PAYCE Consolidated Limited (PAYCE) reported a strong set of results for FY15 last week
Highlights of the results were as follows:
- PAYCE reported NPAT of $94.9m for FY15 ($1.6m FY14) following the sale of the Hurstville, East Village and Platinum properties/projects in the first half of the financial year
- There were no developments completed (and hence profits booked) in the second half of the financial year. However, the 192 unit Fairmount building in Washington Park is expected to be completed and settled in the near future which should see further development profits booked in 1H16. The company continues to have a strong pipeline of existing and future projects
- Total assets grew $90.7m over the year to $617.9m and total liabilities increased just $30.5m to $424.1m, meaning there was a significant improvement in shareholder’s equity from $133.6m at 30 June 2014 to $193.8m at 30 June 2015
- We note the company has $52.5m in cash and equivalents as at 30 June 2015, up from $25.8m a year earlier
Further details of the results can be found on PAYCE’s website, where you can download the Annual Report 2015.
Whilst the company results were pleasing, as previously written the main (risk) consideration for PAYCE bond investors is the East Village retail and commercial rental assets that they have second ranking security over. These assets were valued at $235m in the accounts as at 30 June 2015.
Investors may recall that PAYCE cannot leverage East Village by more than 70% of its value (including the $50m bond issue) until December 2016 and 60% thereafter. Using the valuation of $235m, that would limit the senior secured investment loan to $114.5m until December 2016 and $91m thereafter, providing significant residual value to support the bonds (i.e. $114.5m bank debt + $50m bonds / $235m value = 70% and $91m bank debt + $50m bonds / $235m value = 60%). This would equate to a senior secured debt loan-to-value ratio (LVR) of 48.7% until December 2016 and 38.7% after that date, assuming the valuation remains constant at $235m.
The PAYCE bonds have a maturity date of 3 December 2018 but are able to be called early at $102 in December 2016 or $101 in December 2017. Assuming current financial conditions remain steady over the next 18 months (particularly interest rates and credit margins), PAYCE would be able to refinance East Village at a substantially lower cost than the bonds (9.5% coupon) even taking into account the 2% premium payout for early call, suggesting the probability of call is relatively high.
The PAYCE 9.5% fixed rate bonds are indicatively offered at a yield to first call of 5.6% or yield to maturity of 7.2%. Given the strong security position of the bonds we believe they represent value at current levels.
Please contact your FIIG representative for more information.