Tag: UPDC

UACN Property Development Company (UPDC) Plc drew on improving values of its underlying assets and the steadiness in its real estate business to deliver better returns to shareholders. Audited report and accounts of UPDC for the year ended December 31, 2013 showed a generally positive bottom-line, although its top-line was constrained by declines in both sales and rental incomes. Pre and post tax profits rose by 51 per cent and 45 per cent respectively, which enabled the real estate company to deliver a two-in-one cash and scrip dividend to shareholders while substantially improving its returns and dividend outlook.

UPDC’s two business segments-property and hospitality services, provided complementary synergies to even out the downsides on both sides. While the hospitality services business showed a stronger growth momentum with 66.9 per cent growth in turnover, it still posted a loss, although lower than previous year. The main property development, sales and management business witnessed decline in turnover but recorded significant growth of 38 per cent in pre-tax profit, which altogether coloured the overall group performance.

The group performance altogether showed a steady growth outlook with improved margins and better financing structure. The proportion of equity funds to total assets improved from 44 per cent in 2012 to 50.2 per cent in 2013 while pre-tax profit margin rose from 20.4 per cent in 2012 to 32.8 per cent in 2013. While the company paid out cash dividend per share of 70 kobo, the same rate it paid in previous year, in addition to a bonus issue of one for four shares, improvement in dividend cover from 2.30 times in 2012 to 3.31 times in 2013 underlined the increased intrinsic value to shareholders. This was also evident in the modest increase in net assets value, which is considerable higher than current market value of the stock at the stock market. This may suggest possible undervaluation of the company’s shares.

UPDC however still remains under considerable cost pressures, especially under the intensive cost of its capital-intensive business. Both liquidity and debt-to-equity ratios indicated these concerns, compounded by the decline in disposable incomes of its upper-to-middle class clients. The issues of inadequate capital, high interest rates and lower effective demand among others are general industry issues in the Nigerian real estate sector, and when viewed against the background of the industry performance, UPDC appeared stronger and less susceptible.

 

Financing structure

 

UPDC Group’ paid up share capital remained unchanged at N687.5 million, consisting of 1.375 billion ordinary shares of 50 kobo each. Shareholders’ funds rose steadily from N31.25 billion in 2012 to N33.43 billion in 2013. Total assets stood at N66.55 billion in 2013 as against N71.36 billion in 2012. Long-term assets had increased from N48.12 billion to N48.28 billion. Total liabilities dropped by 17 per cent from N40.11 billion to N33.13 billion. Long-term liabilities had dropped by 54 per cent from N14.05 billion to N6.46 billion while current liabilities increased by 2.3 per cent from N26.06 billion to N26.67 billion. The financing position was steady and balanced. The proportion of equity funds to total assets improved from 43.8 per cent to 50.2 per cent. However, debt-to-equity ratio dropped to 56.9 per cent in 2013 as against 50.8 per cent in 2012. Long-term liabilities/total assets ratio stood at 49.8 per cent compared with 56.2 per cent while current liabilities/total assets ratio closed 2013 at 40.1 per cent as against 36.5 per cent in 2012.

 

Efficiency

 

Average staff productivity improved in 2013, although the top-line cost pressure undermined initial margins. Average number of employees improved from 305 persons to 359 persons, with increase in both management and non-management staff. Total staff cost also increased from N509.35 million in 2012 to N687.47 million in 2013, representing average staff cost per employee of N1.92 million in 2013 as against N1.67 million in 2012. Average contribution of each employee to pre-tax profit meanwhile improved from N8.05 million to N10.33 million. With considerable increase in cost of sales, total cost of business, excluding financing charges, increased to 87.6 per cent of total turnover in 2013 compared with 72.7 per cent in 2012.

 

Profitability

 

Underlining profitability ratios showed a generally positive outlook in 2013 as the company mitigated top-line constraints with additional incomes from existing assets. While gross profit margin dropped from 41.5 per cent in 2012 to 28.3 per cent in 2013, pre-tax profit margin improved from 20.4 per cent to 32.8 per cent. Average return on total assets also improved from 3.4 per cent to 5.6 per cent while average return on equity rose from 7.0 per cent to 9.4 per cent. With 44 per cent increase in net earnings per share, the company distributed N962.5 million as cash dividends, representing a dividend per share of 70 kobo. It had paid the same rate in the previous year. It however added a bonus issue of one for four shares to the 2013 distribution. Dividend cover, which underlines the possibility of sustaining current cash payout in the future, was stronger at 3.31 times in 2013 as against 2.30 times in 2012.

Group profit before tax had risen by 51 per cent from N2.46 billion in 2012 to N3.71 billion in 2013. After taxes, net profit rose by 44.7 per cent from N2.18 billion to N3.16 billion. Earnings per share thus stood at N2.32 in 2013 compared with N1.61 in 2012. Net assets per share rose from N22.73 in 2012 to N24.31 in 2013. The mid-line performance cushioned the negative top-line performance, which saw group turnover dropping by 6.2 per cent from N12.04 billion to N11.30 billion. Segmental analysis showed mixed performance. The main business segment of real estate development, sales and management recorded lower sales of N9.33 billion in 2013 as against N10.86 billion in 2012. The second business segment of hospitality services recorded turnover of N1.97 billion in 2013 as against N1.18 billion in 2012. Meanwhile, group cost of sales rose by 15 per cent from N7.04 billion to N8.10 billion, depressing gross profit from N5 billion to N3.2 billion. Total operating expenses also inched up by 5.3 per cent from N1.71 billion to N1.80 billion. Interest expenses grew by 32 per cent from N1.53 billion to N2.01 billion.

 

Liquidity

 

The liquidity position of the company declined during the period. Current ratio, which relates current assets to relevant liabilities, dropped from 0.89 times to 0.69 times. Working capital/total sales ratio remained negative at -74.3 per cent in 2013 as against -23.4 per cent in 2012. Debtors/creditors ratio stood at 30.3 per cent in 2013 compared with 45.4 per cent in 2012.

 

Governance and

structures

 

UPDC was spun off from UAC of Nigeria (UACN) Plc and its shares were listed on the Nigerian Stock Exchange (NSE) in 1997. UACN still holds the largest 46 per cent equity stake while First Trustees Nigeria holds the second largest stake of 12 per cent. Other corporate bodies hold some 18 per cent while individuals and trustees hold the balance of 24 per cent.

UPDC Group includes mainly the parent company and UPDC Hotels Limited, the owner of Golden Tulip Festac Hotel, Lagos. In 2013, UPDC spun off some assets and created a real estate investment trust (reit) with an initial public offering that closed at a value of N26.7 billion. The Reit is listed on the NSE. UPDC currently holds 62.2 per cent stake in UPDC Reit. It however plans to sell 22.2 per cent stake to reduce its shareholding to 40 per cent, in line with its corporate strategy.

The board and management of the company remained stable. Mr. Larry Ettah, the group managing director of UACN, chairs the board of UPDC while Mr. Hakeem Ogunniran leads the executive management team as managing director. UPDC broadly complied with the code of corporate governance and best practices.

 

Analyst’s opinion

 

The Nigerian real estate industry faces twin problems of high costs and sluggish market. With liquidity squeeze and attendant high costs of funds, declining consumer purchasing and increasing top-line costs compounded the performance of the industry. While Nigeria’s huge housing deficit of between 16 and 17 million units, growing population and evolving middle class offer exciting business prospects for real estate companies, the absence of a liquid mortgage system and declining disposable income constitute threats to the real estate sector. For instance, as against average of one million housing units that are supposed to be added annually, only 30,000 housing units were added in 2013. However, the ongoing reforms including the recapitalisation of primary mortgage companies and the establishment of a mortgage refinancing company should provide some necessary financial linkage.

UPDC’s leadership position in the industry, the cross-selling opportunities and economies of scale offered by its conglomerate parent company and prudent management could serve as cushions and increase the momentum in the years ahead. It however needs to further explore opportunity for amenable long-term capital, to fully realise its long-term projects without the cost pressures of interest expenses. In this, existing and new shareholders can play important roles. Altogether, the long-term prospects of the company is reassuring.

UACN Property Development Company (UPDC) Plc at the weekend inaugurated its new premium residential estate, Metro Gardens, in Lekki Phase 1, Lagos amid commendations from the state government.

Speaking at the event, Commissioner for Works and Infrastructure, Lagos State, Dr. Kadri Hamzat, commended UPDC for the development of the estate and its compliance with extant laws and rules.

He said such initiatives like the UPDC’s Metro Gardens would assist the state government in its quest to provide meaningful homes to people in the state assuring that government is always willing to support private sector efforts in housing development.

According to him, given the resources at the disposal of government, it lacks the capacity to meet the full housing demand but private sector developments would provide good complement.

He stressed the importance of voluntary compliance with town planning and building codes in order to avoid demolition.

Chairman, UACN Property Development Company (UPDC) Plc , Mr Larry Ephraim Ettah, said the 55-unit estate has been equipped with facilities designed to make the life of residents comfortable adding that the company’s facility management team is also readily available to attend to residents needs.

He assured that UPDC will continue to complement the megacity strategy of Lagos State Government by embarking on real estate projects that conform to international standards, which are aesthetically appealing and offer delightful living experience to residents.

“We will also continue to build for sustainable value by ensuring that our designs comply with the basic tenets of sustainability, environmental friendliness and social responsibility,” Ettah said.

He said that company is proud that the Lagos state Building Control Agency (LSBCA) has duly certified the estate as evidence by the Certificate of Fitness for Habitation which was issued by the agency to UPDC a few weeks ago.

“Indeed, our company is the first recipient of the certificate under the new dispensation,” Ettah said.

He noted that the completion of the estate was indicative of the profile of the company as developer of choice noting that when the estate was acquired from the previous developer in 2011, construction work at Disney Court as the estate was then called had stopped for several months.

He said in line with the company’s mission of adding value to lives and business, it took over the project; re-evaluated it and completed it in May 2013, 18 months after construction work re-commenced.

Managing Director, UACN Property Development Company (UPDC) Plc, Mr Hakeem Ogunniran, described Metro Garden as a mixed residential development on 1.827 hectares of land, comprising of a total of 55-units with facilities as swimming, gymnasium, club house, Internal road network, external CCTV, Intercom Service, fire alarm system and smoke detectors, DSTV, portable e water treatment plant, electricity service and sewage treatment plant.

Investors in the UPDC Real Estate Investment Trust (UPDC REIT) would receive about N15.64 billion in cash distributions over a five-year period, the fund manager has said.

The Board of FSDH Asset Management Limited (FAML), the fund manager to UPDC REIT, indicated an average yearly dividend yield of 10.1 per cent, equivalent to about N3.13 billion over a five-year period.

According to forecasts made by directors of the fund manager, UPDC REIT is expected to pool total income of N21.85 billion within the five-year period between this year and 2017 while profit before tax would be about N20.32 billion within the same period.

With net profit after tax expected at N17.40 billion over the period, investors in UPDC REIT would receive total cash dividends of N15.64 billion.

UPDC REIT, a collective investment scheme being sponsored by the UACN Property Development Company (UPDC) Plc, is offering three billion ordinary units of N10 each at N10 each through an initial public offering (IPO). Minimum subscription is 10,000 and thereafter in multiples of 1,000 units. The offer, which opened on February 19, 2013, closes on March 28.

The fund manager said N2.36 billion would be distributed as dividends for the year ending December 31, 2013 and this would increase to N2.55 billion, N2.99 billion, N3.29 billion and N4.45 billion in 2014, 2015, 2016 and 2017.

Dividend per unit is projected at 79 kobo for 2013 and would subsequently improve to 85 kobo, N1, N1.10 and N1.49 in 2014, 2015, 2016 and 2017.

With these, dividend yield would be 8.7 per cent in the year and increase consecutively to 9.3 per cent, 10.8 per cent, 11.7 per cent and 15.7 per cent in 2014, 2015, 2016 and 2017.

According to the forecasts, profit after tax is estimated at N2.62 billion in the year and this would increase to N2.84 billion, N3.32 billion, N3.36 billion and N4.97 billion in 2014, 2015, 2016 and 2017 respectively.

Profit before tax is projected at N3.74 billion in 2013 and it is estimated to slowed down to N3.26 billion in 2014 and subsequently improved consecutively to N3.76 billion, N4.12 billion and N5.44 billion in 2015, 2016 and 2017.

The fund manager said total income from the collection of real estate assets could be N3.99 billion in 2013. This is, however, expected to drop to N3.52 billion in 2014. Total income is estimated at N4.09 billion in 2015 and then to N4.47 billion and N5.79 billion in 2016 and 2017.

The UPDC REIT seeks to invest a maximum of 75 per cent in real estate, 25 per cent in real estate related assets and 10 per cent in liquid assets and cash.

The fund manager added that it would optimise opportunities in the buoyant outlook for real estate industry and the prime locations of the assets to be acquired by the collective investment scheme to ensure good returns to unitholders.