This article is from the Australian Property Journal archive
HIGHLY geared APN European Retail Property Group said there is significant uncertainty about its ability to continue, because of the economic recession in Europe.
AEZ recorded underlying profit from operations after tax of $10.6 million for the 2010 financial year, a 55.4% decrease on the prior corresponding period. Net operating income declined from $71.55 million to $52.37 million. Underlying profit per security was 1.95 cents down from 4.36 cents.
AEZ recorded a statutory loss after tax of $67.21 million, up from a loss of $322.10 million in FY09.
The Group has property investments in seven European countries and continues to experience the significant effects of the financial markets crisis. The statutory loss attributable to unitholders (after fair value adjustments of investment properties and derivative contracts, foreign exchange losses and other items) was $66.5 million.
Company secretary John Freemantle said the reduction in operating profit reflects the following significant factors including a substantial decline in value of the Euro against the Australian Dollar which is largely responsible for a 26.8% fall in reported net operating income from properties, compared to the prior year. Excluding the effect of currency movement, net operating income fell by 9.2%.
AEZ’s also saw a 90% decline in net operating income (in Euro terms) from City Mall, Romania due to rent reductions, a loss of tenants and the expiry of a vendor income guarantee towards the end of the previous financial year which represents 38.9% of the net operating income decline.
All properties were independently valued as at 30 June 2010 reflecting a decline of 10.2% (excluding exchange rate movements) over the financial year and resulting in write downs in the carrying values of investment properties of $91.1 million. Net tangible asset backing per security is 15.6 cents (19.6 cents excluding deferred tax liabilities) and look-through gearing at 30 June 2010 is 74.3%. Group interest cover (the ratio of income to interest expense) for the year to 30 June 2010 was 1.22 times.
Meanwhile Freemantle said there is significant uncertainty about the ability of the group to continue on this basis.
He added that the economic recession across Europe continues to place significant pressure on the group’s operating results and cash flows and its balance sheet.
He said whilst the group is forecast to have sufficient cash to fund forecast operating payments, existing scheduled debt repayments for the next 12 months.
But he stressed that any further deterioration in economic conditions may adversely impact forecast operating results and cash flows and may therefore further compromise the group’s ability to pay its debts as and when they fall due.
AEZ continues to be in breach of loan and derivative covenants in respect of the majority of its finance facilities. At balance date, loans and derivatives of $526 million (€369 million) from a total of $597 million (€419 million) loans and $57 million (€40 million) derivatives are in breach of their facility covenants or have a facility expiring in less than one year from 30 June 2010.
Freemantle said AEZ has continued to aggressively pursue asset sales but despite significant value growth in the UK and other core markets through Q4 in CY2009 and Q1 in CY2010, investor appetite has not improved for secondary markets and assets.
“The market is characterised by core, equity based funds and the opportunistic funds at the other extreme with return profiles that make sales difficult to rationalise for AEZ investors. Conditional non-binding offers were received in respect of assets in Spain and Germany but were not accepted given the terms offered.
“The group’s asset sale programme continues to be actively pursued, with asset sales on sensible terms remaining a high priority in the 2011 Financial Year,” he continued.
“Despite management’s best endeavours, it has not yet been possible to deliver to investors a solution that benefits all stakeholders and in particular which provides an acceptable outcome for equity investors.
“AEZ retains the support of its lenders which recognise the market constraints and that the real estate and capital management strategies being pursued will continue to preserve and enhance value over time. As such, the group is not a forced seller of assets.
“Identifying and securing a solution which will address the group’s leverage position and deliver maximum value for AEZ’s equity investors compared to other options has been and will remain the utmost priority for APN Property Group,” he concluded.
Australian Property Journal
