Residential sales boost FKP profit 40pc

PRINT EDITION: 26 Feb 2013 Gift Article: 100

Gretchen Friemann and Robert Harley FKP Property Groups underlying profit has jumped by 40 per cent to $23.6 million in the first half following higher than anticipated sales at a key residential project, improving demand for its retirement villages and a reduction in management costs. But the stronger performance was offset by a statutory loss of $28.5 million, driven by valuation adjustments to its retirement property investments. Executive chairman, Seng Huang Lee, who also heads up the Malaysian conglomerate, Mulpha, said a search for a new chief executive is underway but stressed the groups structure must be finalised first. FKP mooted a demerger of its $1 billion retirement platform from its development business over a year ago but has shied away from setting a deadline for the overhaul. The groups former CEO, Peter Brown, retired in September and is yet to be replaced. Mr Lee stressed FKPs focus remains on creating a single-listed platform from the groups three separate retirement platforms. He insisted the plan would not be derailed by the current impasse in negotiations with institutional investors in the $533 million RVG fund. FKP had hoped to merge that vehicle, in which it holds a 22 per cent stake, with the smaller listed $272 million Forest Place Group, which owns a handful of retirement villages in Brisbane. The idea was to mimic the success of a $765 million merger in New Zealand. Under that deal, FKPs Private Life Care assets and Goldman Sachs Vision Living portfolio were folded into the listed Metlifecare group, radically bolstering its scale and propelling its share price over its NTA base. In a swipe at the bluechip superannuation funds that control the majority of RVG, Mr Lee said Metlifecare has done very well and...supports our insistence that a pure play retirement vehicle that is capitalised appropriately will work. Unfortunately, he added, our investors in the RVG fund dont agree. We see the evidence in front of our eyes and yet we face these issues. However, Mr Lee emphasised FKP will continue to streamline and simplify the business. The group controls the largest portfolio of retirement villages in the country, with many of the properties located in affluent suburbs like Toorak in Melbourne and Mosman in Sydney. Mr Lee claimed this scale and location makes FKPs assets highly attractive but said these characteristics are not reflected in the security price, which over the past few weeks has slumped to a 60 per cent-plus discount to the NTA of $3.98. This is in spite of a one-for-seven consolidation and last years $200 million capital raise. In the past few hours of trading on Tuesday, the stock leapt up 7.6 per cent to $1.67 apiece. The groups retirement portfolio performed strongly during the six months to the end of December, with sales up 19 per cent to 244 on the previous period. The uptick in settlements helped lift earnings, with the division notching up an underlying profit of $12.4 million. Other contributors to the result were a 40 per cent fall in profit from commercial and industrial development to $2.7 million and a 30 per cent fall from the funds and investments operation to $3.7 million. FKPs Residential Communities division contributed $24 million in revenue for the first half, buoyed by robust sales at its Aerial development at Camberwell in Victoria. The group has not given an earnings guidance for the full financial year but Mr Lee said the figure is likely to be lower given Aerials strong impact on the first half. He added if this project is stripped out, the underlying business should show an improvement. FKPs gearing is set to fall to 27.8 per cent from 31 per cent on the back of two recent sales worth a combined $119 million. The balance sheet still looks weak with current liabilities, of $1.5 billion well in excess of current assets, at $489

million. As previously disclosed, FKP will not pay a distribution for the first half.

Source: FKP Full/Half year Revenue ($m) Pretax ($m) Net ($m) EPU Final dist* *Payable Close Change Units (last) The Australian Financial Review

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