ALE Property Group still delivered a solid distributable profit to investors despite spending some money to buyback its stapled securities.
ALE posted a distributable profit of $28.9 million for the 12 months ended June 30 2008 – down 1.7% from $29.4 million in the previous year. But this was due to the company’s 5.8% buyback of its stapled securities. Revenue was $53.3 million in FY08, up from $51.4 million.
Despite the slight dip, the pub property owner’s distributable profit per security grew 4.1% to 33.60 cents compared to 32.30 cps last year.
ALE’s managing director Andrew Wilkinson said the group’s position is relatively strong.
“Unlike others, our ability to pay future distributions is not affected by development risks, foreign exchange risks, income from property sales, changes in nominal or real interest rates, residential property prices, pub turnover or pub profitability.
“We have first-rate properties that are geographically widely dispersed, all on long-term (average 20+ years) CPI-indexed leases with a high quality tenant. These continue to be highly sought after property characteristics, particularly in the current environment,” he added.
“The financial structure we have created is the most natural for these assets. The CPI indexed property assets are now matched by CPI indexed liabilities for up to 15 years. For FY09 the net cash interest rate on all ALE’s borrowings is expected to be 3.10%.”
ALE’s gearing increased 6.7% to 69.8% which is the highest level since 2005 when gearing was around 72%.
ALE has also adopted a policy of setting future distributions at levels that do not exceed the free cash flow available.
Wilkinson said previously, the aim was simply to maintain gearing levels, however in the current environment, it was prudent to adopt the new policy.
“Free cash flow for FY09 is currently expected to exceed the FY08 distribution,” he continued.
As at June 30, ALE’s portfolio value increased by 6.5% to $842.4 million from $791.2 million. But net tangible assets per security decreased to $3.08 principally as a result of the securities’ buyback and a small increase in the average property capitalisation rate from 6.07% to 6.20%.
Wilkinson said that while ALE’s outlook for FY09 is positive, the wider property and financing markets are expected to demonstrate continued volatility.
“We will continue to look for acquisitions that meet our strict criteria both in the pub and other commercial sectors but we expect that further quality purchases we may be impacted by the continuing constraints in the credit markets.
“Nevertheless, revenue growth for the existing portfolio is very positive. We expect an increase in CPI of between 4.0 and 4.5% for the year ending September 08 and the ensuing rental increases will take effect from November 08.
“Our current risk position provides security holders with an increasingly predictable, distributable free cash flow profile. Cash interest saving from both the May 06 refinancing and recent CPI hedging arrangements will positively affect ALE’s distributable cash flow for many years to come.“ Wilkinson concluded.
Australian Property Journal
