Australand: Big property losses star flowing

July 28, 2009
Singapore Democrats

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International Business Times

The flow of red ink through the Australian property sector has started with a multi-million dollar loss and big capital raising from the Singapore Government-controlled company, Australand Property Group.

It will be the first of a long line of poor results from the sector, which many investors hope will clear the slate for a better year ahead.

Australand reported a quarter of a billion dollar first half loss and lifted its fund raising in the past 10 months to well over $900 million.

Australand is the rump of the old Hooker Corp empire; it’s 60% owned by Temasek Holdings,one of the two investment arms of the Singapore Government, through Capitaland, a Singaporean developer (and the biggest in Southeast Asia) that’s in turn 40% owned by Temasek.

Temasek has a poor investment record here in Australia: one of its biggest failures was in ABC Learning where it lost well over $400 in the collapse late last year.

Australand is the first property group to report for the half year or 12 months to June 30 and its big loss won’t be the last. The red ink was expected as it revealed write-downs a fortnight ago in a market update, but the size of the capital raising was certainly a surprise.

It will be followed in the next three weeks by a string of huge losses from the likes of GPT, Stockland, Lend Lease, Mirvac and Valad, not to mention property trusts associated with the Commonwealth Bank and Macquarie Group and ING .

Even though financial engineers like Allco and Babcock and Brown have failed, and the Centro Property and Retail Trusts have been bailed out by the banks with losses approaching $4 billion or more, billions of dollars more in losses and write-downs will be confirmed by companies that are still going concerns.

Australand now joins GPT, Stockland and Mirvac in tapping shareholders twice within a year for huge amounts of capital, after revealing huge initial write-downs and losses.

Each of these groups has asked shareholders for more than $1 billion. (Australand got less the first time round).

It revealed a net loss for the six months to June of $268.8 million and plans to raise up to $475 million from institutions and shareholders.

The raising comes 10 months after the company revealed a $557 million issue last August-September that was eventually cut back to $461 million when there was a 17% shortfall as some shareholders abandoned the company at the time.

That issue was made at 60 cents a security; this one is at 40 cents, a big discount to the market price of 50 cents last Friday.

Australand also downgraded its guidance for its 2009 full-year operating profit.

The first half loss in 2009 was down on the prior corresponding period’s profit of $25.55 million. Operating profit for the six months to June after tax was down 11% at $59.98 million.

The result included $235.3 million in losses from property revaluations and $93.45 million in impairments of development and joint-venture inventories.

Australand’s offer comprises an institutional offer of up to $380 million and a retail issue of about $95 million, with CapitaLand, committing to take up its full pro-rata entitlement of around $282 million.

The new shares are being offered at $0.40 each, with holders entitled to buy seven for every 10 held.

Australand shares were suspended yesterday to allow the capital raising to be marketed to big institutions.

“The Group’s statutory result was a loss for the half year ended 30 June 2009 of $269 million after tax,” directors told the ASX.

“This result reflects the unrealised losses arising from investment property revaluations of $235 million and development and joint venture inventory impairments of $93 million after tax as announced on 20 July 2009,” the company told the ASX.

“Commenting on the Group’s performance in the first half, Australand’s Managing Director, Bob Johnston said “despite the difficult market conditions experienced during the period, all divisions contributed to the operating profit.

“The Investment Property division performed strongly, achieving an operating profit of $70 million. The Commercial & Industrial division achieved an operating profit before tax of $19 million, while the Residential division achieved an operating profit before tax of $7 million.”

“The proceeds from the Entitlement Offer will significantly strengthen Australand’s balance sheet, resulting in a reduction in pro-forma gearing as at 30 June 2009 from 39.8% to 27.6%.

“The Entitlement Offer will provide additional headroom against the covenant limits of Australand’s debt facilities, sufficient liquidity to meet all anticipated funding requirements over the next two years and take advantage of selective opportunities in a disciplined manner,” directors said.

“The first half of 2009 saw the continuation of the themes that impacted the property sector during the course of 2008. Asset values continue to fall and credit conditions remain constrained for the sector.

“It is expected that the remainder of 2009 will continue to be challenging. However, there are signs of stabilisation emerging in each of our major markets which should see conditions improve in 2010.

Following a review of our operations and current trading performance, the 2009 full year operating profit after tax, excluding unrealised gains/losses from revaluations and impairments and the impact of the Entitlement Offer, is expected to be down approximately 35% (previous guidance was 30%) on the 2008 result.

“This is reflective of corporate earnings corresponding to the low point in the economic cycle. Guidance remains subject to no further deterioration in market conditions.

“The Group expects to pay a final distribution for the year ending 31 December 2009 of 2.0 cents per stapled security bringing the distribution for the full year to 5.0 cents per stapled security, underpinned by the earnings from Australand’s quality investment portfolio.”