FOLKESTONE LIMITED 
By 19 February 2013
FOLKESTONE HALF YEAR RESULT ? TRANSFORMATION COMPLETE? Acquisition of the Austock property funds management business
? Folkestone Real Estate Income Fund at Sydney Olympic Park closed oversubscribed
? Significant growth in funds under management to $600 million
? The Ranges, Karratha Stage 1a commenced trading
? Potters Grove land sub?division settled, construction commenced and solid sales in
Stage 1 generated
Folkestone (ASX:FLK) today announced a net profit after tax for the six months ending 31 December
2012 of $0.03 million compared to a net profit after tax of $0.7 million in the corresponding period in
2011.
Folkestone's Managing Director, Mr Greg Paramor said "The first half of FY13 has been very active for the Group which has seen the completion of the transformation of Folkestone from a pure real estate developer to a real estate funds manager, investor and developer providing real estate wealth solutions to private clients and select institutions."
"Over the past 18 months, we have sold legacy assets, recycled capital and established a funds management platform that now offers listed and unlisted real estate funds to private clients and a number of institutional investors" said Mr Paramor.
Folkestone's profit included the following material items:
? $0.8 million in preferred equity interest income and project fees associated with Folkestone's direct real estate investments;
? $0.5 million in fee income generated from Folkestone's existing funds management platform;
? $1.1 million in fee income generated from the Austock property funds management business acquired during the period; and
? ($0.3) million in one?off transaction costs incurred during the period related to the acquisition of the Austock property funds management business.
The previous half year result included $0.8 million of non?cash income relating to the reversal of prior period impairment writedowns against Folkestone's 20 per cent interest in the Donnybrook Road, Mickleham asset1.
Folkestone's balance sheet at 31 December 2012 was strong with $22.2 million in cash or cash equivalents which equates to 6.0 cents per share. Net tangible asset (NTA) backing was 8.8 cents per share at 31 December 2012 compared with 11.9 cents per share at 30 June 2012. During the reporting period, Folkestone acquired the Austock property funds management business which resulted in intangible assets of $11.4 million being recognised on acquisition, and the 3.1 cents decline in NTA per share from 30 June 2012.
As at 31 December 2012, Folkestone and its associated entities are in full compliance with all their debt facilities and have sufficient liquidity to fulfill all of their commitments.
The finance facility with the Bank of Melbourne in respect of the joint venture project at 300 Millers Road, Altona North was extended to 30 November 2013 subject to the joint venture continuing to satisfy the facility conditions.
The St George Bank finance facility for the Karratha project was increased by $1.7 million in January
2013 to assist the joint venture with the settlement of the 7.1 hectare rear lot which occurred on 24
January 2013. The sales proceeds from the settlement of Stage 1a will be used to repay the existing facility. Discussions are underway with the St George Bank in regard to a facility for the development of Stage 1b which is expected to commence in mid 2013.
In respect of the Potters Grove land subdivision project at Officer, the Bank of Melbourne provided the joint venture with a facility to assist with the settlement of the land and development funding for Stage
1 (56 lots). The land component of the facility was drawn down on 10 July 2012 and development funding commenced in October 2012. The facility expires on 10 July 2013.
The share buyback which was launched on 30 January 2012 concluded on 31 December 2012. During this period, the Company bought back a total of 550,000 shares at an average price of 8.2 cents per share.
Given the increase in share price between July 2012 and December 2012 and other initiatives being pursued by the Company during this time, no shares were purchased in the six months ending 31
December 2012 as it was the Board's belief that the repurchase of shares at these increased levels was an inappropriate use of the Company's capital.
1 Folkestone's interest in this project was sold in June 2012 in line with book value.
DIRECT INVESTMENTS Noone Street, Clifton Hill
Noone Street, Clifton Hill, an 87 dwelling residential development in the inner suburb of Melbourne was acquired in June 2007. The development was a 50/50 joint venture between Folkestone and AMP
Capital Investors. This project is now completed following the settlement of the final apartment on 20
September 2012. The project returned a further $0.3 million in cash to Folkestone during the six months to 31 December 2012 in addition to the $8.7 million returned during the 2012 financial year.
During the past six months, Folkestone and its joint venture partner AMP Capital Investors, continued to explore opportunities to develop Stage 1 of the project. Negotiations are well progressed with an anchor tenant and a number of leading bulky good tenants.
Construction of an internal road was completed in October 2012, significantly improving access to the site. A rezoning of the 13.9 hectare site from "Industrial 3" to "Business 3" was adopted by the Hobsons Bay City Council on 11 December 2012 and the matter has now been referred to the Minister for Planning for final approval. This rezoning, together with the proposed changes to the Victorian planning framework, will provide greater flexibility of use beyond bulky goods retail and improve development opportunities for the site.
Stage 1 of the Ranges comprises 2.2 hectares with a "Tourism" zoning and DA approval for 108 single level, one bedroom villas with pool and BBQ facilities. Folkestone has a 25 per cent interest in the project.
The first 41 dwellings in Stage 1a opened on 3 December 2012 and the settlement of these dwellings to individual investors is due to commence in March 2013. The opening of The Ranges has provided much needed accommodation for business travellers to Karratha, a town pivotal to Australia's long?term LNG and other resource projects.
A further 14 dwellings in Stage 1b have been sold and a marketing campaign for the balance of the 53 dwellings in Stage 1 is underway. Construction of a further 32 villas is expected to commence mid 2013.
Negotiations with the WA Government and the local indigenous community regarding Native Title clearance issues associated with the 7.1 hectare adjoining rear?lot were concluded in late 2012. This was a pre?condition to the joint venture settling on the acquisition of the rear?lot for $1.7 million which occurred on 24 January 2013.
Potters Grove, Officer is a 14.1 hectare site located in the Cardinia Shire, in south?east Melbourne. Potters Grove is a 50/50 joint venture between Folkestone and ID Land, a Melbourne based property development company specialising in land subdivision and mixed?use development.
The land was settled by the joint venture on 10 July 2012. As at 31 December 2012, 27 lots in Stage 1 and 2 lots in Stage 2 were sold representing 48.2 per cent of Stage 1 and 4.7 per cent of Stage 2 lots respectively. Construction site works commenced on 12 October 2012, with the first settlements forecast to occur in April 2013.
The Folkestone Real Estate Income Fund at Sydney Olympic Park is the first in a series of Folkestone real estate income funds. The Fund acquired a new 5,920 square metre commercial building at 7 Murray Rose Ave, Sydney Olympic Park for $29.25 million. Thales Australia, part of the Thales Group, a leading international electronics and systems group serving the defence, aerospace, space, security, and transport markets has leased 5,227 square metres (100 per cent) of the office space, 42 square metres of the retail space and 47 car spaces for their new Australian headquarters.
The quality of the asset, strong tenant covenant and commencing annualised yield of 8.1 per cent, together with Folkestone's simple and transparent fee structure, resulted in the Fund closing for applications oversubscribed.
The Folkestone balance sheet was used to underwrite $8.0 million of the Offer with the underwritten units fully redeemed by 31 December 2012.
The Tivoli Development Fund is undertaking, in joint venture with Urban Inc, a 65 apartment residential development in Roden Street, West Melbourne. To date, 62 of the 65 apartments have been sold with construction forecast to be completed by September 2013.
Social Infrastructure Funds
During the period, Folkestone acquired the Austock property funds management business. The total price paid for the acquisition was $11.45 million plus an amount of $3.02 million for regulatory and working capital settlement adjustments in accordance with the terms of the share sale agreement.
The acquisition provides $560 million in funds under management across four listed and unlisted funds specialising in real estate related social infrastructure - childcare centres, medical centres and police stations/courthouses. The acquisition also provides a solid platform to grow Folkestone's funds under management via the creation of new funds in the social infrastructure space.
Folkestone is pleased to announce Mark Baillie has joined the Board of Folkestone as the Deputy Chairman. Mark has over 28 years experience in global real estate funds management, investment banking and chartered accounting. Mark held a number of senior executive positions at Macquarie Bank between 1995 and 2009, most recently as Macquarie Group's Head of Real Estate - Europe and North America based in London. Mark is a Board member of the American Australian Association.
OUTLOOK
Folkestone believes investors will increasingly look to real estate to deploy capital given the relatively low returns being generated from cash holdings. Folkestone is well placed to take advantage of the move away from cash and to deliver on its strategy of being a leading real estate funds manager, investor and developer providing real estate wealth solutions to private clients as well as select institutions.
Mr Paramor said "We expect economic and financial markets to remain challenging but believe there will be a number of attractive investment opportunities in both the residential and non?residential sectors in the next 12 months. Folkestone's strong balance sheet and access to third party capital through its funds management platform means it is well placed to take advantage of these opportunities."
"In particular, demographic and social changes, together with governments looking at public?private partnerships, should provide some excellent opportunities in the real estate related social infrastructure sector and the acquisition of the Austock property funds management business provides a platform to grow Folkestone's funds in this sector" said Mr Paramor.
For further information regarding this announcement please contact:
Mr Greg Paramor Mr Garry Sladden Managing Director Chairman Folkestone Limited Folkestone Limited
02 8667 2800 02 8667 2800
Folkestone (ASX:FLK) is an ASX listed real estate funds manager, investor and developer. Folkestone's on
balance sheet activities focus on value?add and opportunistic real estate investments and its funds management platform, with approximately $600 million under management, offers listed and unlisted funds to private clients and select institutional investors.
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