FLLYR: PFI: Earnings and Dividend Growth, Management Transition 08:31a.m. 
18/02/2019 08:30  
REL: 0830 HRS Property for Industry Limited  
FLLYR: PFI: Earnings and Dividend Growth, Management Transition  
The PFI management team will present these results via live webcast from  
10.30 am NZT today. To view and listen to the webcast, please visit We recommend you log on a few  
minutes before the start time, and if you cannot attend the live webcast, a  
recording will be available on PFI's website shortly after the conclusion of  
the live event. Alternatively, you can listen to the live presentation by  
dialling in on 0800 667 018 and using the access PIN 5292536.  
- Earnings and dividend growth: profit after tax up $58.4 million, 3.2%  
increase in Funds From Operations (FFO) (1) earnings per share, Adjusted  
Funds From Operations (AFFO) earnings per share in line with the prior year,  
cash dividend up 1.3% to 7.55 cents per share  
- Valuation gains: $66.4 million or 5.3% increase in the value of the  
property portfolio from independent valuations, net tangible assets (NTA) per  
share up 14.5 cents or 8.9% to 177.7 cents per share  
- Strong balance sheet: second $100 million senior secured fixed rate 7-year  
bond issue, refinancing of $37.5 million of bank facilities, gearing of 30.3%  
- Significant portfolio activity: over 100,000 square metres or 15% of the  
portfolio leased during the year to 30 tenants for an average increase in  
term of 6.2 years  
- Auckland industrial acquisitions: two properties acquired for $28.4 million  
- Management changes: former General Manager, Simon Woodhams, appointed as  
Chief Executive Officer, former Chief Financial Officer, Craig Peirce,  
appointed as Chief Finance and Operating Officer, former Managing Director,  
Greg Reidy, to transition to Non-Executive Director by June 2019  
Property for Industry Limited (PFI, the Company) ended 2018 delivering on its  
promise of strong, stable returns and implementing a management transition to  
ensure such performance continues.  
"The management transition announced late last year is about strategic  
continuity and regeneration," says PFI Chairman, Anthony Beverley. "Investors  
will recognise that we are focused on retaining the expertise and experience  
that help us deliver on our promise of strong, stable returns."  
Financial performance  
Net rental income for the year increased by $6.1 million or 8.4% to $79.1  
million, as increases from acquisitions ($4.9 million) and positive leasing  
activity ($3.0 million) partially offset a decrease due to increased vacancy  
($1.8 million). Average occupancy during 2018 was 98%, before rising back to  
in excess of 99% at the end of the year. Not only did this lower level of  
occupancy weigh on net rental income, but property costs - net of recoveries  
from tenants - also increased slightly by $0.2 million or 8.0% as a result.  
Interest expense and bank fees increased $1.0 million or 5.6%, with year-end  
borrowings increasing by $27.6 million or 7.4% as a result of capital  
expenditure and two investment property acquisitions during the year.  
No management fees were incurred in 2018 due to the June 2017  
internalisation, and this reduction in management fees of $2.9 million more  
than offset a $1.8 million increase in administrative expenses incurred in  
lieu of management fees.  
Also as a result of the June 2017 internalisation, PFI recorded no current  
taxation expense in 2017 and a reduced level of current taxation expense in  
2018. Excluding the impact of the internalisation, PFI's effective current  
tax rate was 21.0% in 2017 and 20.2% in 2018.  
All told, the Company made a profit after tax for the year of $110.1 million  
or 22.08 cents per share, up $58.4 million or 10.83 cents per share on the  
prior period.  
FFO and AFFO  
As a result of cost savings offsetting a reduction in net rental income (on a  
per share basis), PFI recorded a 3.2% increase in FFO earnings per share as  
compared to the prior year. With maintenance capex increasing from 23 basis  
points in 2017 to 35 basis points in 2018, AFFO earnings per share were in  
line with the prior year. Distributable profit (2), the measure previously  
used by the PFI Board to determine dividends, increased 3.7% on a per share  
basis over the prior year.  
(Please refer to the table in the attached PDF)  
The PFI Board has today resolved to pay a fourth quarter final cash dividend  
of 2.1000 cents per share. The dividend will have imputation credits of  
0.4417 cents per share attached and a supplementary dividend of 0.2004 cents  
per share will be paid to non-resident shareholders. The record date for the  
dividend is 4 March 2019 and the payment date is 13 March 2019. The dividend  
reinvestment scheme will not operate for this dividend.  
This fourth quarter dividend will take cash dividends for the year to 7.55  
cents per share, up 0.10 cents per share or 1.3% from the prior year,  
resulting in the dividend pay-out ratios noted below (3):  
(Please refer to the table in the attached PDF)  
PFI Chief Executive Officer, Simon Woodhams, noted: "As was the case in 2018,  
in 2019, PFI's results will be influenced by working through the incentives  
from recent deals completed, and the leasing to be completed, at Carlaw  
Anthony Beverley adds: "As we have previously explained to the market, the  
PFI Board recognises the importance of a rewarding dividend yield for  
shareholders. We are however mindful of balancing the competing priorities of  
growing AFFO earnings to cover dividends, whilst at the same time,  
maintaining or gradually increasing cash dividends, which historically have  
increased by approximately 0.05 cps each year, if performance allowed.  
"Balancing these factors, and the leasing programme ahead of us, we are  
guiding to a cash dividend of 7.60 cents per share for the 2019 financial  
year, an increase of 0.05 cents per share on the 2018 dividend."  
The Company expects that this level of full year cash dividends will  
approximate 80% to 90% of FFO earnings and 95% to 100% of AFFO earnings, in  
line with the Company's dividend policy.  
Net tangible assets (NTA)  
PFI's NTA per share increased by 14.5 cents per share or 8.9% from 163.2  
cents per share as at the end of 2017 to 177.7 cents per share as at the end  
of the 2018.  
The change in NTA per share was driven by the increase in the fair value of  
investment properties (described below, +13.3 cents per share), retained  
earnings (+0.8 cents per share) and the decrease in the net fair value  
liability for derivative financial instruments (+0.4 cents per share).  
Capital management  
PFI carried out several capital management initiatives during the second half  
of 2018 to ensure that the Company maintained a strong balance sheet with  
diversified and long-dated sources of funding.  
In October, a second $100 million senior secured 7-year bond issue was  
completed at a rate of 4.25%, reflecting a margin of 1.60% per annum (4). The  
Company also cancelled $100 million of bank facilities that were due to  
expire on 4 May 2020 on allotment of the bond issue.  
PFI Chief Finance and Operating Officer, Craig Peirce notes: "Our second bond  
issue has further reduced our reliance on bank funding and was completed at  
attractive rates with longer tenor than what is normally available from  
In December, the Company refinanced $37.5 million of bank facilities. Tranche  
A, which previously totalled $87.5 million, is due to expire on 4 May 2020.  
Following the refinancing, Tranche A was reduced to $50 million. Tranche B,  
which totals $187.5 million and is due to expire 4 May 2021, remains  
unchanged. A new third tranche, Tranche C, totalling $37.5 million, was  
provided by existing lenders ANZ, BNZ, CBA and Westpac, with an expiry date  
of 4 May 2022.  
At 31 December 2018, the weighted average term to expiry of PFI's bonds and  
bank facilities stands at 4.0 years, up from 3.7 years at the end of 2017.  
Craig Peirce continued: "Capital management initiatives completed during the  
second half of 2018 ensure that PFI has all core debt (5) secured in a mix of  
bonds and bank facilities with expiry dates in excess of 2.3 years at  
year-end, with additional liquidity and flexibility available in the shorter  
dated Tranche A."  
PFI's current hedge rate is forecast to remain at low rates during 2019:  
based on current hedging and debt levels, an average of approximately 54% of  
the Company's debt will be hedged at an average rate of approximately 4.01%.  
PFI's weighted average cost of debt (6) reduced slightly during the year to  
4.86% as at 31 December 2018 from 4.96% as at 31 December 2017.  
The Company ended the year with gearing (7) of 30.3%, well within the  
self-imposed gearing limit of 40% and bank covenants of 50%, and the Company  
has approximately $74 million of unutilised bank facilities, as at the end of  
the year. The interest cover ratio (8) of 3.9 times was also well within bank  
covenants of 2.0 times.  
Portfolio performance  
(Please refer to the table in the attached PDF)  
Further to the announcement in December 2018, PFI recorded an annual increase  
from independent valuations in the value of its property portfolio of $66.4  
million or 5.3% to $1,322.0 million. Around one-third of this valuation  
outcome was due to rental growth, which in part reflects the successful  
leasing outcomes described below. High levels of demand for industrial  
property from both investors and owner occupiers also influenced the  
increase, with movements in cap rates contributing the remaining two thirds  
of the increase in value. As a result of the year-end valuation process,  
PFI's passing yield firmed from 6.57% to 6.21%, and on a portfolio basis  
there continues to be no over or under renting.  
Over 100,000 square metres, representing more than 15% of PFI's existing  
portfolio by rent, was leased during the year to 30 new and existing tenants  
for an average increase in term of 6.2 years. Lease renewals accounted for  
almost 70% of the contract rent secured, with 22 PFI tenants retained for an  
average increase in term of 5.7 years. In addition to this, eight new leases  
were secured for an average term of 7.4 years. Across these renewals and new  
leases, low levels of incentives and capital expenditure were required to  
attract and retain tenants.  
Rent reviews were completed on 100 leases during the year, resulting in an  
average annual uplift of 2.5% on $46.4 million of contract rent. 17 market  
rent reviews on $5.8 million of contract rent delivered an annualised  
increase of 2.3% over an average review period of 3.5 years.  
Around 75% of PFI's portfolio is subject to some form of lease event during  
2019. In their December 2018 Auckland Market Outlook, CBRE predict industrial  
rental growth over the next five years to average 3.1% per annum for Prime  
properties and 4.1% per annum for Secondary properties. PFI will continue to  
access this projected market rental growth as approximately 22% of the  
Company's 2019's lease events (9) are market related.  
At the end of the year, the Company's portfolio was 99.3% occupied and 9.4%  
of contract rent is due to expire in 2019 (a total of 10.1%, FY17: 7.5%).  
Simon Woodhams noted: "In recent communications, we have noted that leasing  
at PFI's Auckland city-fringe Carlaw Park office and mixed-use property has  
been more challenging than industrial leasing. That being the case, we are  
pleased to announce that, during the second half of 2018, more than 2,300  
square metres of space has been leased to the Department of Internal Affairs  
for a six-year term, and more than 900 metres of space has been leased to NZ  
Behavioural Health - part of the Acurity Health Group - for a 10-year term.  
Renewals at two small retail tenancies were also secured."  
At year end, Carlaw Park represents 34% of PFI's current vacancy and 2019  
Simon Woodhams continued: "We also have had a good start to 2019 at this  
property. An early renewal of the Quest serviced apartments hotel has been  
secured post balance date, and terms have been agreed with Jacobs for a  
reduced footprint. All told, over the past 14 months we have leased almost  
70% of this property, and dealing with the remainder of this property is a  
key priority in 2019."  
For more detail on PFI's Carlaw Park property, please refer to the slide in  
the Company's annual results presentation, released today.  
PFI has maintained a cautious stance towards acquisition activity during the  
year. That said, the Company did purchase two Auckland industrial properties  
in 2018: one in June, located at 306 Neilson Street in Penrose, for $16.07  
million, and the other in October, located at 12 Hautu Drive in Manukau, for  
$12.36 million.  
For more detail on these acquisitions, please refer to the slide in the  
Company's annual results presentation, released today.  
A successful marketing campaign secured Kiwi Steel in March 2018 on a 15-year  
term for $0.459 million per annum to PFI's new 2,500 square metre warehouse  
on surplus land at 212 Cavendish Drive, Manukau. Completion of this project  
is expected April 2019.  
In December 2018, PFI announced the sale of the Company's 50 Parkside Road  
property in Wellington for a net sales price of $3.3 million. The property  
was marketed for sale by Bayleys and settlement took place on 23 January  
Market update  
ANZ's latest economic outlook sees annual GDP growth averaging 2.5% over the  
next couple of years, but they don't expect inflation pressures to intensify  
in this environment. They point to the ANZ Truckometer indexes weakening in  
December, and the Quarterly Survey of Business Opinion released in January,  
as two measures that suggest that momentum in the New Zealand economy is  
coming off the boil. As a result, a continued low interest rate environment  
is forecast, with those monetary conditions likely to be supportive of  
property values.  
In their December 2018 Auckland Market Outlook, CBRE note that: "Our return  
forecasts have been revised slightly upwards for some asset classes based on  
the more bullish short-term yield forecasts and / or stronger rent growth."  
Both secondary and prime industrial property have benefited from these  
CBRE also report that secondary industrial continues as the market with the  
best return outlook: Their forecast of annual returns over the next five  
years totals 11.0% per annum (June 2018: 10.7%), comprising an income return  
of 6.3% (June 2018: 6.4%) and capital growth of 4.8% (June 2018: 4.2%).  
Prime industrial ranks second in their forecasts, up from third in June 2018,  
with annual returns over the next five years expected to total 8.7% per annum  
(June 2018: 7.8%), comprising an income return of 5.3% (June 2018: 5.5%) and  
capital growth of 3.4% (June 2018: 2.4%).  
2019 priorities  
Simon Woodhams notes: "Following a review of our Purpose, Vision and  
Strategy, we have set our sights on being one of New Zealand's foremost  
Listed Property Vehicles.  
"In order to deliver on this Vision, in 2019 we plan to begin replacing PFI's  
non-industrial assets with quality industrial properties in sought-after  
areas, either via acquisitions or by value-add strategies within the existing  
"As noted earlier, Carlaw Park is also a key priority for us in 2019, as is  
the leasing of our vacant and expiring industrial spaces.  
Simon Woodhams concludes: "With an excellent portfolio, a strong balance  
sheet, and favourable market conditions, we are well positioned to deliver on  
our Purpose: creating strong, stable income for investors and generating  
prosperity for New Zealand."  
PFI is an NZX listed property vehicle specialising in industrial property.  
PFI's nationwide portfolio of 93 properties is leased to 147 tenants.  
For further information please contact:  
Chief Executive Officer Chief Finance and Operating Officer  
--- ---  
Phone: +64 9 303 9652 Phone: +64 9 303 9651  
Email: Email:  
Property for Industry Limited  
Shed 24, Prince's Wharf, 147 Quay Street, Auckland 1010  
PO Box 1147, Shortland Street, Auckland 1140  
Appendix 1  
Appendix 7  
Annual Results Presentation  
Annual Report  
Appendix 1 - Funds From Operations (FFO) and Adjusted Funds From Operations  
(Please refer to the table in the attached PDF)  
Appendix 2 - Distributable Profit  
(Please refer to the table in the attached PDF)  
(1) Funds From Operations (FFO) and Adjusted Funds From Operations (AFFO) are  
non-GAAP financial information and are common investor metrics, which have  
been calculated in accordance with the guidelines issued by the Property  
Council of Australia. Please refer to Appendix 1 for more detail as to how  
these measures were calculated.  
(2) Distributable profit is the measure previously used by the PFI Board to  
determine dividends. Please refer to Appendix 2 for more detail as to how  
this measure was calculated.  
(3) Figures in the table are calculated on a per share basis. If these  
calculations are done on the basis of the dollar value of earnings and  
dividends, and not on a per share basis, the 2017 pay-out ratios would be 90%  
for FFO and the 103% for AFFO.  
(4) The bond issue was swapped back to float interest rates via fixed rate  
receiver swaps.  
(5) PFI defines core debt as 105% of forecast debt requirements.  
(6) Weighted average cost of debt comprises BKBM, hedging, margins and all  
borrowings related fees.  
(7) That is, total borrowings as a percentage of the most recent independent  
valuation of the property portfolio.  
(8) That is, the ratio of interest expense and bank fees to operating  
earnings excluding interest expense and bank fees.  
(9) Being ~17% of total contract rent.  
End CA:00330653 For:PFI Type:FLLYR Time:2019-02-18 08:31:11