Thursday 30 April 2015 by Alen Golubovic Company updates

360 Capital 1H15 results

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All key operating metrics improved on the prior quarter.  total revenue increased by 45% to $12.27m

Key Points
 
  • 360 Capital has delivered a solid 1H15 result, with all key operating metrics improved on the prior period. Total revenue increased by 45% to $12.27m, while operating EBIT and net operating cashflows were up 49% and 168% respectively
  • Statutory profit of $21.9m included the $8.3m value uplift from the Hurstville property sale
  • The company has improved its FY15 guidance for base operating earnings from $14.9m to $15.9m, excluding the profit on the sale of Hurstville

Summary of Results

  • Total revenue was up 45% to $12.27m, includes:
    • Co-investment revenue up 459% to 5.82m
    • Funds management revenue up 60% to $3m
    • Net rentals slightly down by 5% to $3.45m
  • Operating EBIT up 49% to $8.67m
  • Net operating cashflows up 168% to $10.3m
  • Operating profit up 20.7% to $7m
  • Statutory profit up 43.1% to $21.9m, includes
    • $8.3m Hurstville property value uplift based on sale contract
    • $10m fair value increases across managed funds
  • Core gearing of 26% and look-through gearing of 44% are improved from the pro-forma levels presented in the Bond IM (33.5% and 48.9% respectively)
  • Funds Under Management (FUM) growth was only a modest 3% over the 6 month period, from $1.08bn to $1.11bn. This was due to the disposal of Burwood and the takeover of the Diversified Fund
  • Both TIX and TOF have improved their weighted average lease expiries (5.8yrs vs 5.3yrs, and 4.7yrs vs 4.2yrs)
  • The company has increased its FY15 guidance of ‘base operating earnings’ from $14.9m to $15.9m (6.0 cents per share to 6.4 cents per share), and ‘active operating earnings’ of $27.4m (which includes the profit on sale of Hurstville)

Commentary

360 Capital has delivered a solid 1H15 result, with all key operating metrics improved on the prior period. 360 Capital is progressing well on its transition from direct investing to becoming a ‘capital light’ funds management and co-investment business. The company made $271.4 in fund acquisitions in the 6 months to 31 December 2014, and is in the process of finalising a takeover of the Australian Industrial REIT (ANI) through its Industrial Fund (TIX).

360 Capital expects to recycle 45% of its assets in the next 12-18 months, which will generate >$100m of capital to be recycled into the listed and unlisted funds businesses. The assets to be sold represent, “non-core” assets and, include the $47m of proceeds to be received from the Hurstville sale due to be settled in September 2015. While the recycling process carries a degree of execution risk, 360 Capital has demonstrated a solid track record of extracting value from its assets.

We remain supportive of the credit on the basis of:

  • Solid 1H15 operating performance with an improvement in EBIT margin over prior period, and improved FY15 guidance
  • Improved gearing levels (26% vs pro-forma 33.5% in the Bond IM)
  • Improvement in FUM quality (despite only modest FUM increases)
  • Transition to fund manager / co-investment activities occurring as planned, and a more stable earnings profile expected post transition