A strong year across all property sectors has delivered Thakral Holdings an annual net profit after tax of $89.3 million for the year ending June 30, 2006 – an increase of 148% when compared to 2005.
Thakral’s underlying profit, which is excluding property valuations, was $36.3 million for the FY2006 – an increase of 27% over $28.65 million in 2005. At June 30, the group’s annual independent property revaluations resulted in an increase of $94 million or 12% in the value of the group’s investment property portfolio.
The result was generated through an annual revenue increase of 42% from $241 million in 2005 to $342 million in 2006.
“The board wishes to emphasise the significant impact the change in reporting results under AIFRS has and will have on the results of the group,” Thakral’s joint chairman Ted Harris said.
“The combined effect of the significant valuation increases flowing through the profit and loss account for the first time coupled with the change in the manner in which profit from the development activities are reported will inevitably lead to greater volatility in Thakral’s annual results. For example, it would be unreasonable to expect this level of valuation increase each year. Further, as previously stated development profits are now reported on a settlement basis resulting in “lumpy” profit recognition,” he added.
Harris said the group is focussed on achieving long term sustained profitability both in terms of capital appreciation and annual distributions.
“Accordingly, the Board urges investors not to place too much emphasis on short term results. Not withstanding this, the change in accounting methodology should not detract from the simple fact that the result is a good one for shareholders, delivering an increase in both annual distributions and net asset backing,” he added.
Thakral’s hotel division contributed $51.1 million, up $5.7 million or 12% on the previous corresponding period.
Across the portfolio, occupancy for the year was down from 78.1% in 2005 to 73.7% in 2006; average rate increased from $138.86 to $157.29.
“Barring unforeseen events, we see strong growth in most markets. Demand for hotel rooms is growing both domestically and from the inbound market, while we see only modest growth in supply over the next three years.
“This still remains our overall view however since that time the performance of hotels, while good, was below our expectations,” Harris said. “Looking forward, we remain confident of improved profits from our hotels. This is primarily as a result of the lack of any substantial growth in supply.”
“Based on these expectations and our own view of the market, Thakral is budgeting for growth in profits from hotels,” he added.
Thakral’s retail and commercial division achieved a profit of $17.9 million, compared to $16.8 million in the previous year an increase of 7%. The improved result was driven by strong increases in Melbourne and at the Oasis Shopping Centre Broadbeach. Offsetting these were reduced returns from Wynyard where the group is seeking to position the Centre for a major redevelopment.
This division represents approximately 20% of operating profit and continues to enjoy generally low vacancy rates.
“Looking forward we are predicting further strong income growth from the Oasis which is benefiting from the major refurbishment that will complete this year. Additionally, we expect a strong contribution from 120 Sussex Street Sydney which will benefit from the tightening office market in Sydney,” Harris said.
Thakral’s property development division contributed $26.9 million, up significantly on the previous period result of $7.3 million.
The largest contributor to this was the 32 storey, Air on Broadbeach development. This project which was constructed over the Thakral owned Oasis Shopping Centre was completed in October 2005.
“Accordingly, while we see a slowing in the rate of sales, we remain confident of ongoing profits from our current portfolio of projects. However based on the expected timing of the projects and the change in accounting treatment to AIFRS, next year’s result from this area is expected to be down on the 2006 result,” Harris said. “The slowing of residential markets will ultimately translate into lower construction prices and more realistic vendor expectations for land sales. Accordingly, Thakral is cautiously optimistic that it has a current book of projects that will continue to deliver and there will be an increasing number of quality opportunities to expand its book.”
“Meanwhile, our work to realise opportunities within our existing portfolio is ongoing. To this end, we remain confident of securing approval for a major re-development of our Wynyard holdings, and are nearing commencement in Melbourne of three residential developments around the Hilton on the Park.
“We expect to see continued strength from the development division in the medium-term.” he added.
Thakrals interest bearing debt to tangible assets has reduced in the period from 46.5% to 42.3%.
Meanwhile, net tangible asset backing per stapled security, based on the full fair value of the assets was 96 cents, up from 80.5 cents at 2005.
“In summary, the group has delivered shareholders a distribution of 6.5 cents and increased the net asset backing per stapled security by 15.5 cents. This is inline with our aim to provide, over an extended period, a reliable income stream while also increasing capital value,” Thakral’s managing director John Hudson said.
“Looking forward, the change to AIFRS and in particular the effect this has on revaluation increments and the timing of profits on development projects make it difficult to predict future results. We are however confident, baring unforeseen events, of increased profits from our hotels and retail and commercial properties,” he concluded.
Thakral has declared a distribution per stapled security of 6.5 cents for FY2006, compared to 6.25 cents in 2005.
By Adam Parsons
