Announcement

HALFYR: PCT: PCT Achieves Strong 1H20 Result 08:38a.m. 
PCT  
20/02/2020 08:38  
HALFYR  
PRICE SENSITIVE  
REL: 0838 HRS Precinct Properties New Zealand Limited  
 
HALFYR: PCT: PCT Achieves Strong 1H20 Result  
 
Performance summary for the six months ended 31 December 2019  
 
Financial summary  
 
oStrong leasing drives uplift in net property income (NPI) by 4.0% to $49.2  
million (1H19: $47.3 million), after adjusting for development projects and  
sales, like for like NPI was 7.5% higher than the previous comparable period.  
 
oGross property income was $67.9 million, 5.1% higher than the previous year  
(1H19: $64.6 million).  
oNet operating income of $60.5 million (1H19: $37.7 million) or 4.61 cents  
per share (cps). Adjusting for liquidated damages, net operating income was  
$41.3 million which was $3.6 million or 9.5% higher than the comparable prior  
period.  
oTotal comprehensive income after tax of $53.6 million, up 110.2% (1H19:  
$25.5 million).  
oDividend guidance maintained at 6.30 cps representing a YoY increase of  
5.0%.  
 
Capital management  
oPost balance date, refinanced $150 million bank debt facility due to expire  
in November 2020.  
oStrong balance sheet position with gearing of 25.4% (30 June 2019: 22.4%).  
oConditional sale of Pastoral House in Wellington for $77.0 million.  
-Settlement expected end of April 2020.  
 
Investment portfolio continues to achieve strong operational performance in  
1H20  
oHigh occupancy level maintained at 99% (30 June 2019: 99%) and a weighted  
average lease term (WALT) of 8.8 years (30 June 2019: 9.0 years).  
o21 leasing transactions, totalling 9,760 square metres secured over the  
period.  
-New leasing completed 9.2% above previous contract rent.  
oGenerator operating business continues to perform well with 95% occupancy,  
1H20 gross operating revenue of $10.4 million (1H19: $7.6 million) and  
contribution to net operating income for the period of $1.2 million.  
-Announcing today, expansion of Generator's offering into Wellington  
following the acquisition of the Dunbar Sloane Building.  
 
Commercial Bay update  
oCommercial Bay nearing completion with key project outcomes secured:  
-Retail to open fully leased (30 June 2019: 95%) with office 92% leased (30  
June 2019: 82%).  
-Good working relationship across construction team with no outstanding  
disputes/claims, a collaborative focus on completion and quality; and with a  
high degree of cost certainty.  
-Anticipated opening dates of late March 2020 for the retail centre and April  
2020 for the new PwC Tower.  
-Strong investment returns maintained.  
oOne Queen Street on schedule to commence construction mid-2020 following  
Commercial Bay completion.  
 
Other development progress  
Wynyard Quarter  
oStage 2 progressing well with the office floors fully committed and on  
programme for completion in 2020.  
oDesign and procurement advanced for Stages 3 and 4 with opportunity to  
capitalise on strong occupier market conditions.  
Wellington  
oBowen Campus Stage One successfully completed.  
oPastoral House and 1 The Terrace redevelopments successfully completed and  
new leases commenced.  
oBowen Campus Stage 2 design completed and construction procurement in place.  
Advanced negotiations continue with several occupiers to pre-commit the  
21,400 square metre office development.  
 
Environmental, Social and Governance (ESG) risks and opportunities  
oCurrently working to reduce PCT's carbon footprint through the measurement  
and management of our emissions.  
oPrecinct received a 2019 Global Real Estate Sustainability Benchmark (GRESB)  
score of 77 in 1H20 (1H19: 69).  
-Precinct is now trending ahead of the global average of 72.  
oRainbow Tick Certification received.  
oInclusion in the Bloomberg 2020 Gender-Equality Index (GEI).  
 
Precinct Properties New Zealand Limited (Precinct) (NZX: PCT) reported its  
financial results for the six months ended 31 December 2019 today. Total  
comprehensive income after tax has increased by 110.2% to $53.6 million, this  
compares with $25.5 million for the same period last year. The increase was  
mainly attributable to the higher operating income during the period, the  
movement in financial instruments between comparable periods and the  
recognition of liquidated damages received to offset the costs of delay in  
the completion of Commercial Bay.  
Net operating income, which adjusts for a number of non-cash items, of $60.5  
million was also up 60.5% (1H19: $37.7 million) or 4.61 cps. Adjusting for  
liquidated damages, net operating income was $3.6 million or 9.5% higher than  
the comparable prior period with the uplift primarily due to the completion  
of Bowen Campus.  
 
Scott Pritchard, Precinct's CEO, said "Achieving significant leasing and  
solid rental growth across our assets has delivered another strong result for  
Precinct in the first half of the 2020 financial year. Both our portfolio and  
balance sheet are in a great position. The high occupancy levels achieved  
across Precinct's portfolio reflects the strong demand for city centre office  
space in the markets we are invested in, Auckland and Wellington".  
 
"We continue to enhance the portfolio through the successful completion of  
our development projects. The recently completed Bowen Campus Stage One in  
Wellington is a great example of this. The upcoming completion and opening of  
our most significant development project, Commercial Bay is a key focus for  
the business. We commenced this transformational project in 2016 and we are  
truly looking forward to welcoming clients into the building and Aucklanders  
into the retail and hospitality space".  
 
"As our active projects complete and we reduce Precinct's risk profile, the  
business is now looking ahead to activate our future development pipeline.  
The next phase of development projects includes One Queen Street which will  
start this year, Stages Three and Four at Wynyard Quarter in Auckland,  
together with Bowen Campus Stage Two in Wellington. We have a strong balance  
sheet to pursue Precinct's future opportunities and we hope to start  
construction at Wynyard and Bowen soon".  
 
Interim results  
Strong leasing resulting in high occupancy levels across the portfolio and  
the completion of Bowen Campus Stage One have all contributed to the 4.0%  
increase in net property income (NPI) of $49.2 million (1H19: $47.3 million).  
Notably, leasing achieved at both AMP Centre in Auckland and AON Centre in  
Wellington have been significant contributors to the increase in Precinct's  
1H20 NPI.  
After adjusting for assets under development and asset sales, like for like  
NPI was 7.5% higher than the previous comparable period. Across the Auckland  
portfolio, NPI was up 8.7% and Wellington portfolio saw NPI increase by 5.1%,  
on a like for like basis.  
As at 31 December 2019, Precinct has received $52.0 million of liquidated  
damages due to delays in the completion of Commercial Bay. $26.7 million of  
this has been recognised in profit and loss in the current period (30 June  
2019: $2.0 million) with $23.3 million credited against the Commercial Bay  
development project cost. Precinct and FCC are enjoying a good working  
relationship focused on delivery of Commercial Bay to a high quality standard  
and there are no outstanding commercial disputes/claims.  
The fair value loss in financial instruments has decreased to $2.0 million. A  
$12.6 million loss was recognised for the same period last year. The current  
tax expense increased due to recognition of liquidated damages to $7.6  
million (1H19: $0.4 million).  
Dividends attributable to shareholders for the six months ending 31 December  
2019 totalled 3.15 cps (31 December 2018: 3.00 cps) representing an increase  
of 5.0%. The 1H20 dividend represented approximately 101% of Precinct's  
Adjusted Funds From Operations (AFFO) for the first half of the 2020  
financial year of 3.11 cps. Precinct's AFFO deducts liquidated damages  
revenue which will be retained to offset costs of delay relating to the  
completion of  
Commercial Bay.  
Generator recorded gross operating revenue of $10.4 million (1H19: $7.6  
million) with contribution to net operating income of $1.2 million recorded  
for the period. The business has continued to achieve high occupancy rates  
with all sites operating near full capacity.  
An internal review of the 30 June 2019 property valuations undertaken at 31  
December 2019 indicated no material value movement in the period. Net Asset  
Value (NAV) per share at interim balance date was $1.50 (30 June 2019:  
$1.49). Further financial information can be found within the 2020 Interim  
Financial Statements.  
 
You can find these at  
http://www.precinct.co.nz/interim-reporting/2020-interim-results.  
 
Investment portfolio performance  
Positive leasing results in Auckland and Wellington have maintained  
Precinct's high occupancy of 99% and delivered a weighted average lease term  
of just under nine years at 31 December 2019. In addition to the 21 leasing  
transactions completed at 9.2% above previous contract rent, market rent  
reviews completed in the period generated a 9.5% lift over contract rents.  
 
Generator expansion  
Precinct is pleased to announce today that it will be opening its first  
Generator site in Wellington in mid-2021. Centrally located at 30 Waring  
Taylor Street, the five-level character building will be fully redeveloped  
and seismically strengthened to 100% NBS. The offering will comprise private  
offices, coworking spaces and a meeting and event suite. Having owned  
Generator for one year now, Precinct believe it is the right time to respond  
to the increased demand for flexible space in Wellington. With a site  
purchased and designed specifically for Generator, it will enable Generator  
to have direct input into the design and functionality of the building. The  
property will be well-positioned to drive value from the growing Wellington  
market. The total project cost is anticipated to be $25 million including  
building acquisition, seismic strengthening and Generator fitout.  
 
Capital management  
Announced today, Precinct has refinanced its $150 million bank debt facility  
which was due to expire in November 2020. The 5 year extension increases the  
tenor of the existing facilities, reducing refinancing risk and improves the  
weighted average term to expiry out to 4.4 years. Funding continues to be  
provided by Precinct's existing lenders ANZ, BNZ, CBA, Westpac and HSBC.  
At balance date Precinct's total borrowings (including convertible notes)  
increased to $874.2 million (30 June 2019: $710.4 million) reflecting the  
United States Private Placement issue completed in July last year. Similarly,  
total assets at 31 December 2019 has increased to $3.1 billion (30 June 2019:  
$2.9 billion). Gearing as measured under borrower covenants, which disregards  
subordinated debt, is 25.4% (30 June 2019: 22.4%).  
 
Development update  
 
Commercial Bay  
With the retail centre at Commercial Bay nearing completion, we are pleased  
to be preparing to open fully leased. This is a great outcome which reflects  
the strong demand from local and international retailers to be part of the  
unique retail composition and mix at Commercial Bay.  
While the retail centre will open fully leased, the centre may open without a  
small number of retailers who are unable to complete their fitout due to a  
delay in the delivery of fitout materials as a result of the COVID-19  
outbreak.  
Office commitments have also increased over the last six months to 92% with  
the remaining vacancy consisting of one full floor and two part floors.  
At One Queen Street, the detailed design phase is now complete. Construction  
is set to start in mid-2020 once the building is vacated by its current  
occupiers.  
 
Wynyard Quarter Stage Two  
Construction of Stage Two at Wynyard Quarter has advanced significantly in  
the last few months. This 8,290 square metre building is set to open later  
this year and will open fully leased over the office space.  
 
Future development projects  
In Auckland, Stage's Three and Four of Wynyard will provide a further 19,000  
square metres of space. We are encouraged by the success of 10 Madden Street  
and intend to commit to the next phase of development at Wynyard in the  
coming months.  
In Wellington, the remaining land at Bowen Campus will allow development of  
21,400 square metres of office space. We expect the additional stages at  
Bowen Campus to further enhance this precinct and cater to the needs of both  
the corporate market and government occupiers.  
 
Dividend payment  
Precinct shareholders will receive a second-quarter dividend of 1.575 cps  
(plus imputation credits of 0.254873 cps). Offshore investors will receive an  
additional supplementary dividend of 0.115657 cps to offset non-resident  
withholding tax (see note 2). The record date is 13 March 2020 with payment  
to be made on 27 March 2020.  
 
Outlook and guidance  
With a well-defined strategy and high-quality portfolio which continues to  
perform well, Precinct expects its full year normalised results to be  
consistent with earlier guidance provided. Pleasingly, Precinct's strategy is  
driving meaningful growth in cash earnings with an emerging strong growth  
profile for our AFFO.  
Dividend remains unchanged at 6.30 cps, representing a 5.0% increase in  
dividends to shareholders.  
We have reduced our risk profile over the last 18 months and maintained  
Precinct's high occupancy levels and strong balance sheet position. Looking  
ahead, delivering a successful opening at Commercial Bay to the highest  
quality standards is a key focus for the Precinct team.  
As we look to activate our future developments, we believe Precinct is well  
positioned to continue to develop high quality real estate in strategic  
locations, further enhancing our portfolio and creating additional  
shareholder value.  
 
Further information can be found within Precinct's 2020 Interim Financial  
Statements and results presentation. You can find this at:  
https://www.precinct.co.nz/interim-reporting/2020-interim-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, NTT  
Tower, 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 13,600 square metres of space across  
four locations in Auckland.  
 
Note 1  
AFFO is a non-GAAP financial measure that shows the organisation's underlying  
and recurring earnings from its operations and is considered industry best  
practice for a REIT. This is determined by adjusting statutory net profit  
(under IFRS) for certain non-cash and other items. AFFO has been determined  
based on guidelines established by the Property Council of Australia and is  
intended as a supplementary measure of operating performance.  
 
Reconciliation of net profit after tax to adjusted funds from operations  
(AFFO) - refer to the 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:00348702 For:PCT Type:HALFYR Time:2020-02-20 08:38:58  

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