Announcement
FLLYR: PCT: Strategic execution drives PCT annual results
09:10am
PCT
16/08/2019 09:10
FLLYR
PRICE SENSITIVE
REL: 0910 HRS Precinct Properties New Zealand Limited
FLLYR: PCT: Strategic execution drives PCT annual results
Performance summary for the 12 months ended 30 June 2019
Financial summary
oNet operating income increased to $79.4 million, up 3.7% (2018: $76.6
million).
oGross rental revenue was $135.8 million, 3.9% higher than the previous year
(2018: $130.7 million).
oNet property income (NPI) of $97.5 million (2018: $95.3 million); after
adjusting for development projects and sales, like for like NPI was 3.9%
higher than the previous comparable period.
oTotal comprehensive income after tax of $190.1 million (2018: $254.9
million).
oFull year dividend of 6.00 cps, up 3.4% (2018: 5.80 cps), matching Adjusted
Funds From Operations (AFFO) for the year of 6.02 cps. Consistent with
Precinct's intention to transition towards paying out approximately 100% of
AFFO as dividends.
oStrong property revaluation gain of $161.7 million or 6.1% (2018: $208.7
million).
oNet Asset Value (NAV) per share increased by 6.4% to $1.49 (2018: $1.40).
oFY20 dividend guidance of 6.30 cps, an increase of 5.0%.
Capital management
o$151.8 million raised through successful equity issue.
oAsset recycling - $191 million assets sold
-This includes the sale of a 50% interest of the ANZ Centre in Auckland for
$181 million and the disposal of 10 Brandon Street in Wellington.
-Post balance date, Precinct has agreed a conditional sale of Pastoral House
in Wellington for $77 million.
oLong term funding secured via $162.8 million United States Private Placement
(USPP).
Operational performance continues to advance
oMaintained high occupancy level of 99% (2018: 99%) and increased weighted
average lease term (WALT) across the portfolio to 9.0 years (2018: 8.7
years).
oActive leasing with 27 office transactions secured, totalling over 20,000
square metres.
oAuckland portfolio continues to achieve rental growth with like for like
income up 6.1% on the previous comparable period, Wellington remains flat.
oGenerator business
-Strategic acquisition of the remaining 50% equity interest during the year.
-Significant occupancy growth to 88% across its sites as the business
matures, this has underpinned 116% growth in revenue for the year to $16.4
million.
Development projects update
Commercial Bay
oLeasing progress with retail commitments now at 95% (2018: 76%) and office
commitments at 82% (2018: 78%).
-Revised targeted opening dates of March 2020 for the retail centre and April
2020 for the new PwC Tower.
-Forecasted total project cost remains in the range of $690 to $700 million
and the yield on cost is expected to be in the 7.4% to 7.5% range.
oOne Queen Street has now entered into detailed design phase and
pre-commitments lifted to 78%.
Wynyard Quarter
oCommitment to the second stage of Wynyard Quarter, 10 Madden Street in
November 2018.
-The building is 62% committed with major leasing to Media Design School
(MDS).
-Remainder of the office space is conditionally leased to two confidential
parties (documentation under negotiation).
-Project remains on budget and on schedule for practical completion at the
end of 2020.
oWynyard Quarter Stages 3 and 4
-Design programme allows for mid-2020 works commencement.
Bowen Campus
oThe Charles Ferguson Building reached practical completion in December 2018,
now occupied by Ministry of Primary Industries.
oAt Defence House (previously Bowen State Building), base build works are now
complete with integrated fitout progressing well. The project remains on
schedule for New Zealand Defence Force to occupy the building in October
2019. Rent has commenced.
oBowen Campus Stage Two continues to progress.
-Detailed design now complete and resource consent granted for two additional
buildings.
-Active leasing discussions are underway with a number of potential
occupiers.
-Construction procurement underway.
Precinct Properties New Zealand Limited (Precinct) (NZX: PCT) reported its
financial results for the 12 months ended 30 June 2019 today. A strong
revaluation gain contributed to total comprehensive income after tax of
$190.1 million. This compares with $254.9 million last year, with the
difference mainly attributable to the movement in financial instruments and
the prior period revaluation gain.
Net operating income, which adjusts for a number of non-cash items, was up
3.7% to $79.4 million (2018: $76.6 million) or 6.37 cps. Net operating income
before performance fees was 6.62 cps, in line with guidance.
Dividends paid and attributed to the 2019 financial year totalled 6.00 cps
and reflected a year on year increase of 3.4%. Importantly the dividend
matched Adjusted Funds From Operations (AFFO) for the year of 6.02 cps. This
is consistent with Precinct's intention to transition towards paying out
approximately 100% of AFFO as dividends.
Gross rental revenue was $135.8 million, 3.9% higher than the previous year
(2018: $130.7 million). This increase was primarily due to the acquisition in
February of the remaining 50% interest in Generator. Allowing for Generator,
the sale of a 50% interest in the ANZ Centre, the completion of Bowen Campus
Stage One and other transactions, like for like gross rental income was 3.8%
higher than the previous period. Adjusting for development projects and
sales, like for like NPI growth was 3.9% higher than the previous comparable
period. The Auckland portfolio saw an increase of 6.1%, while Wellington was
flat.
As at 30 June 2019 Precinct's portfolio totalled $2.8 billion (2018: $2.5
billion), with Precinct's NAV per share at balance date increasing 6.4% to
$1.49 (2018: $1.40). The increase in NAV is due to the revaluation gain and
is partly offset by the fair value loss in financial instruments. Further
financial information can be found within the 2019 Annual Report at
https://www.precinct.co.nz/annual-reporting/2019-annual-results.
Scott Pritchard, Precinct's CEO, said "The last financial year has been
another active period for our business. Precinct's investment and development
portfolios continue to perform well. We have also maintained a strong balance
sheet position by completing several capital management initiatives during
the 2019 financial year, ensuring we have sufficient funding capacity to
deliver all committed developments".
"Demand drivers for city centre real estate across the office, retail and
hotel markets remain positive. Our strategy continues to deliver performance;
we are enhancing our portfolio composition through diversification of city
centre real estate and increasing our investment in coworking/flexible space.
We believe these initiatives, along with aligning dividends with AFFO further
support our strategy in the long-term".
Our investment portfolio is benefiting from significant leasing activity,
strong rental growth and high occupancy achieved in Auckland and Wellington.
The strength in our assets is driving Precinct's operating performance and
reinforces the position that our portfolio holds in meeting the needs of our
clients. At 30 June 2019, overall portfolio occupancy was maintained at 99%
and our WALT has increased to 9.0 years.
Expanding further into the fast-growing coworking/flexible space market has
provided Precinct with a unique investment opportunity. Purchasing the
remaining 50% equity interest in coworking space provider, Generator in
February 2019 has significantly increased our presence. Our investment now
makes up 66% market share of total coworking/flexible space in Auckland city.
This acquisition has been a pursued investment of Precinct, in line with our
business strategy of being city centre specialists. Generator allows us to
extend our traditional offering, providing flexible office space and
meeting/events solutions to a broad range of New Zealand businesses.
Scott Pritchard, Precinct's CEO, said "We have a clear strategy for the
Generator business. Similar to other global cities, over the long-term we
expect to see continued growth and demand from this market in Auckland and
Wellington city centres".
During the period, a total of $191 million of assets were sold. This included
the sale of a 50% interest in the ANZ Centre in Auckland for $181 million, to
a fund controlled by Invesco, together with the sale of 10 Brandon Street in
Wellington. Post balance date, Pastoral House in Wellington is now under
contract for sale and remains conditional at this stage on the purchaser's
due diligence. We will provide an update on this transaction in due course.
Development update
Commercial Bay
During the year we have advanced pre-leasing at Commercial Bay. Pleasingly,
we have welcomed a number of high quality retailers ensuring the retail mix
is first class. This has increased retail leasing commitments to 95%. Around
8% of the office tower has been leased during the year, with pre-leasing now
at 82%.
As previously disclosed in May 2019, the targeted opening dates of Commercial
Bay have been revised to March 2020 for the retail centre and to April 2020
for the new PwC Tower. This is due to observed delays in construction
progress by the main contractor. We are working closely with all retailers
and office occupiers to manage risks and minimise any potential disruptions.
This is our key priority. Precinct remains confident the provisions of the
construction contract appropriately protect Precinct from losses due to
contractor delay and/or breach of contractor obligations.
With designs now progressed, the second stage of the Commercial Bay project,
One Queen Street is set to create a true and vibrant mixed-use community in
the heart of the Auckland city centre. Fully integrated into the Commercial
Bay retail precinct, One Queen Street reinforces our commitment to creating a
world-class waterfront destination on par with other gateway cities.
Construction remains scheduled to commence during 2020.
Wynyard Quarter
Announced during the period, the development of the second stage of Wynyard
Quarter, 10 Madden Street is now under construction. The project remains on
budget and on schedule for practical completion at the end of 2020. Currently
62% committed with major leasing to Media Design School (MDS), we are pleased
to have conditionally leased the remainder of the office space to two
confidential parties with documentation currently under negotiation. At
Wynyard Quarter Stages 3 and 4, preliminary designs are underway with the
programme allowing for mid-2020 works to commence.
Bowen Campus
In Wellington, we completed the Charles Ferguson Building during the period.
At Defence House (previously Bowen State Building), base build works are now
complete with integrated fitout progressing well and rent has commenced.
Across Bowen Campus Stage Two, detailed design is complete. Enabling works
are progressing on site and are on programme to be completed at the end of
August 2019. Management are currently engaged in discussions with a number
of potential occupiers for 40-44 Bowen Street. We expect to commit to a
construction start in the next 12 months.
Board changes
Over the past eight years, Precinct has benefited from a strong and stable
governance regime. Having a Board of Directors comprising the right balance
of skills, knowledge and perspective provides Precinct with an effective
leadership team to take the business forward.
In November 2018, it was announced that Don Huse will retire in the second
half of 2020. Commencing a recruitment process earlier this year for a new
Independent Director has been part of the succession plan. Ensuring a
seamless transition and best practice corporate governance is maintained has
been a key priority. We look forward to announcing the appointment of a new
Independent Director ahead of this year's Annual General Meeting of
shareholders.
We also announce, today, that Chris Judd has notified the Board of his
intention to resign as a director for both Precinct and for our management
company, AMP Haumi Management Limited (AHML). Chris will remain on both the
Precinct and AHML Boards until early 2020.
Craig Stobo, Precinct's Chairman said "Don and Chris have been an integral
part of Precinct's strategic review and execution. We would like to thank
them both formally for their on-going contribution over the last 9 years and
wish them all the best".
Dividend policy change
Recognising a dividend policy should optimise long term sustainable returns
for Precinct's shareholders, the Board has recently reviewed Precinct's
dividend policy. Accordingly, Precinct intends to transition towards paying
out approximately 100% of AFFO as dividends, with the retained earnings being
used to fund the capital expenditure required to maintain the quality of
Precinct's property portfolio. Aligning dividends with AFFO is considered to
be best practice in a global context for real estate entities. It is
consistent with the objectives of the current dividend policy, but more
explicitly adjusts for maintenance capital expenditure and incentives. AFFO
best reflects the sustainable cash flow produced by our portfolio. The Board
is of the view that this updated dividend policy will provide a stable long
term profile, in line with executing Precinct's strategy. The updated policy
will be phased in over the next two years and has been considered in relation
to our FY20 dividend guidance of 6.30 cps.
Dividend payment
Precinct shareholders will receive a fourth-quarter dividend of 1.50 cps plus
imputation credits of 0.021737 cps. Offshore investors will receive an
additional supplementary dividend of 0.009864 cps to offset non-resident
withholding tax (see note 2). The record date is 13 September 2019 with
payment to be made on 27 September 2019.
Outlook and guidance
As our business evolves, so does the city centre markets in which we invest
in. We recognise the uncertainty which exists as a consequence of global
events. However, we remain confident in the occupier markets of Auckland and
Wellington and the key drivers which support them.
Our portfolio is performing well. We are achieving high occupancy across our
assets and good levels of pre-leasing at our development projects. The
balance sheet is in a strong position and our business is well placed to
deliver earnings and dividend growth to our shareholders.
Precinct's current strategy is responsible for our business performance. The
primary objective is to drive outperformance through creating sustainable
value from city centre real estate. A high quality investment and development
portfolio, supportive markets and clear strategic direction are advancing our
business transformation.
The way in which people are working is changing. We are responding to this.
Businesses and employees are now demanding flexibility, social interaction,
work-life balance, digital connectivity and a positive workplace environment.
The Auckland city centre market is strong. As Auckland grows, businesses and
employees are increasingly recognising the value of being located in the city
centre. We believe this trend will continue as major public transport
infrastructure projects progress.
While Precinct's long term predominant asset class will be city centre
office, widening our mix of real estate to include retail, hotels and
flexible workspace is enabling us to realise our potential as a city centre
specialist.
The Board expects full year earnings for the 2020 financial year of to be at
least 6.80 cps, before performance fees and expects to pay a total dividend
of 6.30 cps. This represents a 5.0% increase in dividends to shareholders.
Ends
Further information can be found within the 2019 Annual Report and results
presentation. You can find this at:
https://www.precinct.co.nz/annual-reporting/2019-annual-results.
Ends
For further information, please contact:
Scott Pritchard
Chief Executive Officer
Mobile: +64 21 431 581
Email: scott.pritchard@precinct.co.nz
George Crawford
Chief Operating Officer
Mobile: +64 21 384 014
Email: george.crawford@precinct.co.nz
Richard Hilder
Chief Financial Officer
Mobile: +64 29 969 4770
Email: richard.hilder@precinct.co.nz
About Precinct (PCT)
Precinct is New Zealand's only listed city centre specialist investing
predominately in premium and A-grade commercial office property. Listed on
the NZX Main Board, PCT currently owns Auckland's PwC Tower, AMP Centre, ANZ
Centre (50%), Zurich House, HSBC House, Mason Bros. Building, 12 Madden
Street, 10 Madden Street and Commercial Bay; and Wellington's AON Centre,
Dimension Data House, No. 1 and No. 3 The Terrace, Pastoral House, Mayfair
House and Bowen Campus.
Precinct owns Generator NZ, New Zealand's premier flexible office space
provider. Generator currently offers 13,200 square metres of space across
four locations in Auckland.
Note 1
Net operating income and AFFO are alternative performance measures which
adjust net profit after tax for a number of cash and non-cash items as
detailed in the reconciliation below. Precinct's past Dividend Policy has
been based upon net operating income and Precinct is transitioning to a
dividend policy based on AFFO. These alternative performance measures are
provided to assist investors in assessing Precinct's performance for the
year.
See table attached
Note 2
A supplementary dividend is paid to non-resident shareholders to offset the
amount of non-resident withholding tax ("NRWT") that New Zealand companies
are required to deduct from dividends paid to non-resident shareholders. A
supplementary dividend is paid to ensure equitable treatment between
non-resident shareholders and resident shareholders (whose dividends are not
subject to NRWT).
There's no disadvantage to Precinct or our shareholders, and non-resident
shareholders don't get a larger cash dividend than an equivalent New Zealand
resident shareholder.
End CA:00339234 For:PCT Type:FLLYR Time:2019-08-16 09:10:37
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