in our funds. How the return is generated will depend on the property and the development phase.
For example, if an existing property is redeveloped, it will create equity growth, and earnings accretion while providing increased security of that return. That’s because the project will also focus on securing a long-term lease, securing increased future income from the property, whilst retaining the option to divest to realise equity gains, or alternately secure an Net Tangible Asset (NTA) gain on the back of the development margin.
For new investors coming in, it is the creation of new products such as our tourism fund which generates new opportunities for investor value through development and investment in a burgeoning sector of the economy. With properties under development going into that fund, returns from the properties will be generated through leases or operating agreements, and upon completion will also be accompanied by an increase in net tangible assets through the development margin achieved.
Risk management is a crucial part of the development team’s role. They undertake due diligence on contracts and build in risk mitigation strategies around consenting, price and delivery for projects. This will include a range of contingency plans for project completion should the main contractor fail to meet obligations, or any other scenario eventuate.
In a process which spans turning the first sod to turning the master key, the development team runs extensive due diligence on sites (green or brown), commissions architects and other consultants to understand planning parameters and opportunities and runs feasibility and sensitivity studies. They procure operators and anchor tenants in conjunction with real estate partners and other stakeholders and manage all the legal documentation around transactions before integrating these ventures into the new funds, or adding stock to existing funds.
It is not unusual for the team to consider ten potential deals before proceeding with just one, nor it is unusual to invest upwards of $100,000 in due diligence ahead of that deal proceeding further.
Capital protection and growth is part of the team’s mandate, and an important one. In the initial phases of a fund being brought to market, it is Augusta’s balance sheet doing the heavy lifting as assets are developed or acquired and then warehoused before being transferred into a fund, releasing the capital for further development and warehousing. Work done to conserve and grow the capital through generating appropriate returns on it enables Augusta to continue along its growth path without the need for frequent capital raisings.
A prime example of growing investor equity through the development team sits in in the closure of the Value-Add Fund No 1 last financial year. The team worked exhaustively to reposition these five Auckland based assets, and divest all assets within a 2 year period for what was prescribed to be a 5 year fund lifespan, whilst hitting the targeted 11-14% IRR.
Augusta has also leveraged this successful track record to secure the management rights to Asset Plus Limited, formerly NPT. Augusta’s active management, expertise in repositioning assets, and development experience was instrumental in being awarded this contract to deliver the value-add “yield plus growth” strategy this listed company has now adopted. Augusta holds an 18.85% stake in Asset Plus ensuring our interests are aligned with other investors and providing another platform for investors to access the range of investment offerings managed by Augusta.
Mark Johnston Project Manger
Stephen Brown-Thomas Senior Development Manager
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Will Ellison, Senior Development Manager and Dan Mahony, Property Development Manager.
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Airways - 20-26 Sir William Pickering Drive, Burnside, Christchurch
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Corporate Governance
The Boards of Augusta Capital and Augusta Funds Management are committed to maintaining the highest standards of business behaviour and accountability.
Accordingly, each Board has adopted corporate governance policies and practices designed to promote responsible conduct throughout the Augusta Group.
The corporate governance framework is set out in the Board Charter, a copy of which can be found at the Company’s website: www.augusta.co.nz/investor-centre/augusta-capital by scrolling down to the “Corporate Governance” section.
This section sets out Augusta’s corporate governance policies, practices and processes by reference to the NZX Corporate Governance Code’s eight key principles and supporting recommendations.
The Board has followed the recommendations of the NZX Corporate Governance Code, except in respect of establishing a Nomination Committee for reasons set out in this section.
Principal 1 - Code of Ethical Behaviour“Directors should set high standards of ethical behaviour, model this behaviour and hold management accountable for these standards being followed throughout the organisation.”
A Code of Ethics has been adopted to apply to all employees and directors. The Code sets out the minimum standards expected of Augusta’s employees and directors and is intended to facilitate decisions that are consistent with Augusta values, business goals and legal and policy obligations.
A copy of the Code of Ethics is available at www.augusta.co.nz/investor-centre/augusta-capital. The Code sets out expectations regarding conflicts of interest, gifts, corporate opportunities, confidentiality, expected behaviours, use of Augusta’s assets and information and general compliance with laws and policies.
The Code provides for potential breaches to be reported to the Chair of the Board or Chair of the Risk and Compliance Committee. Any employee who reports
a breach is to be supported and their identity kept confidential where possible.
All new directors and employees must sign an acknowledgement that they have read and agree to be bound by the Code of Ethics. Potential breaches are monitored through Augusta’s Compliance Assurance Programme.
Augusta has also adopted an Insider Trading Policy which sets out the rules for dealing in the listed financial products of Augusta and any entity that Augusta manages (including Asset Plus). The policy prohibits trading by any employee or director of Augusta without the written consent of the Chair. Other than in exceptional circumstances, all trading is prohibited during blackout periods for 30 days prior to half- and full-year balance dates until the first trading day after the relevant results are announced.
Principal 2 - Board Composition & Performance“To ensure an effective board, there should be a balance of independence, skills, knowledge, experience and perspectives.”
Board CharterAs part of the Board Charter, the Board has identified the following as its main functions:
• From time to time, select and (if necessary) replace the Chairperson;
• Ensure the company has a competent management team;
• Ensure that there are adequate management resources to achieve the Group’s objectives;
• Review and approve the strategic, business and financial plans prepared by Management and to develop a depth of knowledge of the Group’s business so as to understand and question the assumptions upon which such plans are based and to reach an independent judgment on the probability that such plans can be achieved;
www.augusta.co.nz/investor-centre/augusta-capital by scrolling down to the “Corporate Governance” section
The corporate governance framework is set out in the Board Charter, a copy of which can be found at the Company’s website:
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• Review and approve individual investment anddivestment decisions which the Board has determinedshould be referred to it before implementation;
• Review and approve material transactions not in theordinary course of the Group’s business;
• Monitor the Group’s performance against itsapproved strategic, business and financial plans andto oversee the Group’s operating results on a regularbasis so as to evaluate whether the business is beingproperly managed;
• Ensure the Group meets its statutory responsibilityfor the affairs and activities of the Group includingproviding annual financial statements that complywith generally accepted accounting practice andprovide a true and fair view of the Augusta Group’sfinancial position;
• Protect and enhance the value of the assets of theAugusta Group for the benefit of shareholders,through the approval of appropriate corporatestrategies (particularly those relating to capitalstructure, acquisition and divestment proposals andcapital expenditure) and review of the performanceof management;
• Delegate responsibility to management to implementand deliver the adopted corporate strategiesdetermined by the Boards;
• Ensure effective disclosure policies and proceduresare fulfilled to maintain a fully informed market;
• Ensure ethical behaviour by the Group, the Boardsand management, including compliance with eachcompany’s Constitution, the relevant laws, listingrules and regulations and the relevant auditing andaccounting principles;
• Implement and from time to time review theGroup’s Code of Ethics, foster high standards ofethical conduct and personal behaviour and holdaccountable those directors, managers or otheremployees who engage in unethical behaviours;
• Ensure the quality and independence of the Group’sexternal audit process;
• Assess from time to time each Board’s effectivenessin carrying out these functions and the otherresponsibilities of the Board.
The Board Charter also deals with a number of other matters including:
• Board composition;
• The Chairperson’s role;
• Director empowerment assurance;
• Director responsibilities;
• Conflicts of interest;
• Board committees;
• External audit policy;
• Remuneration policy;
• Shareholder participation; and
• Reporting and disclosure.
Director Nominations and AppointmentsWhere a board vacancy arises or is imminent, the Board has delegated responsibility for identifying external candidates to the Chair. All candidates identified are presented to the full board for consideration with selected interviews undertaken between the potential nominee and directors. When a preferred candidate is identified, a range of fit and proper background checks are conducted before the candidate is nominated or appointed as a director. If the director is appointed by the Board under its constitutional powers, full information on the director will be presented at the next shareholder meeting where the director retires and offers themselves for re-election.
Formal agreements are entered into with all new directors.
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Board CompositionThe Company’s constitution requires that at least one half of the Board be comprised of independent directors.
Background profile information on each of the directors is set out on pages 36 – 37.
Director Position and Committee MembershipsDate of Appointment Last Re-Elected
Paul Duffy Board ChairIndependent DirectorChair, Remuneration CommitteeMember, Audit and Treasury Committee
2 November 2015 24 July 2018
Mark Francis Managing DirectorChair, Health and Safety CommitteeMember, Risk and Compliance Committee
10 October 2006 N/A
Bryce Barnett Executive Director 2 October 2014 31 August 2017
Mark Petersen Independent DirectorChair, Audit and Treasury Committee Member, Health and Safety Committee Member, Risk and Compliance Committee
18 February 2015 24 July 2018
Kevin Murphy Independent DirectorChair, Risk and Compliance CommitteeMember, Audit and Treasury Committee
29 March 2018 24 July 2018
Information on director shareholdings is set out on page 51.
Directors undertake continuing education to keep their skills current and understand how to best perform their duties. For example, during the past financial year the full board attended health and safety training by an external facilitator and has also received training on the Augusta group’s anti-money laundering compliance obligations.
The Chair undertakes regular reviews of the Board’s performance.
The following table outlines attendance at Board and Committee meetings during the 2019 financial year:
Board attendance at meetings
DirectorBoard
MeetingsAudit and Treasury
CommitteeRisk and Compliance
CommitteeHealth & Safety
CommitteeRemuneration
Committee
Paul Duffy 12/12 2/2 - - 2/2
Mark Francis 11/12 - 2/3 4/4 -
Bryce Barnett 10/12 - - - -
Mark Petersen 12/12 3/3 3/3 4/4 -
Kevin Murphy 11/12 2/2 3/3 - -
Martin Goldfinch 2/2 1/1 1/1 - 1/1
John Loughlin 2/3 1/1 - - 1/1
DiversityAugusta’s Board acknowledges the importance of leadership in the area of diversity and are committed to promoting an inclusive workplace that fosters and promotes diversity at all levels. Accordingly, the Board has adopted a diversity policy in May 2018 to recognise this.
The policy includes the following diversity objectives:
• Ensuring pay equity;
• Encouraging and supporting flexibility inthe workplace;
• Offering paid parental leave for both male andfemale employees;
• Promoting awareness of the importance of a diverseand inclusive workforce;
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• Encouraging employees to offer views andsuggestions towards achieving organisational goals;
• Promoting a working environment free fromdiscrimination, harassment and victimisation; and
• Reviewing our systems, policies and practices to makesure an inclusive approach is taken.
In addition, the Board has set the following measurable objectives:
• A diversity and inclusion scorecard which measuresemployee composition by gender, age, ethnicity andsexuality will be presented to Augusta’s Board onan annual basis for review. Action will be taken toaddress concerns if they are raised; and
• At least one female candidate must be included in ashort list for every full-time job position being offered.
The Board considers that it has met the objectives under its diversity policy.
Breakdown of Gender Composition of Augusta’s Directors and Employees
Year ending 31 March
2019
Year ending 31 March
2018
Directors 5 7
Officers 3 3
Other employees 19 15
Directors 0 0
Officers 0 0
Other employees 17 16
Principle 3 – Board Committees “The board should use committees where this will enhance its effectiveness in key areas, while still retaining board responsibility.”
To assist each Board in carrying out their objectives and functions, the Boards of Augusta Capital and Augusta Funds Management each have a number of formally constituted committees. The charters for each of the Committees are available at www.augusta.co.nz/investor-centre/augusta-capital.
The committees are as follows:
Audit and Treasury CommitteeThe Audit and Treasury Committee of each group company is responsible for:
• Monitoring and reviewing the effectiveness of theCompany’s controls in the areas of financial reporting(including matters such as internal controls andauditors); and
• Overseeing the management of all treasury functions,including interest rate and LVR risk for both AugustaCapital and all managed entities.
The members are all independent directors being Mark Petersen (Chair), Paul Duffy and Kevin Murphy. Kevin Murphy has an accounting background.
Employees only attend meetings of the Audit and Treasury Committee at the invitation of the committee.
The Committee also holds discussions with the auditor without management present.
Risk and Compliance CommitteeThe Risk and Compliance Committee of each group company assists the Board in:
• Discharging its responsibilities relative tocompliance with policies and procedures andregulatory obligations;
• Oversees the Company’s risk managementframework; and
• Oversees management of potential conflicts betweenthe various managed entities whichAugusta manages.
The members are Kevin Murphy (Chair), Mark Petersen and Mark Francis.
Remuneration CommitteeThe Remuneration Committee is a committee of the Augusta Capital board only. It addresses remuneration policy, recommendations on director remuneration as well as setting salary terms and conditions and approving senior management remuneration. The members are Paul Duffy (Chair) and Kevin Murphy.
Management only attend meetings of the Remuneration Committee at the invitation of the committee.
Health and Safety CommitteeThe Health and Safety Committee of each group company assists the Boards to fulfil their health and safety responsibilities and ensure compliance with all relevant legislative and regulatory requirements. The committee reviews all health and safety incidents and oversees the due diligence on health and safety risks within the managed portfolio.
The members are Mark Francis (Chair) and Mark Petersen.
Due Diligence CommitteesAs applicable, each group company convenes a due diligence committee to review the due diligence completed on any acquisition to be undertaken by a group company. The committee typically comprises of an independent director as chair, an executive director, members of management and representatives of the Company’s legal advisers.
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Nominations CommitteeThe Board has not established a nominations committee as, due to its size, all functions in respect of director nominations and appointment are carried out by the Board.
Takeover ProtocolsIn May 2018, the Board adopted protocols setting out the procedures to be followed if a takeover offer is received.
Principle 4 – Reporting & Disclosure “The board should demand integrity in financial and non financial reporting, and in the timeliness and balance of corporate disclosures.”
Continuous disclosureAugusta has adopted a continuous disclosure policy setting out its approach to:
• Identifying and determining whether information is material;
• Managing the confidentiality of information;
• Disclosing material information to the market; and
• Communication with media, brokers, fund managers, market analysts and shareholders.
The policy includes examples of information that Augusta believes could be material information in the context of its business.
A copy of the policy is available on Augusta’s website at www.augusta.co.nz/investor-centre/augusta-capital, along with all other board charters, policies and Augusta’s code of ethics.
Non-Financial DisclosuresThis annual report contains various non-financial disclosures on the Group’s achievement of its strategic goals for the development of its funds management business through new multi- and single-asset funds, as well as profiles on certain Augusta staff.
Principle 5 – Remuneration “The remuneration of directors and executives should be transparent, fair and reasonable.”
Remuneration of directors, senior management and all other staff is reviewed by the Board’s Remuneration Committee.
Augusta sought a substantive increase in director fees at the 2018 annual meeting where shareholders approved an increase in the director remuneration pool to $553,000 per annum. The notice of meeting was accompanied by a report from remuneration consultants setting out the basis for the level of fees sought and a comparison to other director fees in the market. Similar information will be provided to shareholders alongside any future requests for an increase in the approved director fee pool.
Director Remuneration
Director
Base director
fees Committee Fees Total
Paul Duffy 131,000 Augusta Industrial Fund No 2 offer PDS 2,000 133,000
John Loughlin 17,750 Member, Audit and Treasury Committee 1,000 18,750
Mark Petersen 68,333 Chair, Due Diligence Committee Augusta Industrial Fund 10,000
Chair, Due Diligence Committee St Georges Bay Road 5,000
Chair, Audit and Treasury Committee 8,667
Member, Risk and Compliance Committee 2,333 94,333
Kevin Murphy 68,339 Industrial Fund No.2 offer PDS 2,000
Member, Audit and Treasury Committee 3,327
Chair, Risk and Compliance Committee 6,668
Chair, Due Diligence Committee Kedron 5,000
Member, Audit and Treasury Committee 2,333 87,667
Martin Goldfinch 13,750 13,750
299,172 Total 347,500
Approved Pool* 553,000
During the financial year Bryce Barnett received remuneration and benefits of $511,292 ($525,860 : 2018) for his services as an employee. No director fees were paid.
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Short Term Incentive PaymentsShort term incentive payments are based on a combination of company financial measures and individual key performance indicators. For all employees of Augusta, there are three initial indicators that must be met before any employee is eligible for an STI payment:
• The Company’s net profit before tax is equal to or greater than 75% of the budgeted amount;
• There is no controllable health and safety event on an Augusta managed property which results in a death; and
• Augusta Funds Management’s licence under the Financial Markets Conduct Act to be a manager of managed investment schemes is retained.
Mark’s STI payment is divided into the following measures and relative weightings:
• 35%: Measured by reference to the Augusta Group’s performance against its budgeted net operating profit before tax;
• 35%: Measured by reference to the Augusta Group’s recurring management fee income;
• 30%: Measured against individual key performance indicators.
For the 2019 financial year, the Remuneration Committee has determined that the STI amount payable was $193,750.
Long Term Incentive PaymentsMark Francis participates in Augusta Capital’s long term incentive plan which was established in 2015. Under the plan, participants are issued performance share rights. The number of performance share rights equals the dollar value of their LTI grant divided by the VWAP of Augusta Capital shares as at 1 April in the relevant year. Each performance share right entitles the holder to be issued 1 share if the relevant performance hurdle has been achieved and the employee remains employed at the end of the vesting period (which is four years from 1 April in the year in which the LTI is granted).
Each grant of performance share rights is divided into two equal tranches with the following respective performance hurdles:
• Performance against the NZX50 index over the vesting period: Augusta Capital’s total shareholder returns over the period must exceed the 50th percentile of the total shareholder returns for the companies in the NZX50 at the commencement of the vesting period;
• Performance against the NZX All Real Estate index over the vesting period: Augusta Capital’s total shareholder returns over the period must exceed the 50th percentile of the total shareholder returns for the companies in the NZX All Real Estate index at the commencement of the vesting period.
A tranche of 246,792 performance share rights became eligible for vesting on 31 March 2019. The Board has determined that 123,396 rights will vest and may be exercised.
The Company’s remuneration policy for senior management is to generally pay at or around market remuneration for similar companies. STI and LTI payments are generally each between 20% and 30% of base salaries. Requirements for STI payments are as outlined below under Managing Director’s Remuneration except that relative weightings vary between senior managers.
Managing Director RemunerationMark Francis’ employment agreement for his role as Managing Director commenced on 1 April 2012 (prior to that he was employed by the Company’s external manager). Details of his remuneration for the 2019 financial year were:
Base Salary Benefits* Subtotal STI LTI Subtotal Total
$550,000 $6,000 $556,000 $193,750 $250,000 $443,750 $999,750
* Includes a carpark
KiwiSaver contributions of 3% are also payable on the base salary and any STI payment granted.
For the 2020 financial year, his remuneration is proposed to be:
Base Salary Benefits Subtotal STI LTI Subtotal Total
$625,000 $6,000 $631,000 $275,000 $250,000 $525,000 $1,156,000
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Current grants that are yet to rest are:
Commencement Date
Vesting Date Number of performance share rights
1 April 2016 31 March 2020 97,362
1 April 2017 31 March 2021 148,588
1 April 2018 31 March 2021 235,183
A grant to the value of $250,000 with a commencement date of 1 April 2019 and vesting date of 31 March 2022 has been indicatively approved. The performance hurdles applying to this tranche are yet to be confirmed.
Remuneration of employees whose remuneration and benefits exceeded $100,000
2019 2018
750,000 - 759,000 - 1
730,000 - 739,999 1 -
520,000 - 529,999 - 1
510,000 - 519,999 1 -
400,000 - 409,999 - 1
380,000 - 389,999 1 -
360,000 - 369,999 - 1
280,000 - 289,999 1 -
250,000 - 259,999 1 -
230,000 - 239,999 1 1
210,000 - 219,999 1 1
180,000 - 189,999 1 2
170,000 - 179,999 2 -
150,000 - 159,999 3 2
140,000 - 149,999 - 2
130,000 - 139,999 1 -
120,000 - 129,999 2 1
110,000 - 119,999 3 1
100,000 - 109,999 1 -
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The amounts included in the above table reflect amounts actually paid during the financial year, as required by the Companies Act. As a result, it reflects short term incentive payments for the 2018 financial year which were paid in May 2018. Short term incentive payments for the 2019 financial year have been paid during the 2020 financial year.
Principle 6 – Risk Management “Directors should have a sound understanding of the material risks faced by the issuer and how to manage them. The Board should regularly verify that the issuer has appropriate processes that identify and manage potential and material risks.”
Augusta has a risk management framework to identify, oversee, manage and control risks that both Augusta and its managed entities face. Key risks have been identified including misstatements in offer documents, interest rate and treasury risk, cyber security, development and construction, compliance with regulatory obligations, property risks (such as tenant default), fraud and health and safety risks.
Each of the Board committees has responsibility for certain risk matters:
• Risk and Compliance Committee: general oversight of risk management as well as internal testing of Augusta’s compliance assurance programme;
• Audit and Treasury: financial report, internal controls regarding accounting and payments and interest rate/LVR risks.
• Health and Safety Committee: oversight of Augusta’s health and safety obligations, including current health and safety risks such as the seismic status of buildings and asbestos within buildings.
Each of the above committees meets on a quarterly basis.
In addition, the Due Diligence Committees established are responsible for overseeing the accuracy of all statements in offer documents.
Health and SafetyWith a managed portfolio currently containing 74 properties, Augusta faces a range of potential health and safety risks in respect of those properties. Each property has a hazard register which is managed on a day to day basis by Bayleys Property Services and overseen by Augusta’s asset managers.
Augusta’s Legal and Compliance Manager oversees compliance with Augusta’s health and safety framework including regular reporting to the board. This includes monthly reporting to the Board on key health and safety statistics and incidents in addition to quarterly reporting to the Health and Safety Committee which considers all health and safety hazards and incidents.
A health and safety assessment is conducted of all new properties to identify all relevant hazards prior to acquisition.
Principle 7 – Auditors “The board should ensure the quality and independence of the external audit process.”
The Audit and Treasury Committee Charter sets out Augusta’s framework for managing relationships with its auditor. This includes the ability for directors to communicate directly with auditors and for auditors to attend meetings of the Audit and Treasury Committee without management present. Any non-audit services provided by the audit firm must be approved by the Audit and Treasury Committee.
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EY has been the auditor of Augusta since its listing with the audit partner rotated every 5 years. EY attends each annual shareholder meeting and is available to answer shareholder questions at the meeting.
Augusta has no separate internal audit function. Instead members of the finance team conduct internal audit functions on other parts of the finance team who they are independent of (for example, members of the corporate finance team conduct internal audit procedures on the syndicate finance team). Some internal audit functions are also conducted as part of Augusta’s compliance assurance programme.
Principle 8 – Shareholder Rights & Relations “The board should respect the rights of shareholders and foster constructive relationships with shareholders that encourage them to engage with the issuer.”
Augusta’s website at www.augusta.co.nz includes a range of information including bios for directors and all staff, copies of board charters, the constitution and historical annual and interim reports.
The Company engages with shareholders through annual and interim reports, results conference calls, presentations to shareholders and the annual shareholder meeting.
Shareholders have the right to receive communications electronically by notifying the share registrar. Major decisions which require approval under the NZX Main Board Listing Rules are submitted to shareholders for approval (such as the sale of the Finance Centre in 2016). All voting at shareholder meetings is conducted by a poll.
The annual shareholders notice of meeting will be provided to shareholders at least 28 days prior to the annual meeting.
Statutory Disclosures
Nature of Operations & Principal ActivitiesThe principal activities during the period were investment in real property (through co-investment in managed funds) and the establishment and management of funds specialising in real property. There has been no change in the nature of these activities during the period.
Directors Relevant Interests in the Shares of the CompanyThe interests of the Directors in the shares of Augusta Capital Limited as at 31 March 2019 were:
Director Nature of InterestNumber of
Shares
Mark Francis Beneficial owner 14,620,000
Bryce Barnett Beneficial owner 5,000,000
Directors’ InterestsDuring the year ended 31 March 2019 there were no dealings in Augusta Capital shares involving Directors of the Company or its subsidiaries.
Indemnification and Insurance of Directors and OfficersThe Company has agreed to indemnify all the Directors for:
(a) Costs incurred in defending any liability for any act or omission made by the Director in their capacity as a director and for to which they are acquitted, judgment is given in their favour or the proceeding is discontinued;
(b) Any liability in their capacity as a director (other than liability to the Company or its subsidiaries) for any act or omission as a director except where due to the wilful default or fraud, any criminal liability, breach of the duty to act in good faith, breach of any fiduciary duty and any other liability for which the giving of an indemnity is prohibited by law.
During the financial year, the company has paid premiums (as permitted by sections 162(3)-(5) of the Companies Act 1993) in respect of a Directors and Officers Liability Policy insuring all the Directors of Augusta Capital Limited (subject to the policy terms and conditions) against claims arising whilst they are acting in their individual or collective capacities as Directors and Officers.
The payment of insurance premiums was expressly approved by the Board, who consider the cost is fair to the Company.
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Interests RegisterIn addition to the disclosure above regarding share acquisitions and director indemnities and insurance, the following are relevant disclosures in relation to changes in the Interests Registers of the Company and its subsidiaries following 1 April 2018:
Director Company / Transaction Interest
Paul Duffy
Asset Plus Investments Limited (name change from Eastgate Shopping Centre Limited)
Director
Mark Francis
Augusta Industrial Fund No. 1 Limited Director
Augusta Industrial Fund No. 2 Limited Director
Issue of Performance Share Rights under Augusta Capital Long Term Incentive Plan
Participant in Augusta Capital Long Term Incentive Plan
Bryce Barnett
Issue of Performance Share Rights under Augusta Capital Long Term Incentive Plan
Participant in Augusta Capital Long Term Incentive Plan
Kevin Murphy
Adele Senior Living Limited Director
SBS Bank Director
Finance Now Limited Director
SBS Money Limited Director
The Warehouse Financial Services Limited Director
TW Financial Services Operators Limited Director
Mark Petersen
Augusta Industrial Fund Limited Director
Augusta Industrial Fund No. 1 Limited Director
Augusta Industrial Fund No. 2 Limited Director
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DirectorshipsThe names of the directors of the Company are set out in the Director Profiles on pages 36-37.
The following person held office as directors of the Company’s subsidiaries at 31 March 2019:
Main Operating Subsidiaries• Augusta Funds Management Limited: Paul Duffy,
Mark Petersen, Bryce Barnett, Kevin Murphy and Mark Francis
• Metroclean Limited: Mark Francis (Metroclean was removed from the Register of Companies on 29 April 2019)
• Augusta Property Holdco Limited: Paul Duffy, Mark Petersen, Bryce Barnett, Kevin Murphy and Mark Francis
General Partners of Limited Partnerships Managed by Augusta Funds Management LimitedThe following subsidiaries act as the general partner of limited partnerships which are managed by Augusta Funds Management Limited:
• AFM GP (Ashburton Central) Limited: Mark Francis and Bryce Barnett
• AFM GP (Building A Graham Street) Limited: Mark Francis and Bryce Barnett
• AFM GP (Building B Graham Street) Limited: Mark Francis and Bryce Barnett
• AFM GP (Hugo Johnston Drive) Limited: Mark Francis and Bryce Barnett
• AFM GP (Peachgrove Road) Limited: Mark Francis and Bryce Barnett
• AFM GP (Shands Road) Limited: Mark Francis and Bryce Barnett
• Sherbrooke Rd Partners Pty Limited; Bryce Barnett and David Krishnan
• Quinns Hill Rd Partners Pty Limited; Bryce Barnett and David Krishnan
• AFM GP (Sir William Pickering Drive) Limited: Mark Francis and Bryce Barnett
• Augusta Kedron Partners Pty Limited: Mark Francis, Bryce Barnett and David Krishnan
In addition, the following subsidiary has been incorporated to act solely as an initial limited partner when limited partnerships are formed:
• AFM LP Limited: Mark Francis and Bryce Barnett
Nominee companies for proportionate ownership schemesThe following companies act as nominee companies holding real property and other assets on bare trust for proportionate ownership schemes managed by Augusta Funds Management Limited:
• Branston Street Nominees Limited: Mark Francis and Bryce Barnett
• Courtenay St Equities Limited: Mark Francis and Bryce Barnett
• King Street Nominees Limited: Mark Francis
• Manukau Rd Equities Limited: Mark Francis and Bryce Barnett
• Ronwood Ave Equities Limited: Mark Francis and Bryce Barnett
• Te Rapa Rd Nominees Limited: Mark Francis and Bryce Barnett
• Trafalgar Sq Equities Limited: Mark Francis and Bryce Barnett
• Vickery Street Nominees Limited: Mark Francis and Bryce Barnett
The following company holds interests in a proportionate ownership scheme on bare trust for certain investors:
• Evans Road Limited: Bryce Barnett and Mark Francis
Auditor’s RemunerationFees paid to auditors for the year ended 31 March 2019 in respect to the Company and its subsidiaries were $129,000 (2018 $104,000). Other non-audit services (tax and consulting) from EY for the year ended 31 March 2018 were $29,000 (2018 $44,000).
DonationsNo donations were made during the year (2018 $5,624).
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David Haczynskyj, AML/CFT Compliance Manager (right).
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F I N A N C I A LS T A T E M E N T S
Section Three.
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Consolidated Statement of Comprehensive Income 58
Consolidated Statement of Changes in Equity 59
Consolidated Statement of Financial Position 60
Consolidated Statement of Cash Flows 61
Notes to the Consolidated Financial Statements
1. Corporation Information 62
2. Summary of Significant Accounting Policies 62
3. Significant Accounting Estimates and Judgements 64
4. Financial Risk Management Objectives and Policies 64
5. Subsidiaries and Associates 65
6. Net Revenue 66
7. Administration and Net Finance Costs 67
8. Income Tax 68
9. Segment Reporting 70
10. Trade Receivable, Prepayments and Other Receivables 71
11. Investment in Associates 72
12. Property Assets Held for Sale 73
13. Fixed Assets 75
14. Bank Borrowings 76
15. Intangible Assets and Goodwill 77
16. Trade and Other Payables, Provisions and Accruals 78
17. Fair Value Measurement 79
18. Earnings per Share 80
19. Dividends Paid to Shareholders 80
20. Equity 80
21. Remuneration 81
22. Related Parties 82
23. Lease Commitments 83
24. Commitments and Contingencies 83
25. Subsequent Events 83
Index
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Note
2019
$’0002018
$’000
Gross Operating Income 24,119 21,837
Direct Operating Costs (2,082) (2,943)
Total Net Revenue 6 22,037 18,894
Administration Expenses 7 (10,586) (8,870)
Profit Before Financing, Fair Value Movements, Gain/(Loss) on Disposals and Taxation
11,451 10,024
Net Finance Costs 7 (1,501) (2,773)
Profit Before Fair Value Movements, Gain/(Loss) on Disposals and Taxation 9,950 7,251
Fair Value Gain/(Loss) on Investments in Associates 11 421 (1,792)
Recycle of Available for Sale Asset Reserve - (2,175)
Interest Rate Swap Gain/(Loss) 442 (15)
Fair Value Gain on Value of Investment Property Assets Held for Sale 12 - 799
Gain on Sale of Investment Property Assets Held for Sale 12 520 108
Derecognition of Intangible Assets 15 (1,648) (486)
Transaction Costs (635) (663)
FX Realised (51) (71)
Net Profit Before Taxation 8,999 2,956
Total Income Tax Expense 8 (2,054) (1,921)
Profit For the Year Net of Tax 6,945 1,035
Net Loss on Available-For-Sale Financial Assets - 2,175
Profit and Total Comprehensive Income For the Year, Net of Tax 6,945 3,210
Basic/Diluted Earnings Per Share 18 7.93 cents 3.67 cents
The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes.
Consolidated Statement of Comprehensive IncomeFor the Year Ended 31 March 2019
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.50
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Share Capital
$’000
Retained Earnings /
(Deficit)
$’000
Available For Sale Reserve
$’000
Other Capital
Reserve
$’000Total
$’000
Opening Balance at 01 April 2018 84,654 (790) - 321 84,185
Share Based Payments - - - 256 256
Profit For the Year - 6,945 - - 6,945
Total Comprehensive Income - 6,945 - - 6,945
Dividends - (5,260) - - (5,260)
Closing Balance at 31 March 2019 84,654 895 - 577 86,126
For the Year Ended 31 March 2018
84,654 2,996 (2,175) 173 85,648
Share Based Payments - - - 148 148
Profit For the Year - 1,035 - - 1,035
Release of Available For Sale Reserve - - 2,175 - 2,175
Total Comprehensive Income - 1,035 2,175 - 3,210
Dividends - (4,821) - - (4,821)
Closing Balance at 31 March 2018 84,654 (790) - 321 84,185
The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.
Consolidated Statement of Changes in EquityFor the Year Ended 31 March 2019
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Note
2019
$’0002018
$’000
Current Assets
Cash at Bank 4,850 4,900
Trade Receivables, Prepayments and Other Receivables 10 3,615 3,876
Deposits Paid - 3,174
Total Current Assets 8,465 11,950
Investment Properties Held For Sale 12 - 39,400
Property Assets Held For Sale 12 30,521 44,900
Non-Current Assets
Investments In Associates 11 41,934 21,924
Intangible Assets and Goodwill 15 20,183 21,662
Property, Plant and Equipment 13 935 1,014
Total Non-Current Assets 63,052 44,600
Total Assets 102,038 140,850
Current Liabilities
Trade Payables, Provisions and Accruals 16 2,002 1,558
Taxation Payable 1,574 650
Borrowings 14 6,000 17,500
Interest Rate Swaps - Current 14 - 902
Other Current Liabilities 290 81
Total Current Liabilities 9,866 20,691
Non-Current Liabilities
Borrowings 14 5,000 24,900
Deposits Received - 8,200
Interest Rate Swaps 14 - 626
Deferred Taxation 8 1,046 2,248
Total Non-Current Liabilities 6,046 35,974
Total Liabilities 15,912 56,665
Net Assets 86,126 84,185
Shareholders Equity 86,126 84,185
For and on behalf of the Board of Directors, who authorise the issue of these Consolidated Financial Statements;
Director: Date: 24 May 2019 Robert Mark Petersen - Audit and Treasury Committee Chairman
Director: Date: 24 May 2019 Paul John Duffy - Augusta Capital Limited Chairman
The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes.
Consolidated Statement of Financial PositionAs at 31 March 2019
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Note
2019
$’0002018
$’000
Cash Flows from Operating Activities
Profit Before Tax from Continuing Operations 8,999 2,956
Adjustments to reconcile profit before tax to net cash flows operating activities
Depreciation of Fixed Assets, Amortisation and Derecognition of Intangible Assets 1,873 790
Fair Value Gain in Value of Investment Property Held For Sale - (799)
(Gain) on Sale of Investment Property Assets Held for Sale 12 (520) (108)
Fair Value (Gain)/ Loss on Investments in Associates 11 (421) 3,967
Transaction Costs 635 663
Finance Income (6) (42)
Finance Costs 1,507 2,816
Unrealised Interest Rate Swap (Gain) (442) (143)
Share Based Incentive Provision 256 148
FX Loss Realised 51 71
Working Capital Adjustments
(Increase) in Trade and Other Receivables and Prepayments (283) (428)
Increase/(Decrease) in Trade and Other Payables 547 (450)
Interest Received 7 6 42
Interest Paid (1,636) (2,898)
Income Tax Paid (2,342) (1,641)
Net Cash Flows from Operating Activities 8,224 4,944
Investing activities
Net Proceeds from Sale of Investment Property and Property Held For Sale 75,875 45,884
Purchase of Property Assets Held for Sale (28,718) (44,900)
Purchase of Investment in Associates (24,221) (10,591)
Deposits Paid (5,000) (5,578)
Deposits Refunded 8,174 2,404
Short Term Funding of Schemes (1,592) -
Deposits Received In Relation to Investment Property Sales - 6,800
Purchase of Fixed Assets and Software (318) (249)
Purchase of Intangible Assets - (5,250)
Capital Returned from Investment in Associates 11 4,181 2,430
Sale of Investment in Associates 11 451 -
Other Investing Activity 690 396
Net Cash Flow Used In Investing Activities 29,522 (8,654)
Financing Activities
Proceeds from Borrowing 45,500 80,300
Repayment of Borrowings (76,900) (72,900)
Dividends Paid (5,259) (4,799)
Cancellation of Interest Rate Swaps (1,086) -
Net Cash Flow Used in Financing Activities (37,745) 2,601
Net Increase in Cash Held 1 (1,109)
FX Movement (51) (70)
Cash Balance at 31 March 4,900 6,079
Cash and Cash Equivalents 4,850 4,900
The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes.
Consolidated Statement of Cash FlowsFor the Year Ended 31 March 2019
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Notes to the Consolidated Financial Statements
1. Corporate InformationThe consolidated financial statements comprise of Augusta Capital Limited (the “Company”) and its subsidiaries (collectively the “Group”).
The Company is a limited liability company incorporated and domiciled in New Zealand whose shares are listed on the New Zealand Stock Exchange. The Company is an FMC Reporting Entity under the Financial Markets Conduct Act 2013. The registered office is located in Level 2, Bayley’s House, 30 Gaunt Street, Wynyard Quarter, Auckland.
The nature of the operations and principal activities of the Group are the establishment and management of funds specialising in real property.
2. Summary of Significant Accounting Policies
(a) Basis of PreparationThe consolidated financial statements have been prepared in accordance with generally accepted accounting practice in New Zealand (“NZ GAAP”) and the requirements of the Financial Markets Conduct Act 2013. For the purpose of complying with NZ GAAP, the Group is a for-profit entity. The consolidated financial statements have been prepared on a historical cost basis, except for investments in associates which have been measured at fair value.
The financial statements are presented in New Zealand dollars and all values are rounded to the nearest thousand dollars ($’000), except where otherwise indicated. (b) Statement of Compliance The consolidated financial statements comply with New Zealand equivalents to International Financial Reporting Standards (‘NZ IFRS’) and International Financial Reporting Standards (‘IFRS’).
Changes in accounting policies
The accounting policies adopted are consistent with those of the previous financial year, except where accounting standards which have been issued and are effective for the current reporting period, or which are issued but not yet effective and may be early adopted, have been adopted for the first time. Certain comparative information has been reclassified to conform with the current year’s presentation.
The Group has adopted the accounting standards which are issued and effective for reporting periods beginning on or after 1 January 2018. These amendments and interpretations apply for the reporting period beginning 1 April 2018 as follows:
NZ IFRS 15 Revenue from contracts with customersThis standard specifies how and when revenue should be recognised and requires disclosures about the nature, amount, timing and uncertainty of revenues and cash flows arising from customer contracts. Revenue is recognised when a customer obtains control of the good or service and thus has the ability to direct the use and obtain the benefits from the good or service. This standard replaces NZ IAS 18 Revenue.
Revenue is measured based on the consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties. The company recognises revenue when it transfers control of a product or service to a customer. A performance obligation is a promise in a contract to transfer a distinct good or service (or a bundle of goods and services) to the customer and is the unit of account in NZ IFRS 15. A contract’s transaction price is allocated to each distinct performance obligation and recognised as revenue, when, or as, the performance obligation is satisfied.
The group has assessed revenue recognition for each principal revenue stream. Refer to Note 5 Net Revenue for information on principal revenue streams and revised accounting policies. The adoption of NZ IFRS 15 did not have an effect on the timing or measurement of revenue recognition.
NZ IFRS 9 Financial instrumentsNZ IFRS 9 establishes principles for the financial reporting of financial assets and financial liabilities that will present relevant and useful information to users of financial statements for their assessment of the amounts, timing and uncertainty of an entity’s future cash flows.
This standard also includes new guidance which will align hedge accounting more closely with risk management. It does not fully change the types of hedging relationships or the requirement to measure and recognise ineffectiveness; however, it allows more hedging strategies that are used for risk management purposes to qualify for hedge accounting. The Group did not apply hedge accounting under IAS 39, so there are no transition adjustments.
Classification of financial instruments
The Group classifies its financial assets as fair value through profit and loss (“FVTPL”), and amortised cost according to the Group’s business objectives for managing the financial assets and based on the contractual cash characteristics of the financial assets. The Group classifies its financial liabilities as amortised cost or FVTPL.
For the Year Ended 31 March 2019
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Notes to the Consolidated Financial Statements (Continued)
For the Year Ended 31 March 2019
The following table presents the types of financial instruments held by the Group within each financial instrument classification under IAS 39 and IFRS 9:
Financial instrument type Measurement .
NZ IAS 39 NZ IFRS 9
Financial assets
Cash at bank Amortised cost Amortised cost
Investment in associates FVTPL FVTPL
Interest rate swaps FVTPL FVTPL
Trade receivables Loans and receivables Amortised cost
Financial liabilities
Borrowings Amortised cost Amortised cost
Interest rate swaps FVTPL FVTPL
Trade payables Amortised cost Amortised cost
The Group has chosen to apply NZ IFRS 15 and NZ IFRS 9 retrospectively with the cumulative effect recognised on initial application. Comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The adoption of these standards has a nil effect on the consolidated financial statements therefore no adjustment to opening retained earnings is required.
Accounting standards that are issued but not yet effective
The Group has elected not to early adopt the following standards, which have been issued by the International Accounting Standards Board and the External Reporting Board in New Zealand.
NZ IFRS 16 Leases (effective for annual reporting periods beginning on or after 1 January 2019)
NZ IFRS 16 requires a lessee to recognise a lease liability reflecting future lease payments and a ’right-of-use’ asset for all lease contracts. Lessors reporting requirements are similar to the previous standard NZ IAS 17 Leases.
This standard is required to be adopted by the Group in its financial year ending 31 March 2020. A right of use asset and corresponding liability reflecting future lease payments will be recognised based on commitments at that date.
The Directors have evaluated the impact of this new standard on the consolidated financial position and performance of the Group. Their current preliminary evaluation has indicated that there is no material effect on the Group’s profit and loss due to adopting the new standards, but in some instances additional disclosures may be required.
(c) Basis of Consolidation
Subsidiaries are all those entities over which the Company has control. In preparing these consolidated financial statements, subsidiaries are consolidated from the date the Group gains control until the date on which control ceases.
The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. In preparing the financial statements, all intercompany balances, transactions, unrealised gains and losses resulting from intra-group transactions and dividends have been eliminated in full.
(d) Goods and Services Tax (GST)Income and expenses are recognised net of the amount of GST except where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the item as applicable.
All items in the statement of financial position are stated net of GST, with the exception of receivables and payables, which include GST invoiced. Cash flows are included in the statement of cash flows on a gross basis and the GST component of cash flows arising from investing and financing activities is classified as part of operating activities.
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3. Significant Accounting Estimates and JudgementsThe preparation of these consolidated financial statements requires the use of certain critical accounting estimates.
It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. Although the Group has internal control systems in place to ensure that estimates can be reliably measured, actual amounts may differ from those estimates. The areas involving a higher degree of judgement or areas where assumptions are significant to the Group include following:
• Impairment of Goodwill & Intangibles (Note 15)
• Classification of the Augusta Industrial Fund (Note 11)
• Determination of Deferred Taxes (Note 8)
4. Financial Risk Management Objectives and PoliciesThe Group’s principal financial instruments comprise bank loans, cash, trade receivables, short-term deposits, payables and derivatives.
The main risks arising from the Group’s financial instruments are interest rate risk, credit risk and liquidity risk. The Board reviews and agrees policies for managing each of these risks and they are summarised below.
The Group also monitors the equity price risk arising from its investment in associates.
Interest rate risk
The Group has exposure to interest rate risk to the extent that it borrows for fixed terms at floating interest rates. To manage this exposure, the Group enters into interest rate swaps. At balance date, the notional value of interest rate swaps was nil (2018: $1,528,000).
The below is based on an increase or decrease in interest rates of 50 basis points (+ / - 0.5%):
2019 $’000
2018 $’000
Profit or loss impact of interest rate movement (+ 50 basis points)
(8) (774)
Profit or loss impact of interest rate movement (- 50 basis points)
8 774
Shareholders' equity impact of interest rate movements (+ 50 basis points)
- -
Shareholders' equity impact of interest rate movements (- 50 basis points)
- -
Credit risk
In management’s opinion, the Group trades only with recognised, creditworthy third parties, whose obligations to the Group are contractually enforceable under tenancy agreements and car park licences.
Receivable balances are monitored on an ongoing basis. The Groups receivables are primarily in relation to contractual management rights in respect to the funds management business, it is not exposed to any significant concentration of credit risk. Amounts which are past due are reviewed and any necessary provision for doubtful debts is raised where appropriate, based on all factors considered. The doubtful debts provision as at 31 March 2019 is $Nil (2018 $Nil). No other past due receivables are impaired. The balance of the financial assets which are past due but not impaired as at 31 March 2019 is $86,304 (2018: $43,565). The aging of these past due financial assets (receivables) is greater than 30 days but less than 90 days. During the 2019 year, there was $Nil bad debts which were written off (2018: nil) and there was no recovery of doubtful debts recorded during the year (2018 $Nil).
With respect to credit risk arising from the other financial assets of the Group, which comprise interest received on cash and cash equivalents and interest rate swaps in respect to the ‘receive’ portion, the Group’s exposure to credit risk arises from default of the counter party, with a maximum exposure equal to the carrying amount of these instruments. ASB Bank Limited, who is the counter party in respect to these financial assets of the Group, currently holds an AA- credit rating (issued by Standard & Poors). There are no interest rate swaps held at the year ended 31 March 2019.
Liquidity risk
Liquidity risk arises from the Group’s financial liabilities and the ability to meet all its obligations to repay financial liabilities as and when they fall due. The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank loans and ordinary shares.
The table on the following page reflects all contractually fixed pay-offs for settlement and repayments resulting from recognised financial liabilities. This table is based on all interest rate variables being held constant over the relevant period of time. It does not allow for potential future margin changes as these can not be easily identified as at balance date. All payments are undiscounted and the timing of the cash flows is based on the contractual terms of the underlying contract.
Notes to the Consolidated Financial Statements (Continued)For the Year Ended 31 March 2019
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As at 31 March 2019
Financial Liabilities
1 month
$’000
2 - 3 months
$’000
3 months - 1 year
$’000
1 - 2 years
$’000
2 - 5 years
$’000Total
$’000
Non-derivative financial liabilities
Trade payables 116 - - - - 116
Interest payable 106 64 159 142 - 471
Borrowings* - 6,000 - 5,000 - 11,000
Total 222 6,064 159 5,142 - 11,587
* The Funds Management Facility and Investment Asset Facility are expected to be renewed prior to their maturity and will not be repaid. The Warehouse Facility will be settled on the divestment of the property assets held for sale. Management have frameworks in place to monitor the Group’s liquidity and to ensure that banking covenants are complied with. Cash flow reports and banking covenant analysis is prepared and reviewed on a regular basis throughout the year. On 13 May 2019 the $6 million warehousing facility was extended to 12 December 2019.
As at 31 March 2018
Financial Liabilities
1 month
$’000
2 - 3 months
$’000
3 months - 1 year
$’000
1 - 2 years
$’000
2 - 5 years
$’000Total
$’000
Non-derivative financial liabilities
Trade payables 26 - - - - 26
Interest payable 145 289 1,303 1,736 - 3,473
Borrowings** - 17,500 - 24,900 - 42,400
Derivative financial liabilities
Interest rate swap (net settled) 47 94 421 518 781 1,861
Total 218 17,883 1,724 27,154 781 47,760
** The $17.50 million of borrowings has been repaid on the settlement of the Hub, which was sold to the Augusta Industrial Fund in June 2018.
Notes to the Consolidated Financial Statements (Continued)
For the Year Ended 31 March 2019
5. Subsidiaries and AssociatesThe consolidated financial statements of the Group include:
NameCountry of
incorporation
% of equity interest
2019 2018
Augusta Fund Management Limited New Zealand 100% 100%
Augusta Property Holdco Limited New Zealand 100% 100%
Asset Plus Limited (associate) New Zealand 18.85% 18.85%
Augusta Industrial Fund (associate) New Zealand 12.53% -
Augusta Value Add Fund No 1 Limited (associate) New Zealand - 10%
Augusta Funds Management Limited focuses on funds management specialising in property.
Augusta Property Holdco Limited was established to ‘warehouse’ properties with the intention of selling these properties
to an Augusta Funds Management Limited managed scheme in the near future.
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6. Net Revenue
Accounting Policy
The Group recognises revenue from the following principal activities:
Management fees
The Group’s primary revenue stream, which includes fund and property management fees payable by the funds to the Group for performing obligations as set out in the relevant fund deed. These obligations include services related to asset management, financial management, treasury, compliance and legal. These fees are earned over the period of time that the management services are provided and are allocated to the distinct services provided by the Group during the reporting period.
Transactional income
Additional revenue from leasing, project and development management, sales, refinancing and secondary sale facilitation services is recognised when the obligation as outlined in the relevant fund deed has been met.
In some cases, for development management fees the income may be recognised over time but will ultimately vary depending on the specific obligation in each development agreement.
Offeror and underwriting fees
Income is derived for services rendered for the establishment of new offers, which includes negotiating the acquisition of the property, raising capital, financing arrangements and related services. Underwriting fee revenue is derived from the Group underwriting a specified value of an offer to ensure the sale and purchase agreement for the acquisition of a property can be completed, irrespective of the value raised from investors. Revenue is recognised at the point in time when the Group transfers control over to the respective fund on establishment, which is typically when the new offer has been completed, the fund has commenced trading and the settlement of the relevant property has occurred.
The revenue received for management fees, transactional income, offeror and underwriting fees is measured based on the consideration specified in the relevant fund’s deed.
Investment income
Dividend, distribution and interest income from other financial assets are recognised as revenue when declared or on an accrual basis using the effective interest method, in accordance with IFRS 9 Financial Instruments (“IFRS 9”).
Rental revenue
Rental revenue is recognised in accordance with NZ IAS 17 Leases. As the Group retains substantially all the risks and benefits of ownership of its investment properties, it accounts for leases with its tenants as operating leases and begins recognising revenue when the tenant has a right to use the leased asset. The total amount of contractual rent to be received from operating leases is recognised on a straight-line basis over the term of the lease; a straight line or free rent receivable, as applicable, is recorded as a component of investment property representing the difference between rental revenue recorded and the contractual amount received.
Net revenue shown in the consolidated statement of comprehensive income comprises amounts received and receivable by the Group for:
Net Revenue2019$’000
2018$’000
Management fees 6,380 5,665
Transactional income 4,133 2,132
Less property management fees (1,197) (1,474)
Net recurring management fee income 9,316 6,323
Offeror and acquisition fees 5,964 3,732
Underwriting fees 2,099 1,455
Less other operating costs (79) (35)
Net funds management deal fee income 7,984 5,152
Investment income 1,754 1,769
Rental revenue 3,789 7,084
Property operating costs (806) (1,434)
Net rental income 2,983 5,650
Net revenue 22,037 18,894
Notes to the Consolidated Financial Statements (Continued)For the Year Ended 31 March 2019
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7. Administration and Net Finance Costs
Accounting Policy
Finance Income
Finance income consists of interest accrued on cash deposits and is recognised using the effective interest method.
Finance Expenses
Finance expense, including borrowing costs and interest payable on borrowings, are recognised in profit or loss when incurred. Borrowing costs incurred do not relate to qualifying assets and hence are treated as an expense and are not capitalised.
2019$’000
2018$’000
Administration costs
Personnel costs (7,130) (5,926)
Depreciation and amortisation (225) (304)
Director fees (347) (294)
Auditors remuneration (144) (148)
Professional fees (720) (437)
Rent expense (455) (442)
Marketing and sponsorship (470) (230)
Other administration costs (1,095) (1,089)
Total administration costs (10,586) (8,870)
Other administration costs include IT and telecommunication, travel and other office related costs.
Finance income/(expenses)
Bank loans and overdrafts interest (1,332) (2,323)
Bank loan facility and line fees (175) (492)
Bank interest earned 6 42
Total net finance costs (1,501) (2,773)
(1) Auditors remuneration as follows:
Expenses incurred to Ernst & Young for:
Audit and other assurance services (129) (104)
Tax compliance/consulting (29) (44)
Total auditors remuneration (158) (148)
The annual audit fee includes the fees for the annual audit of the consolidated financial statements. EY provides other assurance services to the Group, being a review opinion of the Group’s half year financial statements. Tax services include annual tax compliance services and advice in relation to GST, set up of the Industrial Fund and other general advice.
Other services provided by EY and the relevant fees2019$’000
2018$’000
Audit of other syndicates (33) (32)
Audit of St Georges Bay Road (10) -
Audit of Augusta Value Add Fund No. 1 - (21)
Audit of Augusta Industrial Fund Limited (85) -
Tax compliance and advisory services - Augusta Value Add Fund No. 1 (13) (14)
Investigating accounting services - St Georges Bay Road (18) -
Investigating Accounting Services - Augusta Industrial Fund Limited (145) (50)
Total other services (304) (117)
Notes to the Consolidated Financial Statements (Continued)
For the Year Ended 31 March 2019
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Notes to the Consolidated Financial Statements (Continued)For the Year Ended 31 March 2019
8. Income Tax
Accounting Policy
Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax on the taxable income for the year, using rates enacted or substantially enacted at balance date, and any adjustment to income tax payable in respect of previous periods.
Deferred tax is provided using the liability method on all temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.
Deferred tax liabilities are recognised for all taxable temporary differences, except:
• When the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor the taxable profit or loss.
• In respect of the taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilised, except:
• When the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.
• When the deductible temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, in which case a deferred tax asset is only recognised to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilised.
The carrying amount of any deferred income tax asset is reviewed at each balance date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at balance date.
The Group has applied the rebuttable presumption under NZ IAS 12 that deferred tax on investment property measured using the fair value model in NZ IAS 40 is determined on the basis that its carrying amount will be recovered through sale.
Judgement is required in assessing whether deferred tax assets and certain deferred tax liabilities are recognised on the statement of financial position. Deferred tax assets, including those arising from tax losses and deductible temporary differences, are recognised only when it is considered more likely than not that they will be recovered, which is dependent on the generation of sufficient future taxable profits. Assumptions are made about the generation of future taxable profits focus on future forecast and cashflow projections. Judgements are also required in respect to the application of income tax legislation. The judgements and assumptions are subject to risk and uncertainty and hence there is a possibility that changes in circumstances will alter expectations, which may then alter the amounts of deferred tax assets and liabilities recorded on the statement of financial position and that may also lead to a corresponding adjustment to profit or loss.
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Notes to the Consolidated Financial Statements (Continued)
For the Year Ended 31 March 2019
Major components of income tax expense for the year ended 31 March are:
Statement of profit and loss2019$’000
2018$’000
Current tax
Continuing operations - current income tax charge (2,645) (1,973)
Depreciation recovery on building depreciation - sale (961) (475)
Deduction for interest rate swap cancellation 304 -
Prior year tax adjustment 48 29
Current Tax (3,254) (2,419)
Net deferred income tax
Depreciation claimed for taxation 961 435
Net change on revaluation of interest rate swap (428) 4
Net change on revaluation of investment in associate 54 (54)
Net change in the derecognition of intangible assets 461 113
Net change in share based payments 161 -
Employee benefits (9) -
Net deferred income tax 1,200 498
Income taxation expense reported in consolidated statement of comprehensive income (2,054) (1,921)
A reconciliation of the income tax expense applicable to net profit before income tax at 28%, to the income tax expense in the consolidated statement of comprehensive income for the year ended 31 March is as follows:
2019$’000
2018$’000
Net profit/(loss) before tax 8,999 2,956
Adjust for revaluations of investment property - (799)
Adjust for gain on sale of investment property assets held for sale (520) (108)
Adjust for derecognition of intangible assets 1,648 486
Adjust for excluded dividend payments and imputation credits (1,646) (426)
Adjust for net operating and capital profit of investments (share of AIF and VAF taxable profit) 858 519
Adjust for recycle of available-for-sale reserve - 2,175
Adjust for deductible expenditure (1,086) -
Adjust for non deductible expenditure 796 883
Adjust for fair value movements (interest rate swaps and investments in associates) (863) -
Adjusted net profit/(loss) before tax 8,186 5,686
Income taxation expense (28%) (2,292) (1,592)
Adjustment for deferred tax (depreciation on buildings) - (620)
Adjustment for deferred tax (interest rate swaps) (428) -
Adjustment for deferred tax (non realised gain on investment) (VAF) 54 54
Adjustment for depreciation (claimed in financial year) - 124
Adjustment for deferred tax (indefinite life intangible asset) 461 113
Adjustment for deferred tax (share based payments) 161 -
Adjustment for deferred tax (other) (10) -
Income taxation expense reported in consolidated statement of comprehensive income (2,054) (1,921)
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Deferred Income Tax2019$’000
2018$’000
Deferred income net tax liability relates to the following:
Deferred income tax liabilities
Depreciation claimed for taxation - remainder of Finance Centre - 961
Unrealised gain on investments - 54
Intangible Assets 1,237 1,699
Gross deferred income tax liabilities 1,237 2,714
Deferred income tax assets
Share based payments (161) -
Revaluation of interest rate swap - (428)
Accruals not deductible (30) (38)
Gross deferred income tax assets (191) (466)
Net deferred income tax 1,046 2,248
9. Segment ReportingOperating segments are identified and reported, based on the management reporting framework to the Board of Directors during the period. The Group has two distinct operating divisions, being investment assets and funds management. The revenue reported in the Investment Assets segment consists of investment income and rental revenue. The revenue reported in the Funds Management segment consists of management fees, transactional income, offeror and underwriting fees. Refer to Note 5 Net Revenue for definitions of these revenue streams.
For the year ended 31 March 2019
Investment Assets ($’000)
Funds Management
($’000)Unallocated
($’000)Total
($’000)
Revenues
Third party 5,543 18,576 - 24,119
Total gross revenues 5,543 18,576 - 24,119
Total net revenues 4,737 17,300 - 22,037
Profit before FV movements and gain/(loss) on disposal 2,442 7,508 - 9,950
Fair value gain/(loss) on investments in associates 421 - - 421
Unrealised interest rate swap gain/(loss) - - 442 442
Gain on sale of investment property assets held for sale 520 - - 520
Derecognition of intangible assets - (1,648) - (1,648)
Transaction costs (635) - - (635)
FX gain/(loss) realised - - (51) (51)
Profit before taxation 2,748 5,860 391 8,999
Total assets 74,176 27,862 - 102,038
Total liabilities 12,532 3,380 - 15,912
Other disclosures
Property assets held for sale 30,521 - - 30,521
Intangible assets and goodwill - 20,168 15 20,183
Investment in associates 41,934 - - 41,934
For the year ended 31 March 2019
The net cash flows incurred by the Group are as follows:
Operating 2,019 6,205 - 8,224
Investing 29,522 - - 29,522
Financing (32,485) - (5,260) (37,745)
Notes to the Consolidated Financial Statements (Continued)For the Year Ended 31 March 2019
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For the year ended 31 March 2018
Investment Assets ($’000)
Funds Management
($’000)Unallocated
($’000)Total
($’000)
Revenues
Third party 8,852 12,987 - 21,839
Total gross revenues 8,852 12,987 - 21,839
Total net revenues 7,418 11,476 - 18,894
Profit before FV movements and gain/(loss) on disposal and taxation 3,955 3,296 - 7,251
Fair value gain/(loss) on investments in associates (1,792) - - (1,792)
Recycle of available for sale asset reserve (2,175) - - (2,175)
Unrealised interest rate swap gain/(loss) - - (15) (15)
Fair value gain/(loss) in value of investment properties 799 - - 799
Gain/(loss) on sale of property 108 - - 108
Derecognition of intangible assets - (486) - (486)
Transaction costs (663) - - (663)
FX gain/(loss) realised - - (71) (71)
Profit before taxation 232 2,810 (86) 2,956
Total assets 112,694 28,156 - 140,850
Total liabilities 48,678 7,987 - 56,665
Other disclosures
Investment properties held for sale 84,300 - - 84,300
Intangible assets and goodwill - 21,691 - 21,691
For the year ended 31 March 2018
The net cash flows incurred by the Group are as follows:
Operating 2,697 2,247 - 4,944
Investing (8,654) - - (8,654)
Financing 7,422 - (4,821) 2,601
In the year ended 31 March 2018, 19 Victoria St West was sold for $30.0 million on 20 July 2017. The Finance Centre Retail Title was sold for $25.0 million on 29 March 2018.
10. Trade Receivables, Prepayments and Other Receivables
Accounting Policy
Accounts receivable, prepayments and other receivables are classified within the loans and receivables. They are initially recognised at fair value and subsequently carried at amortised costs using the effective interest rate method less an allowance for any impairment losses. Due to their short term nature, accounts receivable, prepayments and other receivables are not discounted.
Collection of trade receivables is reviewed on an ongoing basis at an individual debtor level. An impairment loss is recognised when there is objective evidence the Group will not be able to collect the receivable, which is due to either financial difficulties of the debtor, default payments or debts that are more than 60 days overdue.
Notes to the Consolidated Financial Statements (Continued)
For the Year Ended 31 March 2019
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2019$’000
2018$’000
Trade receivables 1,035 1,895
Receivable due from Sir William Pickering Drive Limited partnership - 753
Other receivables 737 693
Short term investor loans 1,592 -
Prepayments 251 209
GST receivable - 326
Total trade receivables, prepayments and other receivables 3,615 3,876
Trade receivables are non-interest bearing and are on < 30 day terms. Rent and management fees are due on the first day of every month.
Short term investor loans relate to loans made by Augusta to investors who have committed to purchase units in Augusta Kedron Partnership. The shares have been alloted to the relevent investors pending the receipt of the loan monies and do not represent actual units held by Augusta. These loans are non-interest bearing and are expected to be settled by June 2019.
11. Investment in Associates
Accounting Policy
Investment in associates are entities over which the Group has significant influence. Due to the fact that the Group is effectively acting as an investment fund, the Group have taken advantage of the exemption in NZ IAS 28 paragraph 18 to measure the investments in associates at fair value through profit or loss in accordance with NZ IFRS 9. These investments are initially measured at cost. The transaction costs (if any) are recognised as an expense. Subsequently, investments are measured at fair value with fair value movements being recognised in the profit and loss statement as unrealised gain/(loss) on investments in associates.
Balances as at 31 March 2019Opening Balance Acquisition
Capital Returned/Sales
in yearGain on
RevaluationClosing Balance
$’000 $’000 $’000 $’000 $’000
Asset Plus Limited 17,859 - - 305 18,164
Augusta Value Add Fund No 1 4,065 - (4,181) 116 -
Augusta Industrial Fund Limited - 24,221 (451) - 23,770
Total Investment in associates 21,924 24,221 (4,632) 421 41,934
Two capital raises were completed for Augusta Industrial Fund during the financial year ended 31 March 2019. To ensure the 10% investment in Augusta Industrial Fund was maintained after each capital raise, the Company purchased additional shares. On 15 June 2018, the Company purchased a $7.50 million stake and on 28 March 2019, the Company purchased $11.50 million stake.
On 15 June 2018, the Company purchased a $0.45 million stake in Augusta Industrial Fund Limited which was subsuquently sold in October 2018. On 28 March 2019, the Company also acquired $4.77 million of units in Augusta Industrial Fund. The stake is intended to be a short term hold relating to units that will be sold on to other investors who have committed to purchase the units during the capital raise. It is expected that the Company will have sold all units by the end of November 2019.
Balances as at 31 March 2018Opening Balance Acquisition Capital Returned
Loss on Revaluation
Closing Balance
$’000 $’000 $’000 $’000 $’000
Asset Plus Limited 8,775 10,591 - (1,507) 17,859
Augusta Value Add Fund No 1 6,780 - (2,430) (285) 4,065
Total investment in associates 15,555 10,591 (2,430) (1,792) 21,924
During the financial year ended 31 March 2018, the Augusta Value Add Fund sold 151 Victoria Street West and 36 Kitchener Street and subsequently returned equity to the shareholders. The Company received $2.43 million in total.
Notes to the Consolidated Financial Statements (Continued)For the Year Ended 31 March 2019
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12. Property Assets Held for Sale
Accounting Policy
Property assets held for sale
Assets which are acquired exclusively with a view for subsequent resale are classified as held for sale at their acquisition date. These assets are held for immediate sale in their present condition or the Group has committed to selling the asset through entering into a contractual sales and purchase agreement. Assets held for sale are measured at the lower of their carrying amount and fair value less costs to sell.
Investments properties held for sale
Fair value of investment properties held for sale is determined by either an independent valuation or Directors’ valuation. Where there is an absence of current prices in an active market for properties similar in location, condition and lease terms, a valuation will be performed using the discounted cash flow method and the capitalisation approach. The valuations consider market assumptions of internal rates of return, rental growth, average lease terms, occupancy rates, and the costs associated with the initial purchase of the property and yield and are compared, where possible, to market based evidence and transactions for properties similar in location, condition and lease terms.
The discounted cash flow method is based on the expected net rental cash flows applicable to each property, which are then discounted to their present value using a market determined, discount risk-adjusted rate applicable to the respective property. The capitalisation approach is based on the current contract rental and market rental and an appropriate yield for that particular property. The market value is a weighted combination of both the discounted cash flow and the capitalisation approach.
The table below outlines the movements in the carrying values for all investment properties and property assets held for sale during the year ended 31 March 2019.
PropertyOpening Balance Acquisition Capex Revaluation
Gain/(loss) on
sale DisposalClosing balance
$’000 $’000 $’000 $’000 $’000 $’000
Finance Centre Carpark 29,700 - 750 - (450) (30,000) -
Finance Centre Podium 9,700 - 330 - 970 (11,000) -
Total investment properties held for sale 39,400 - 1,080 - 520 (41,000) -
The Hub, Seaview* 44,900 - - - (44,900) -
Man Street, Queenstown - 12,781 635 - - - 13,416
54 Cook Street, Auckland - 15,937 1,168 - - - 17,105
Total property assets held for sale 44,900 28,718 1,803 - - (44,900) 30,521
* The Hub, Seaview, Wellington was sold to the Augusta Industrial Fund.
Notes to the Consolidated Financial Statements (Continued)
For the Year Ended 31 March 2019
On 25 July 2016, the sale of the Finance Centre properties for $96.0 million was approved as a special resolution at the special shareholder meeting held. The transaction was staged with the four titles being sold at different dates through to March 2019. These properties were initially classified as investment properties and were reclassified to assets held for sale post the shareholder vote.
During the year ended 31 March 2019, Man St and 54 Cook St were purchased for $12.78 million and $15.94 million respectively.
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The table below outlines the movements in the fair values for all directly owned investment properties and property assets held for sale for the year ended 31 March 2018:
PropertyOpening Balance
Acquisition/Capex Revaluation
Gain/(loss) on sale Disposal
Closing Balance
$’000 $’000 $’000 $’000 $’000 $’000
Finance Centre Carpark 28,490 - 1,210 - - 29,700
Finance Centre Podium 10,445 - (746) - - 9,700
19 Victoria St West (Augusta House) 30,000 - - - (30,000) -
Retail Title 24,350 - 335 316 (25,000) -
Total Investment Properties Held For Sale 93,285 - 799 316 (55,000) 39,400
The Hub, Seaview - 44,900 - - - 44,900
Total Property Assets Held For Sale - 44,900 - - - 44,900
Investment properties held for sale fair values are determined through valuations performed by Independent Valuers, Bayleys Valuation Services using the following assumptions:
Finance Centre Carpark Finance Centre Podium
Capitalisation Approach
Market Capitalisation Rate 6.50% 8.00%
Discount Cash Flow approach
Discount rate 8.38% 9.00%
Terminal Yield 6.75% 8.25%
Market Growth (10 yr. average) 2.61% 2.61%
CPI growth (10 yr. average) 1.98% 1.98%
Valuation Approach
Adopted Value $29,700,000 $9,700,000
Market Combined Summary
Net Passing Income $1,724,461 $683,730
Weighted average lease term (WALT) 10.09 2.23
IRR 9.31% 8.99%
Net lettable area 426 Carparks 3,958 sqm
Current vacancy 6.00% 24.46%
Notes to the Consolidated Financial Statements (Continued)For the Year Ended 31 March 2019
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Notes to the Consolidated Financial Statements (Continued)
For the Year Ended 31 March 2019
13. Fixed Assets
Accounting Policy
Fixed assets are measured at historical cost, less accumulated depreciation and impairment losses. Depreciation is calculated using the diminishing balance method to allocate the cost at depreciation rate as follows:
Depreciation Rate Method
Computer Equipment 30-60% Diminishing balance
Furniture and Equipment 10-20% Diminishing balance
Cost
Computer Equipment
$’000
Furniture and Equipment
$’000Total Fixed Assets
$’000
At 01 April 2017 147 1,277 1,424
Additions 21 163 184
At 31 March 2018 168 1,440 1,608
Additions 68 7 75
At 31 March 2019 236 1,447 1,683
Depreciation
At 01 April 2017 (106) (307) (413)
Charge for the period (30) (151) (181)
At 31 March 2018 (136) (458) (594)
Charge for the period (28) (126) (154)
At 31 March 2019 (164) (584) (748)
Net book value at
31 March 2018 32 982 1,014
31 March 2019 72 863 935
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14. Bank Borrowings
Accounting Policy
Interest bearing loans and borrowings are classified as financial liabilities at amortised cost. They are initially recognised at fair value of the consideration less directly attributable acquisition costs.
Subsequent to initial recognition, interest-bearing loans and borrowings are stated at amortised cost using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer the settlement of the liability for at least 12 months after balance date.
Borrowing costs are recognised as an expense when incurred and not capitalised, as they do not relate to qualifying assets.
Facility Bank Loan maturity2019$’000
2018$’000
Investment Property facility ASB - 16,500
Funds Management facility ASB 30/11/20 5,000 2,000
Investment Asset facility ASB 30/11/20 - 6,400
The Hub, Seaview, Wellington ASB 19/06/18 - 17,500
Warehouse facility ASB 12/06/19 6,000 -
Total facility drawn 11,000 42,400
The Funds Management and Investment Asset Facilities are expected to be renewed prior to their maturity and will not be repaid.
The 3 interest rate swaps that were held at 31 March 2018 were exited in August 2018. There are currently no interest rate swaps in place. The investment property facility was repaid in March 2019. A $6 million warehouse facility was entered into to support the purchase of 54 Cook Street. On 13 May 2019, the warehouse facility expiry date was extended from 12 June 2019 to 12 December 2019. This facility is intended to be settled when the property assets held for sale are sold.
Financing facilities available
At reporting date, the following financial facilities had been negotiated and were available:
Total Facility Detail Margin2019$’000
2018$’000
Investment Property Facility - 16,500
Funds Management Facility 2.50% (2018: 2.50%) 15,000 10,000
Investment Asset Facility 2.50% (2018: 2.50%) 10,000 6,400
The Hub, Seaview, Wellington - 17,500
Warehouse Facility 2.50% 6,000 -
Total Facility Limit 31,000 50,400
Below is a summary of the borrowing movements made during the year;
2019$’000
2018$’000
Repayments (76,900) (72,900)
Drawdowns 45,500 80,300
Net movement (31,400) 7,400
Repayments relate to the sale of investment property assets held for sale during the period. Drawdowns relate to purchase of property assets held for sale and investment in associates.
Notes to the Consolidated Financial Statements (Continued)For the Year Ended 31 March 2019
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Notes to the Consolidated Financial Statements (Continued)
For the Year Ended 31 March 2019
15. Intangible Assets and Goodwill
Accounting Policy
Goodwill acquired in a business combination is initially measured at cost, being the excess of the consideration transferred over the fair value of the net identifiable assets acquired and liabilities assumed. After initial recognition, goodwill is measured at the amount recognised at cost less any accumulated impairment losses. For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Each cash-generating unit represents the lowest level within the Group at which the goodwill is monitored for internal management purposes.
Derecognition is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill relates. The Group performs its impairment testing as at 31 March each year using the discounted cash flows method. When the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised.
Management contracts acquired have indefinite useful lives. These assets are initially measured at cost, and then following initial recognition, are measured at cost, less any impairment losses. These assets are tested for derecognition annually at the cash-generating unit level consistent with the methodology outlined for goodwill above.
CostGoodwill
$’000Fund Management
$’000CRM Software
$’000
Total Intangible Assets and Goodwill
$’000
At 01 April 2017 10,906 6,558 180 17,644
Additions - 4,574 92 4,666
Derecognition - (486) - (486)
At 31 March 2018 10,906 10,646 272 21,824
Additions - - 245 245
Disposals - (5) - (5)
Derecognition - (1,648) - (1,648)
At 31 March 2019 10,906 8,993 517 20,416
Amortisation
At 01 April 2017 - - (39) (39)
Charge for the period - - (123) (123)
At 31 March 2018 - - (162) (162)
Charge for the period - - (71) (71)
At 31 March 2019 - - (233) (233)
Net book value at
31 March 2018 10,906 10,646 110 21,662
31 March 2019 10,906 8,993 284 20,183
Loan securityThe loans are secured by a registered first mortgage over the property assets of the Group, an assignment of leases over all present and directly acquired properties mortgaged to the ASB Bank and a first general security interest over the assets of the Group. ASB also holds a specific security over the investments in Asset Plus Limited and the Augusta Industrial Fund Limited.
Loan covenants – ASB bankDuring the year ended 31 March 2019 all loan covenants were met. (2018: all met)
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Intangible assets relating to Asset Plus Limited Management Contract were acquired for $4.57 million including acquisition costs in the year ended 31 March 2018. The intangible asset comprises the management contract plus the legal and regulatory costs associated to the acquisition.
The management contracts and goodwill are allocated to one cash-generating unit (CGU) - the funds management business. Recoverable amount of the CGU was determined using expected future contracted management fees from budgets approved by the Board covering a five-year period. The key growth drivers of the funds management’s future cash flows are increased management fees due to growth in assets under management. The growth assumptions consider the Group’s strategic objectives and asset under management targets including sourcing new acquisitions. They also include forecast market conditions and investor appetite for managed product. The discount rate applied is 7.25% (2018: 7.25%) on the unleveraged pre-tax nominal cash flows. No impairment is recognised in FY19 and FY18.
16. Trade and Other Payables, Provisions, Accruals and Employee Benefits Accounting policy
Trade and other payables
Trade payables are classified as financial liabilities at amortised cost. They are initially measured at fair value less any transaction costs and subsequently carried at amortised cost and due to their short term nature, are not discounted. They represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect to the purchase of these goods and services.
Employee benefits
Liabilities for wages and salaries, including Kiwisaver employer contributions and annual leave that are expected to be settled within 12 months of the reporting date are recognised in respect of employees’ services up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled.
Provisions
Provisions are recognised when the Group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that the outflow can be reliably measured.
2019$’000
2018$’000
Trade payables 116 26
Other payables 79 86
Total trade and other payables 195 112
Interest accrual 68 280
Other accruals 775 406
Total accruals 843 686
Incentive provisions 800 624
Employee benefits 164 136
Total provisions and employee benefits 964 760
Total trade payables, provisions, accruals and employee benefits 2,002 1,558
Trade payables are non-interest bearing and are normally settled on 30 day terms. Interest payable is settled quarterly throughout the financial year. Other payables are non-interest bearing and have an average term of 6 months.
Notes to the Consolidated Financial Statements (Continued)For the Year Ended 31 March 2019
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Notes to the Consolidated Financial Statements (Continued)
For the Year Ended 31 March 2019
17. Fair Value Measurement
Accounting Policy
Financial instruments classified as fair value through profit and loss (“FVTPL”) are initially recognised at their fair value and are subsequently measured at fair value at each reporting date. Gains and losses recorded on each revaluation date are recognised within net earnings. Transaction costs of financial assets classified as FVTPL are expensed in profit or loss.
Financial instruments classified as amortised cost are initially recognised at their fair value and are subsequently measured at amortised cost using the effective interest rate method.
For financial assets classified as amortised cost, at each reporting period, the Group assesses if there has been a significant increase in credit risk since the asset was originated to determine if a 12-month expected credit loss or a life-time expected credit loss should be recorded.
Interest rate swaps and other derivative financial instruments
The company selectively utilises derivative financial instruments primarily to manage financial risks, including interest rate and foreign exchange risks. Derivative financial instruments are recorded at fair value within the Group’s consolidated financial statements. The assets or liabilities relating to unrealised mark-to-market gains and losses on derivative financial instruments are recorded in the consolidated statement of financial position.
The table below sets out the comparison by category of carrying amounts, fair values, and fair value movement hierarchy of all the Group’s assets carried at fair value.
Year ended 31 March 2019 Year ended 31 March 2018
Quoted Market
Market Observable Non Market
Quoted Market
Market Observable Non Market
Price (Level 1)
Outputs (Level 2)
Outputs (Level 3)
Price (Level 1)
Outputs (Level 2)
Outputs (Level 3)
Interest rate swaps - - - - (1,234) -
Interest rate swaps syndication/scheme - - - - (294) -
Investment in associates 18,164 23,770 - 17,859 4,065 -
Investment properties held for sale - - - - - 39,400
The quoted market price (Level 1) represents the fair value determined based on quoted prices in active markets as at the reporting date. For financial instruments not quoted in active markets (Level 2) the Group uses present value techniques, with a comparison to similar instruments for which market observable prices exist and other relevant models used by market participants, which includes current swap rates on offer and also the current floating interest rate (interest rate swaps). For investments in associates (Level 2) the most recent capital transaction is used to determine fair value. For properties held for sale (Level 3), the Group uses present value techniques based on forecasted future earnings.
There are no transfers between Level 1, 2 or 3 during the year ended 31 March 2019 (2018 : None).
The Group has also assessed possible impairment for 12-month expected loss or life-time expected loss and notes that the outcome of this is nil.
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18. Earnings Per Share
Accounting Policy
Earnings per share is calculated by dividing the total comprehensive income, net of tax by the weighted average number of shares on issue during the year. In the current year both basic earnings and diluted earnings are equivalent.
2019 2018
$’000 $’000
Total comprehensive income, net of tax 6,945 3,210
Weighted average number of ordinary Shares 87,529 87,529
Earnings per share (cents) - basic and fully diluted 7.93 3.67
19. Dividends Paid to ShareholdersDividends paid during the year comprised:
2019 2018
CPS $'000 Date Paid CPS $'000 Date Paid
Q4 prior year net dividend 1.500 1,312.9 18/06/18 1.375 1,203.5 15/05/17
Q1 net dividend 1.500 1,312.9 20/09/18 1.375 1,203.5 18/08/17
Q2 net dividend 1.500 1,312.9 20/12/18 1.375 1,203.5 01/12/17
Q3 net dividend 1.500 1,312.9 15/03/19 1.375 1,203.5 16/03/18
Total paid during the year 6.000 5,251.6 5.500 4,814.0
Supplementary dividends for Investors eligible for non-resident tax exemption of $7,343 were also paid in the year ended 31 March 2019 (2018: $7,139).
2019 2018
$’000 $’000
Imputation credit account
At 31 March the imputation credits available for use in subsequent reporting periods are 345 197
20. Equity
Issued capital and reserves
2019 2018
$’000 $’000
Ordinary shares
Number of issued and fully paid shares 87,529 87,529
Ordinary shares have no par value
Fully paid and ordinary shares carry one vote per share and carry the right to dividends
Capital managementWhen managing capital, the Directors objective is to ensure the Group continues as a going concern as well as to maintain optimal returns to shareholders.
As the market is constantly changing, management and the Board of Directors consider capital and management initiatives. The Directors have the discretion to change the amount of the dividends to be paid to the shareholders accordingly, issue new shares or sell property assets held for sale to reduce debt.
Notes to the Consolidated Financial Statements (Continued)For the Year Ended 31 March 2019
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Notes to the Consolidated Financial Statements (Continued)
For the Year Ended 31 March 2019
21. Remuneration
2019 2018
$’000 $’000
Key management personnel costs
Salary and other short term benefits 2,303 2,654
Share based payment expenses 256 148
Total 2,559 2,802
Key management personnel includes M.E Francis, B.R Barnett, S.W.J Woollams, L.J. Fitzgibbon, J.M.W Lindsey and G.R. French-Wright who left the Group during the year ended 31 March 2019.
Long term share incentive plansThe Group operates a long term share incentive (LTI) scheme for the senior management team. It is the Board’s view that the LTI scheme strongly aligns the interests of key employees with the interests of shareholders and ties remuneration outcomes to long-term investment performance. The senior management will receive share based payments only if specific hurdles, relating to the performance of the Group, are achieved.
The share performance rights are measured at fair value at grant date and expensed over the period during which the employee becomes unconditionally entitled to the shares, based on an estimate of shares that will eventually vest. The fair value of the share performance rights which are either vested or forfeited are transferred from the other capital reserve to retained earnings.
Three grants have been implemented under the plan.
The key features of the two schemes are:
• Each Share Right entitles you to one fully paid ordinary share in Augusta Capital Limited, if vested
• The individual must remain an employee of Augusta at the relevant vesting date for any rights to vest
• If the above conditions are satisfied, employees have a period of six months after the applicable vesting to exercise their Eligible Share Rights in accordance with the procedure in the Plan Rules.
• Rights are split into two tranches with half of the rights subject to a Total Shareholder Return (TSR) relative performance hurdle against an NZX50 performance hurdle and half to a NZX Property Index performance.
Tranche 1 - NZX50 performance hurdleThe NZX50 Performance Hurdle requires that the Company’s total shareholder return (TSR), over the period from the Commencement Date to the Vesting Date, exceeds the 50th percentile of the TSRs for those companies in the NZX50 as at the Commencement Date (the NZX50 Peer Group).
If the Company’s TSR does exceed the 50th percentile of the NZX50 Peer Group, then all Share Rights for Tranche One will become eligible to be exercised.
If the Company’s TSR is equal to or less than the 50th percentile of the NZX50 Peer Group, then none of the Share Rights for Tranche One will become eligible to be exercised.
Tranche 2 - The NZX Property Index performance hurdleThe NZX All Real Estate Index Performance Hurdle requires that the Company’s TSR, over the period from the Commencement Date to the Vesting Date, exceeds the 50th percentile of the TSRs for those companies in the NZX Property Index as at the Commencement Date (the NZX Property Peer Group).
If the Company’s TSR does exceed the 50th percentile of the NZX Property Peer Group, then all Share Rights for Tranche Two will become eligible to be exercised.
If the Company’s TSR is equal to or less than the 50th percentile of the NZX Property Peer Group, then none of the Share Rights for Tranche Two will become eligible to be exercised.
TSR hurdleTSR measures the total return received by shareholders from the increase in the “market value” of an ordinary share of the relevant entity and the receipt of dividends and other distributions, from the Commencement Date to the Vesting Date. For the issuers in the relevant peer groups and the Company, “market value” on the Commencement Date or Vesting Date (as applicable) means the quoted financial product’s market price as quoted on the NZX Main Board.
To minimise the impact of short term volatility on the market price of financial products on the Commencement Date or Vesting Date (as applicable), the TSR will be calculated using the volume weighted average market price of the relevant financial product reported on the NZX Main Board over the ten trading days either up to and including or after the relevant date.
The TSRs will be calculated by a recognised independent party, being an investment bank, firm of chartered accountants or other person or body whom the Board considers has the expertise, experience and access to the necessary data to carry out the calculation (Recognised Independent Party).
The Board reserves the right to adjust the TSR for the Company or any other entity, on the recommendation of the Recognised Independent Party, to take account of any capital reconstructions, corporate transactions or other circumstances which materially alter the balance between the interests of the Company’s
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shareholders and the Participant, so as to ensure that the balance between the interests of Participants and the shareholders of the Company is repositioned in line with the original intention of the Performance Hurdle.
Details of each performance period
FY15-FY19
FY16-FY20
FY17-FY21
FY18-FY21
Performance period start date
1 April 2015
1 April 2016
1 April 2017
1 April 2018
Number of rights issued 642,680
292,086
396,236
658,512
Testing date for vesting
31 March
2019
31 March
2020
31 March
2021
31 March
2021
Further share performance rights under the long term share incentive plan may be issued on an annual basis. However, the terms of the plan, eligible participant, and offers of further share performance rights may be modified by the Board from time to time, subject to the requirements of the NZX Main Board Listing Rules and applicable laws.
22. Related PartiesAll transactions between Schemes and the Group were entered into arm’s length at both normal market prices and normal commercial terms.
Schemes under management Augusta Funds Management Limited, a subsidiary of the Company, owns the management contract rights of the Schemes. There are a number of different Scheme structures used.
Transactions with these Schemes are deemed to be related parties because Augusta Funds Management Limited is the funds manager of these schemes. The following table totals the amount of transactions between the Group and these Schemes.
2019$’000
2018$’000
Revenue from schemes
Management fees 4,771 4,925
Transactional income 1,235 1,829
Offeror and underwriting fees 3,391 5,187
Total revenue from schemes 9,397 11,941
Revenue from associates
Management fees 1,609 743
Distributions and dividends received 1,557 1,769
Transactional income 2,992 303
Offeror, underwriting and acquisition fees 4,578 -
Total revenue from associates 10,736 2,815
Amounts owed by Related Parties 929 1,837
In most cases Mark Francis or Bryce Barnett who are the Director(s) of the Group are also a Director(s) of these Nominee Companies. In other cases where a vehicle under management is structured as a Company, Bryce Barnett is a Director. In some cases a limited partnership structure has been used.
In such cases the General Partner is a subsidiary of Augusta Funds Management Limited.
Subsidiaries who are nominee or custodian companiesThe Company has a number of subsidiary companies which are appointed by the Subscribers as their bare trustee to take and hold the Property on behalf of all the Subscribers in accordance with the terms of the management contracts.
For those nominee companies where Augusta Funds Management is the sole shareholder, while they are strictly subsidiaries of Augusta Capital, it has no beneficial interest in, or control over, a Scheme’s assets. In respect to each Scheme, such a Nominee Company is established to act as the registered proprietor in respect of the relevant investment property on behalf of the Subscribers within each Scheme.
Transactions with DirectorsBryce Barnett, a shareholder and director of the Group, has an interest in certain Schemes.
No share options have been granted to the non-executive members of the board of directors under the long term share incentive plans. Refer to Note 20 for further information on this.
2019$’000
2018$’000
Directors remuneration 347 294
Notes to the Consolidated Financial Statements (Continued)For the Year Ended 31 March 2019
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23. Lease Commitments
Accounting Policy
Group as a Lessee
A lease is classified at the inception date as a finance lease or an operating lease. A lease that transfers substantially all the risks and rewards incidental to ownership to the Group is classified as a finance lease.
Finance leases are capitalised at the commencement of the lease at the inception date fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in finance costs in the statement of profit or loss.
A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term.
An operating lease is a lease other than a finance lease. Operating lease payments are recognised as an operating expense in the statement of profit or loss on a straight-line basis over the lease term.
Group as a Lessor
The Group has entered into commercial property leases on its investment property portfolio and has determined that all significant risks and rewards of ownership are retained by the Group. These leases are classified as operating leases. Initial direct costs incurred in negotiating the lease are added to the carrying amount of the leased asset and recognised as an expense over the lease term on the same basis as rental income.
Rental income is recognised in terms of NZ IFRS 16. Refer to Note 5 Net Revenue for information on the adopted accounting policy.
Lessee: lease payableOperating leases consist mainly of the property lease for the Group’s Auckland office at 30 Gaunt Street, Wynyard Quarter. The Group has not entered into any leases which would be classified as finance leases.
Future minimum rental payables under non-cancellable operating leases are as follows:
2019 $’000
2018 $’000
Due within one year 310 310
Due between one and five years 960 1,043
Due after five years 1,114 1,340
Lessor: lease receivableSubstantially all property owned by the Group is leased to third party tenants and each arrangement is supported by relevant lease documentation. The lease term varies between properties and individual tenants within those properties. The Group, as the lessor, grants the right of use of the space within these properties to a lessee in return for a consideration (rental payment) as set out in the lease contract.
The finance centre was fully exited in March 2019 and there are no future lease receivables.
Future minimum rental revenues under non-cancellable operating leases are as follows:
2019 $’000
2018 $’000
Due within one year - 2,882
Due between one and five years - -
Due after five years - -
There are no contingent rentals.
24. Commitments and ContingenciesCapital commitments
At 31 March 2019 the Group has capital commitments of $1,705,890 (2018: $ Nil).
Guarantees
ASB has provided a bond to the New Zealand Stock Exchange for the sum of $75,000, being the amount required to be paid by all Issuers listed on the New Zealand Stock Exchange, and the Company has provided a General Security Agreement over its’ assets in favour of ASB as security for this bond (2018: $75,000).
25. Subsequent EventsThere have been no subsequent events since 31 March 2019.
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Independent Auditor’s Report
To the Shareholders of Augusta Capital Limited
Report on the Audit of the Financial Statements
Opinion
We have audited the financial statements of Augusta Capital Limited (“the company”) and its subsidiaries (together “the Group”) on pages 58 to 83, which comprise the consolidated statement of financial position of the group as at 31 March 2019, and the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended of the group, and the notes to the consolidated financial statements including a summary of significant accounting policies.
In our opinion, the consolidated financial statements on pages 58 to 83 present fairly, in all material respects, the consolidated financial position of the group as at 31 March 2019 and its consolidated financial performance and cash flows for the year then ended in accordance with New Zealand equivalents to International Financial Reporting Standards and International Financial Reporting Standards.
This report is made solely to the company’s shareholders, as a body. Our audit has been undertaken so that we might state to the company’s shareholders those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s shareholders, as a body, for our audit work, for this report, or for the opinions we have formed.
Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing (New Zealand). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report.
We are independent of the group in accordance with Professional and Ethical Standard 1 (revised) Code of Ethics for Assurance Practitioners issued by the New Zealand Auditing and Assurance Standards Board, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Ernst & Young provides tax compliance and advisory services to the Group and Augusta Industrial Fund Limited. Ernst & Young provided tax compliance and advisory services to the Augusta Value Add Fund No 1 Limited. We have also provided Investigating Accountant services in relation to the Product Disclosure Statement of Augusta St Georges Bay Road Property Trust and Augusta Industrial Fund Limited. Ernst & Young provides other assurance services to the Group, being a review opinion of the Group’s half year financial statements. Partners and employees of our firm may deal with the Group on normal terms within the ordinary course of trading activities of the business of the Group.
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Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current year. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the financial statements section of the audit report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying consolidated financial statements.
Underwriting, Offeror & Acquisition and Transactional Revenue
Why significant How our audit addressed the key audit matter
The Group recognised $6.0 million of offeror and acquisition fee revenue, $2.1 million of underwriting fee revenue and $4.1 million of transactional fee revenue for the year ended 31 March 2019.
Recognition of these streams of revenue, including interpreting and accounting for the various obligations and commitments between the Group and the funds it manages, is considered a key audit matter given the materiality of these revenue streams to the overall consolidated financial statements. There is also judgment required when assessing the timing of when revenue relating to offeror and acquisition, underwriting and transaction revenue should be recognised. Revenue recognition depends on the satisfaction of the performance obligation and the terms of the individual arrangement.
Disclosures surrounding this item are included in Note 6 to the consolidated financial statements.
In obtaining sufficient audit evidence we:
• agreed a sample of offeror and acquisition, underwriting, and transactional fee revenue recorded in the year to product disclosure statements and other underlying agreements to determine whether the revenue recognised was in accordance with the underlying documentation;
• assessed the timing of the recognition of the revenue by determining when the performance obligation to which the revenue relates has been satisfied by agreeing to appropriate third party documentation; and
• assessed the adequacy of disclosures made in respect of revenue.
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Goodwill and Intangible Assets
Why significant How our audit addressed the key audit matter
The goodwill and other intangible assets carried at $10.9 million and $9.0 million respectively represent, in combination, a significant component of total assets (20%). The process of considering potential impairment of these assets requires significant judgment. We therefore identified this item as a significant audit risk.
As explained in Note 15, the impairment test is performed by the Group using a value in use calculation which contains future cash flow projections for 5 years and a terminal value beyond. Assumptions have been made in relation to the future growth rates of revenue and costs and also the discount rate applied. There is an element of judgment and subjectivity in each of these assumptions.
Disclosures surrounding this item are included in Note 15 to the consolidated financial statements.
In obtaining sufficient audit evidence we:
• involved our valuation specialists to assist us in reviewing the underlying valuation methodology and assumptions adopted;
• compared the future cash flows used in the model to management’s forecast for the coming financial year presented to and approved by the Board;
• discussed the forecasts with management and challenged the assumptions adopted;
• reviewed the historical accuracy of management’s forecasting ability;
• performed sensitivity analysis on the assumptions used by management in their model; and
• assessed the adequacy of the disclosures made in respect of the impairment testing of goodwill and intangible assets.
Information other than the financial statements and auditor’s report
The directors of the company are responsible for the Annual Report, which includes information other than the consolidated financial statements and auditor’s report.
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained during the audit, or otherwise appears to be materially misstated.
If, based upon the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
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Directors’ responsibilities for the financial statements
The directors are responsible, on behalf of the entity, for the preparation and fair presentation of the consolidated financial statements in accordance with New Zealand equivalents to International Financial Reporting Standards and International Financial Reporting Standards, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the directors are responsible for assessing on behalf of the entity the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with International Standards on Auditing (New Zealand) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
A further description of the auditor’s responsibilities for the audit of the financial statements is located at the External Reporting Board’s website: https://www.xrb.govt.nz/standards-for-assurance-practitioners/auditors-responsibilities/audit-report-1/. This description forms part of our auditor’s report.
The engagement partner on the audit resulting in this independent auditor’s report is Susan Jones.
Chartered AccountantsEY Auckland 24 May 2019
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Augusta Capital LimitedTop 20 Shareholders (with expanded NZCSD Sub-Register) as at 14 May 2019:
Shareholder NameIn NZCSD
Sub-Reg Total Units % Issued Capital
Leveraged Equities Finance Limited No 14,620,000 16.7
Forsyth Barr Custodians Limited No 7,067,470 8.07
Premier Nominees Limited Yes 6,961,440 7.95
Kawaroa Trustee Limited No 5,000,000 5.71
HSBC Nominees (New Zealand) Limited Yes 4,839,119 5.53
Accident Compensation Corporation Yes 3,669,283 4.19
MFL Mutual Fund Limited Yes 3,159,810 3.61
New Zealand Permanent Trustees Limited Yes 2,741,769 3.13
Cogent Nominees Limited Yes 2,435,289 2.78
FNZ Custodians Limited No 2,212,227 2.53
Michael Walter Daniel & Nigel Geoffrey Burton & Michael Murray Benjamin No 2,000,000 2.28
Premier Nominees Ltd Armstrong Jones Property Securities Fund Yes 1,796,438 2.05
Custodial Services Limited No 1,610,000 1.84
Phillip Michael Hinton & Robyn Kay Hinton & Stephen David Eichstaedt No 1,250,000 1.43
Cypress Capital Limited No 932,075 1.06
NZ Permanent Trustees Ltd Grp Invstmnt Fund No 20 Yes 835,742 0.95
Ian Richard Ross Seddon & Link Trustee Services No 16 Limited No 626,497 0.72
Investment Custodial Services Limited No 572,551 0.65
Steven Kenneth Richard Harrington & LCA Marklin Trustees Limited No 512,596 0.59
Ian Stratford Chapman & Susan Chapman No 500,000 0.57
Shareholder Statistics
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This annual report is dated 24 May 2019 and is signed on behalf of the board by:
Paul John Duffy - Augusta Capital Limited Chairman Robert Mark Petersen - Audit and Treasury Committee Chairman
As at 31 March 2019, the following shareholders have filed substantial security holder notices in accordance with the Financial Markets Conduct Act.
ShareholderNumber of ordinary shares
relevant interest last disclosed for
Mark Francis and Rockridge Trustee Company Limited 14,620,000
ANZ New Zealand Investments Limited and ANZ Bank New Zealand Limited 11,418,333
Salt Funds Management Limited 6,206,100
Westpac Banking Corporation and BT Private Selection 5,904,724
Kawaroa Trustees Limited 5,000,000
The following is a spread of quoted security holders as at 14 May 2019;
Ranges Investors Securities % Issued Capital
1 to 1,000 43 22,745 0.03
1,001 to 5,000 156 589,688 0.67
5,001 to 10,000 220 1,875,015 2.14
10,001 to 50,000 374 8,531,770 9.75
50,001 to 100,000 64 4,764,894 5.44
100,001 and Over 53 71,744,796 81.97
Total 910 87,528,908 100.00
Directory
DirectorsP.J. Duffy M.E. Francis B.R. Barnett R.M. PetersenK.J. Murphy
Chief Operating Officer J.M.W. Lindsey
Chief Financial OfficerS.W.J. Woollams
General Counsel & Company SecretaryL.J. Fitzgibbon
Registered OfficeLevel 2, 30 Gaunt Street, Bayleys House Wynard Quarter Auckland New Zealand
Share RegisterLink Market Services Level 11 Deloitte Centre 80 Queen Street Auckland New Zealand
SolicitorsChapman Tripp Level 35 23-29 Albert Street Auckland New Zealand
BankersASB Bank ASB North Wharf 12 Jellicoe Street Auckland New Zealand
AuditorsErnst & Young 2 Takutai Square Auckland New Zealand
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Augusta Capital Limited
Level 2, 30 Gaunt Street Auckland, New Zealand
PO Box 37953 Parnell
Telephone +64 (9) 300 6161 Facsimile +64 (9) 300 6162
www.augusta.co.nz