Announcement

HALFYR: PCT: Interim results and positioning for future opportunities 08:30a.m. 
PCT  
19/02/2019 08:30  
HALFYR  
PRICE SENSITIVE  
REL: 0830 HRS Precinct Properties New Zealand Limited  
 
HALFYR: PCT: Interim results and positioning for future opportunities  
 
Performance summary for the six months ended 31 December 2018  
 
Financial summary  
oTotal comprehensive income after tax of $25.5 million, up 44.1% (1H18: $17.7  
million).  
oNet operating income of $37.7 million (1H18: $38.2 million) or 3.11 cents  
per share (cps) and 3.24 cps before performance fee (1H18: 3.15 cps).  
oStrong net property income (NPI) achieved during the period of $47.3  
million, consistent with previous comparable period (1H18: $47.6 million),  
despite the sale of a 50% interest in the ANZ Centre.  
 
Capital management  
oAsset recycling with $191 million of assets sold during the period.  
-This includes the sale of a 50% interest of the ANZ Centre in Auckland for  
$181 million, to a fund controlled by Invesco and the disposal of 10 Brandon  
Street in Wellington.  
oRefinancing of $460 million bank debt facility.  
 
Solid leasing demand and strengthened investment portfolio  
oIncreased occupancy to 100% (30 June 2018: 99%) with a weighted average  
lease term (WALT) across the portfolio of 8.5 years (30 June 2018: 8.7  
years).  
o21 leasing transactions totalling over 12,000 square metres completed during  
the period.  
-New leasing completed 11.3% above previous contract rent.  
oAnnouncing today, the purchase of the remaining 50% equity interest in  
coworking space provider, Generator for $7.4 million.  
-Acquisition in line with Precinct's strategy, 100% interest in Generator  
allows our business to be at the forefront of the growing coworking/flexible  
space market.  
 
Advancing our development projects  
Commercial Bay  
oIncreased leasing with retail commitments now at 84% (June 2018: 76%) and  
office commitments at 80% (June 2018: 78%).  
-Some minor slippage observed (c.1 month) to the construction programme which  
may impact previously disclosed completion dates of September 2019 for retail  
and December 2019 for office.  
oAnnouncing our commitment to the $298 million redevelopment of Precinct's  
next major investment, One Queen Street in August 2018.  
-Further progress has secured the unconditional commitment of Bell Gully to  
around 3,800 square metres of office space at One Queen Street, taking the  
project to 76% pre-committed following the previously announced commitment by  
InterContinental Hotels Group to 11 levels of the building.  
 
Wynyard Quarter Stage Two  
oCommitting to the development of Wynyard Quarter Stage Two, part of the  
wider Innovation Precinct with major leasing to Media Design School (MDS)  
secured.  
-Stage Two commitments represent 60% of the projects office area.  
-Continue to see good levels of enquiry for the remaining vacant space.  
 
Bowen Campus  
oThe Charles Ferguson Building reached practical completion in December 2018,  
now occupied by Ministry of Primary Industries.  
oBowen State Building on budget and on schedule for practical completion this  
year. Building to be fully income producing from April.  
oDesign advanced for Bowen Campus Stage Two and discussions with potential  
occupiers ongoing.  
 
Scott Pritchard, Precinct's CEO, said "Increased activity across both the  
investment and development portfolio in Auckland and Wellington has led to a  
number of new leasing deals. In addition to leasing progress at Commercial  
Bay, other major leasing transactions include Medical Council of New Zealand  
at AON Centre, MDS at 10 Madden Street and Bell Gully at One Queen Street".  
 
$150 million equity offer announced today to position the business for future  
opportunities  
oRaising $150 million through a $130 million underwritten placement  
(Placement) and a $20 million underwritten retail offer (Retail Offer) (with  
ability to accept oversubscriptions of up to $10 million).  
oPrice of new shares to be determined via a bookbuild (subject to an  
underwritten floor price of $1.45 per share. The retail offer price will be  
the same as the placement clearing price.  
oThe Retail Offer allows for all New Zealand resident shareholders to  
subscribe for up to $50,000 of new shares - details will be sent to all  
eligible shareholders.  
oEquity raised will repay bank debt and provide additional funding capacity  
to deliver on medium term opportunities including Bowen Campus Stage Two and  
Wynyard Quarter Stages Three and Four.  
oReduces 31 December 2018 gearing from 24.3% to 18.5%.  
oEarnings guidance for FY19 unchanged at approximately 6.60 cps.  
oDividend guidance maintained at 6.00 cps representing a YoY increase of  
3.4%. All shares issued under the Placement and Retail Offer will be eligible  
for the second quarter dividend to be paid on 27 March 2019.  
 
Note: Further information can be found within the 2019 Interim Financial  
Statements and results presentation. You can find these at  
https://www.precinct.co.nz/interim-reporting/2019-interim-results  
 
Precinct Properties New Zealand Limited (Precinct) (NZX: PCT) reported its  
financial results for the six months ended 31 December 2018 today. Total  
comprehensive income after tax of $25.5 million compares with $17.7 million  
for the same period last year, with the difference mainly attributable to the  
prior period fair value movement of 10 Brandon Street in Wellington and  
movement in financial instruments this period. Net operating income, which  
adjusts for a number of non-cash items, of $37.7 million remains consistent  
with the previous comparable period (1H18: $38.2 million), despite the sale  
of a 50% interest in the ANZ Centre.  
 
Scott Pritchard, Precinct's CEO, said "The first half of the 2019 financial  
year has been another period of immense activity for our business. As we  
continue to advance our long-term strategy and take an active management  
approach with both our investment and development portfolio's, we remain  
focused on delivering strong results across our business this year".  
 
"We are achieving continued growth for our shareholders and enhancing our  
business by transforming the portfolio into a higher quality set of assets.  
Achieving occupancy of 100% across our investment portfolio in both Auckland  
and Wellington reflects the quality of the portfolio, leasing transactions  
completed during the last six months and strong demand for premium inner-city  
office space".  
 
"We continue to advance our active developments and are pleased with the  
achievements in the period which include the progress made on the retail and  
office commitments at Commercial Bay and completing the Charles Ferguson  
Building in Wellington. As the development stages of these projects are  
coming to an end, we are looking ahead to our recently committed developments  
of both One Queen Street and Wynyard Quarter Stage Two".  
 
"Precinct's announcement to raise $150 million of equity through an  
underwritten Placement and Retail Offer will allow Precinct to repay bank  
debt and further supports our future development opportunities by providing  
additional funding capacity".  
 
Interim results  
Continued strength in our occupier markets, strong leasing and ongoing market  
rental growth have contributed to NPI in the period of $47.3 million (1H18:  
$47.6 million).  
 
The completion of H&M at Commercial Bay and the Charles Fergusson Building in  
Wellington led to an increase in NPI in the period. This increase was largely  
offset by the sale of a 50% interest in the ANZ Centre and the sale of 10  
Brandon Street. After adjusting for assets under development and the sales,  
like for like NPI was 1.0% higher than the previous comparable period. On a  
like for like basis, Auckland NPI was 1.8% higher.  
 
Dividends attributable to shareholders for the six months ending 31 December  
2018 totalled 3.00 cps (31 December 2017: 2.90 cps) representing an increase  
of 3.4%.  
 
Net interest expense of $1.5 million was consistent to the comparable period  
(31 December 2017: $1.6 million) due to interest relating to developments  
being capitalised.  
Excluding performance fees, other expenses increased by $0.5 million.  
Precinct outperformed the benchmark New Zealand-listed property sector return  
(excluding Precinct) resulting in a performance fee of $2.1 million being  
payable in the first half.  
 
Current tax expense fell to $0.4 million (31 December 2017: $2.7 million).  
This was a result of the significant amount of leasing achieved across the  
development portfolio and the disposal of depreciable assets.  
 
The fall in the NZD interest rate swap curve led to a fair value loss in  
interest rate swaps. This loss combined with a fair value loss in the  
convertible note option due to Precinct's share price increasing to $1.48  
(June 2018: $1.35), led to an overall loss in financial instruments of $11.4  
million (31 December 2017: $6.9 million loss).  
 
Generator recorded a loss for the period, Precinct's 50% share was $0.8  
million (31 December 2017: $0.5 million). This loss was primarily a result of  
continued business growth, with the business opening around 3,000 square  
metres of additional coworking space at Britomart Place in the period.  
Importantly the business continues to meet expectations and is expected to  
report a profit in the 2020 financial year.  
 
Included within the Commercial Bay construction contract is the right to  
liquidated damages if certain milestones are not met. As at 31 December 2018,  
$15.4 million of liquidated damages have been withheld from the contractor.  
The amounts withheld have been recognised as part of current liabilities and  
a contingent asset has been identified as ultimate recovery is not able to be  
considered virtually certain since Precinct's right to retain these  
liquidated damages could be disputed.  
 
An internal review of the 30 June 2018 property valuations undertaken at 31  
December 2018 indicated no material value movement in the period for all the  
assets. The fair value loss in financial instruments was the primary reason  
for the value of net tangible assets per share at interim balance date  
falling to $1.39 (30 June 2018: $1.40).  
 
Investment portfolio performance  
Strong leasing continues across our investment portfolio with overall  
portfolio occupancy increasing to 100% at 31 December 2018 (30 June 2018:  
99%) and WALT being maintained at 8.5 years (30 June 2018: 8.7 years).  
 
With over 12,000 square metres of space leased over the last 6 months to 31  
December 2018, positive leasing momentum continues in both Auckland and  
Wellington. These leasing transactions have been completed 11.3% above  
previous contract rent. In addition, 32 rent reviews have occurred during the  
period resulting in a 4.5% uplift on valuation rents.  
 
Leasing all the remaining vacant space at AON Centre at 21% above previous  
passing rental has been a significant achievement in first half of the 2019  
financial year. The Medical Council of New Zealand have committed to 1,875  
square metres which includes 800 square metres of new mezzanine space that is  
now being fitted out for occupation in May 2019.  
 
Terms agreed with a large NZ based occupier at No.1 The Terrace over 7,900  
square metres is another positive result. It will remove all pending vacancy  
from the Government WAP 2 process. Once confirmed, the lease will commence in  
January 2020 following a full base build refurbishment of No.1 The Terrace  
tower floors and includes a seismic upgrade to 100%.  
 
Generator acquisition  
Announcing Precinct's acquisition of the remaining 50% interest in Generator  
New Zealand Limited today, is consistent with our strategic focus on building  
client relationships, increasing our service levels and creating workspaces  
that meet the requirements of today's businesses.  
 
Having exposure to this developing market since 2017 has given us the  
opportunity to be at the forefront of this evolving office market. With an  
expanded footprint providing approximately 1,245 desks across 12,600 square  
metres, Generator has seen strong and consistent growth since it was  
established in 2011. Committed occupancy levels are around 80% and the  
business is now operating on a sustainable basis. Successfully growing its  
business, Generator now has a significant presence in the CBD and Wynyard  
precincts, making up over half of the Auckland city centre coworking/flexible  
market.  
 
A 100% interest in Generator represents a unique offering for Precinct to  
meet the growth in demand for those office occupiers now considering flexible  
solutions. It further expands Precinct's traditional client base by accessing  
a portion of the occupier market that we wouldn't otherwise serve; small and  
medium-sized enterprises. As this sector moves ahead in 2019, this is an area  
of investment for Precinct where we expect to see further consistent growth  
and returns.  
 
Capital management  
In October 2018, we successfully settled the sale of a 50% interest in the  
ANZ Centre in Auckland for $181 million, to a fund controlled by Invesco.  
This sale was in line with our business strategy and enabled us to recycle  
capital into higher yielding development opportunities. In addition, we also  
progressed the sale of 10 Brandon Street in Wellington which has now settled.  
These two sales total $191 million of assets sold in the first half of the  
2019 financial year.  
 
In the period, Precinct also refinanced its $460 million bank debt facility  
which was due to expire in November 2020. The refinance extended the tenor of  
the existing facilities and reduced refinancing risk to our business.  
At balance date Precinct has total borrowings (including convertible notes)  
of $710.4 million (30 June 2018: $751.4 million) and total assets of $2.5  
billion (30 June 2018: $2.5 billion). Gearing as measured under borrower  
covenants, which disregards subordinated debt, has decreased during the  
period to 24.3% (30 June 2018: 25.0%).  
 
Development update  
Wynyard Quarter  
Committing to the development of Wynyard Quarter Stage Two during the period  
reflects an important step forward in the development of the wider Innovation  
Precinct and the next stage of the project's evolution. We announced the  
development of the second stage of Wynyard, 10 Madden Street, in November  
2018 on an uncommitted basis and were pleased to lease 4,760 square metres to  
Media Design School (MDS). Being in a location which is in close proximity to  
global technology companies and other New Zealand start-up businesses was a  
key attraction for MDS to be located in the Innovation Precinct.  
 
Commercial Bay  
Continued demand at Commercial Bay has resulted in retail commitments lifting  
to 84% and office commitments to 80%. With leasing transactions being  
consistent with feasibility, the expected profit on completion of this  
project remains forecast to be around $280 million, representing a  
development profit of more than 40%.  
 
Progress continues on site with minor slippage of around one month observed  
to the construction programme which may impact the previously disclosed  
completion dates of September 2019 for the retail centre and December 2019  
for the new PwC Tower. We will continue to closely monitor this development  
with the next two months being critical in progressing the project. Following  
some minor value accretive scope changes, the total project cost is now  
forecast to be $690 million (30 June 2018: $685 million).  
 
Having a diverse offering available to consumers at the precinct has been a  
key priority throughout the project. During the period, we are pleased to  
have welcomed New Zealand's leading digital services provider, Spark to  
Commercial Bay. Spark will open its three-level flagship store within the  
precinct and will be located on Customs Street and Little Queen Street.  
Spark will use this premium location to redefine the experience of visiting a  
Spark store providing its customers with a unique offering.  
We also continue to advance our unique retail mix at Commercial Bay with  
several well-known food and beverage operators who remain confidential at  
this stage. We look forward to sharing more details in the coming weeks.  
 
One Queen Street  
Construction of the $298 million redevelopment at One Queen Street (currently  
HSBC House) remains on schedule to commence in the first half of 2020 with  
the hotel expected to open in mid 2022. Similarly, the commercial office and  
hospitality space are due to open during 2022.  
 
Securing leading law firm Bell Gully during the period, three years ahead of  
practical completion reinforces the quality of the Commercial Bay precinct  
and demand for premium office space located at this unrivalled waterfront  
destination in Auckland's city centre.  
 
The project is now 76% pre-committed following the previously announced  
commitment by InterContinental Hotels Group to 11 levels of the building.  
 
Bowen Campus  
In Wellington, we are pleased to have now completed the Charles Ferguson  
Building. Construction works remain on programme at the Bowen State Building.  
We also continue to advance the design of Bowen Campus Stage Two having been  
granted a resource consent in the period for a further two commercial office  
buildings on site. We continue to progress discussions with a number of  
potential occupiers.  
 
Equity Offer  
We are announcing today that we are raising $150 million of new equity via a  
Placement and Retail Offer.  
 
The Placement of $130 million is fully underwritten at a floor price of $1.45  
per new share. A bookbuild will be conducted today by the Joint Lead  
Managers, First NZ Capital and Credit Suisse while Precinct is in trading  
halt. All New Zealand resident shareholders will be able to subscribe for up  
to $50,000 of new shares via a Retail Offer of $20 million (underwritten)  
with the ability to accept oversubscriptions of up to $10 million, at the  
same final price as the placement (to be determined by bookbuild today).  
 
The net proceeds of the equity raising, together with the proceeds of asset  
sales will reduce Precinct's gearing providing additional funding capacity to  
assist with our future development opportunities.  
 
Our equity raising structure is fair for all of our existing shareholders.  
All shareholders (unless restricted due to legal constraints) will be able to  
participate fairly (through either the Placement or Retail Share Offer) and  
should scaling be required, it will be done in reference to existing  
shareholder holdings.  
 
Haumi, our largest shareholder (~18.8%) will not be participating. Haumi  
remains very supportive of Precinct, the growth story and this equity raising  
and has no intentions to either sell down or divest the management contract.  
Following completion of the equity issue Haumi's holding will reduce to  
around 17.3%.  
 
Further details regarding the Retail Offer can be found at  
www.shareoffer.co.nz/precinct.  
 
Equity Offer key dates  
refer to table in the attached  
 
Dividend payment  
Precinct shareholders will receive a second-quarter dividend of 1.50 cps  
(plus imputation credits). Offshore investors will receive an additional  
supplementary dividend to offset non-resident withholding tax (see note 2).  
The record date is 13 March 2019 with payment to be made on 27 March 2019.  
All shares issued pursuant to the equity offer will qualify for this  
dividend.  
 
Outlook and guidance  
As we continue on our growth path in 2019 to maximise our value potential and  
transform the cities and communities we operate in, widening our investment  
into other city centre real estate to include retail, hotels and  
coworking/flexible space, is offering greater opportunity for Precinct to  
increase shareholder value.  
We believe our well performing investment portfolio, the acquisition of the  
remaining 50% interest in Generator and our active development pipeline all  
support Precinct's strong market position and we remain well positioned to  
deliver on our long-term strategy.  
 
Full year operating earnings after tax for the 2019 financial year are  
expected to be approximately 6.60 cps, before performance fees. Dividend  
guidance also remains unchanged at 6.00 cps, representing a 3.4% increase in  
dividends to shareholders.  
 
Ends  
 
Further information can be found within Precinct's 2019 Interim Financial  
Statements and results presentation. You can find this at:  
https://www.precinct.co.nz/interim-reporting/2019-interim-results  
 
For further information, please contact:  
Scott Pritchard  
Chief Executive Officer  
Office: +64 9 927 1640  
Mobile: +64 21 431 581  
Email: scott.pritchard@precinct.co.nz  
 
George Crawford  
Chief Operating Officer  
Office: +64 9 927 1641  
Mobile: +64 21 384 014  
Email: george.crawford@precinct.co.nz  
 
Richard Hilder  
Chief Financial Officer  
Office: +64 9 927 1645  
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.  
 
Note 1  
refer to table in the 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:00330710 For:PCT Type:HALFYR Time:2019-02-19 08:30:26