Precinct Properties Nz Ltd & Precinct Properties Investments Ltd · NZX:PCT
Precinct Properties Nz Ltd & Precinct Properties Investments — Precinct Properties New Zealand — FY2018 Earnings Presentation
62 slides from Precinct Properties Nz Ltd & Precinct Properties Investments's earnings presentation, August 2018
Slide 1: Creating City Centre Precincts
Creating City Centre Precincts Precinct Properties New Zealand Annual Results August 2018
Slide 2: Agenda
Agenda Highlights / Major themes / Strategy overview Pages 2-5 Section 1 – Financial results and capital management Page 6 Section 2 – One Queen Street development Page 14 Section 3 – Developments Page 21 Section 4 – Market Page 30 Section 5 – Operations Page 38 Section 6 – Conclusion & outlook Page
Slide 3: Highlights
Highlights ■ $254.9 m NPAT (+$92.8 m) ■ $208.7 m revaluation gain 85% 12.9% Development portfolio NTA uplift to 1.40 committed ■ Operating earnings 6.32 cps (+2.5%) ■ $191 m capital recycling Commitment to One Queen – Sale of 50% interest in ANZ Centre Street development (August 2018) – Divestment o
Slide 4: Major themes
Major themes ■ City centres will outperform – Growth in resident population – Higher GDP – Auckland as a gateway city – Wellington is the capital city and benefits from strong demand from the Crown – Benefits of agglomeration ■ Strong correlation between population, working age population, city cent
Slide 5: Strategy overview
Strategy overview Precinct is a specialist city centre real estate investment company. It invests in high quality strategically located city centre real estate with a focus on sustainability. Our strategy is focused on concentrated ownership of real estate in Auckland and Wellington creating spaces
Slide 6: Section 1 Financial results and capital management
Section 1 Financial results and capital management
Slide 7: Financial performance
Financial performance ■ Operating profit before tax increased by For the 12 months ended 30 June 2018 30 June 2017 7.4% demonstrating strong operating ($m) Audited Audited Movement result $74.4 m $71.7 m + $2.7 m Investment portfolio ■ 2.5% increase in operating income after Transactions and Develop
Slide 8: Net property income (NPI)
Net property income (NPI) ■ NPI increased $4.9 m to $95.3 m (+5.4%) For the 12 months ended 30 June 30 June ■ After allowing for developments and non D $m 2018 2017 recoverable earthquake costs, like for like AMP Centre $9.5 $9.2 + $0.3 income growth was 3.0% higher than PwC Tower $17.4 $16.7 + $0.6
Slide 9: Funds from Operations
Sustainable dividend Funds from operations (FFO) ■ Moved to a sustainable AFFO based policy in $100.0 m 110% Funds from Operations 2011 FFO payout ratio ■ Over the past 5 years the FFO payout ratio $80.0 m 100% has averaged 84%, retaining $62.9 m $60.0 m 90% – Averaged 101% AFFO payout ratio $40.0 m
Slide 10: Balance sheet
Balance sheet Change in asset valuations ■ Revaluation of $208.7 m or 9.0% $2,600 m $2,400 m – Attributable largely to cap rate compression $2,200 m and development profit recognition $2,000 m – Investment properties cap rate compressed $1,800 m from 6.2% to 5.8% $1,600 m ■ Contributed to 12.9% incr
Slide 11: Capital management
Capital management Key metrics June 2018 June 2017 ■ Total borrowings increased to $751 m related to Debt drawn ($m) 1 751.4 452.1 development spend at Bowen Campus and Commercial Bay Gearing - Banking Covenant 25.0% 25.1% ■ $250 m of non bank funding secured in period Weighted facility expiry (year
Slide 12: Capital management supporting strategy
Capital management supporting strategy ■ Non bank funding secured in period provides valuable tenor and funding diversity ■ Post balance date, Precinct successfully refinanced its $760 m bank debt facility which was due to expire in 2020 19.4% Proforma gearing, – Significantly reduces November 2020
Slide 13: FY19 Earnings and dividend guidance
FY19 Earnings and dividend guidance 6.60 cps 6.00 cps +3.4% FY19 net operating FY19 dividend Increase in dividend income after tax, guidance before performance fees ■ Earnings growth consistent with the earnings pathway provided in 2014 and 2016 ■ Lift in dividend based on confidence in earnings gro
Slide 14: Section 2 One Queen Street development
Section 2 One Queen Street development
Slide 15: One Queen St – Commercial Bay Stage Two
One Queen St – Commercial Bay Stage Two ■ Major mixed-use development comprising: – Luxury 244 room waterfront hotel – Premium office totaling 8,700 sqm – Iconic rooftop hospitality venue – Fully integrated into Commercial Bay retail ■ InterContinental Auckland – 15 year management agreement with IH
Slide 16: One Queen St – Commercial Bay Stage Two
One Queen St – Commercial Bay Stage Two ■ Increases size of building by 2,200 sqm ■ Commercial office totals 8,700 sqm – Ground floor Queen Street lobby with dedicated office floor lift provision – Highly efficient 1,260 sqm floor plate ■ Hotel occupies around 11,600 sqm or 57% by area – Ground floo
Slide 17: One Queen St – Funding and return metrics
One Queen St – Funding and return metrics Funding Financial metrics ■ Development is to be fully funded from ■ Total project cost of $298 million existing debt facilities ■ Expect stabilised profit on cost of 15% ■ Sale of 50% interest in ANZ Centre at ■ Capital reinvested at c. 7% yield 5.25% yield
Slide 18: One Queen St – Mixed-use benefits
One Queen St – Commercial Bay Stage Two Mixed-use benefits Commercial Bay income by use ■ Leverage One Queen St’s unique waterfront location to gain exposure to NZ’s no. 1 export industry (tourism) 13% 5% ■ Hotel use will increase and de-risk retail turnover at Commercial Bay 23% 59% ■ Highly comple
Slide 19: Auckland hotel market
Auckland hotel market International Visitor Arrivals to NZ (Actual and Forecast) 6.00 m 5.00 m Auckland is expected to 4.00 m capture the majority of 3.00 m the forecast growth in 2.00 m inbound visitation (5.1 1.00 m million p.a. by 2024) 0.00 m Dec-18 Dec-19 Dec-20 Dec-21 Dec-22 Dec-23 Dec-24 Jun-
Slide 20: Auckland hotel market
Auckland hotel market 33% 4,000 Increase in Auckland hotel/ Additional rooms required to motel/ serviced apartment guest cater for current demand nights between 2008 and 2017 projections according to NZTE 5% ~1,000 Net change in stock over the Projected shortfall in required new stock same period (s
Slide 21: Section 3 Developments
Section 3 Developments
Slide 22: Commercial Bay
Commercial Bay Since launch, $158 m increase in $1.0 b Value on value on completion to $1 billion completion $283 m expected profit on completion 7.5% expected yield on cost Overall development 75-80% committed for retail and office Successful hand-over of retail phase one – H&M to open 30 August Fi
Slide 23: Commercial Bay retail
Commercial Bay retail ■ Strong retail leasing progress achieved advancing commitments to 76% (2017: 46%) ■ Enquiry levels remain elevated and expect leasing momentum to continue into 2019 – F&B well advanced – Fashion retail advancing H&M H&M will be the first Commercial Bay flagship store when it o
Slide 24: Commercial Bay office
Commercial Bay office Office commitments progressed to 78% (2017: 66%) ■ All commitments from outside of the portfolio: – Terms agreed are generally consistent with feasibility and valuation – Excluding small suite offer (see below), just 6,000 sqm left to lease Small suites Auckland CBD vacancy tak
Slide 25: Commercial Bay programme update
Commercial Bay programme update ■ Following considerable engagement with the main contractor, Fletcher Construction, a revised completion programme has now been provided. ■ The programme provided has been independently reviewed by Precinct’s expert programmer, RCP. – Confirmed revised dates are achi
Slide 26: Bowen Campus
Charles Fergusson Tower Bowen Campus Uplift in as-if complete value to $240 m providing for a profit on cost of $37 m (18%) Charles Fergusson Tower ■ On target for December 2018 completion ■ Rent commencing on 4 floors already Bowen State Building ■ Occupation on target for NZDF in Q3 2019 ■ Rent to
Slide 27: Wynyard Quarter
Wynyard Quarter Stage 2 ■ Design advanced for Stages Two, Three and Four ■ Opportunity to develop a further 30,000 sqm of office space ■ Will draw on the land when proceeding with each stage ■ Potential exists for Stage Two to meet occupier demand in 2021 ■ Anticipate commencing the Stage Two in the
Slide 28: Bowen Balance Land
Bowen Balance Land ■ Design process advancing ■ Potential accommodation for up to 20,000 sqm of commercial office space ■ Considered suitable for both Crown and corporate occupiers ■ Designed to offer higher seismic resilience for occupiers Timing: 2019+ Estimated Cost: $160 m Use: Office PRECINCT P
Slide 29: Development summary
Development summary Development BV as % of Total Assets Development as % of Total Assets $4,000 m 45% Total Assets Current (incl One Queen St) $3,500 m 40% 35% ■ Return metrics further improved $3,000 m 30% $2,500 m – Blended profit of +30% 25% $2,000 m – Blended yield on cost of +7.3% $1,500 m 20%
Slide 30: Section 4 Market
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Slide 31: Auckland city centre economy
Auckland city centre economy Key economic drivers (2010-2017) 10.0% Growth pa 8.0% Auckland city centre 6.0% leads growth in key 4.0% economic drivers since 2.0% 2010 0.0% GDP Growth Employment Growth Population growth New Zealand Auckland Auckland City Centre CBD employment change - Top 5 industrie
Slide 32: Auckland city centre demand drivers
Auckland city centre demand drivers 20,000 sqm Annual net demand over next 5 years (based on forecast WAP growth) Auckland drivers City centre impact ▪ Further underpins activity levels in the city centre and ▪ Additional 30,000+ inner city residents demand for office, retail and leisure, and reside
Slide 33: Supply outlook
Supply outlook 2017 2018 Supply risk change Construction Elevated Elevated Decrease costs Construction Highly Constrained Decrease Number of factors capacity Constrained limiting city centre Land values Stabilised Elevated Decrease supply Funding Constrained Stabilised Neutral availability Funding c
Slide 34: Auckland city centre office supply pipeline
Auckland city centre office supply pipeline Timing 11,500 sqm Development Developer Submarket NLA Timing (PCT) (CBRE) Annual net supply over next 4-5 years Russell 34 Sale Street Viaduct 6,400 m² 2018 2018 Group Forecast net change in prime stock Commercial Bay PCT CBD Core 39,000 m² 2019 2019 45,00
Slide 35: Net absorption and density
Net absorption and density 23,000 sqm ■ Over past 20 years net absorption in Auckland has Annual net absorption since 1999 averaged 23,000 sqm Annual net absorption by quality (99-17) – 50% of absorption in CBD core – 65% gone to premium grade stock Premium Grade A Secondary – Attributable to reloca
Slide 36: Auckland city centre supply/demand summary
Auckland city centre supply/demand summary ■ City centre office employment growth forecast to grow by 10,000 workers to 2021 ■ Assuming 1:10 sqm, growth in workers will require 100,000 sqm of space ■ Anticipated stock withdrawals equal to ~40,000 sqm ■ Demand and stock withdrawals equivalent to 140,
Slide 37: Wellington city centre
Wellington city centre Wellington city centre has now largely recovered to post-quake levels. Sector outlook remains positive. ■ Centralised city with public transport infrastructure in place 100,000 sqm Sqm of office stock contraction ■ Government remains active seeking to increase occupier footpri
Slide 38: Section 5 Operations
Section 5 Operations |)
Slide 39: Portfolio activity
Portfolio activity Major portfolio leasing has underpinned portfolio performance, captured reversionary potential and maintained high occupancy 8.7 years 99% $1.7 b Weighted average lease term Portfolio occupancy Investment portfolio value Portfolio leasing deals in the period ■ 3,700 sqm of office
Slide 40: Portfolio activity
Portfolio activity Uplift on Leasing activity Auckland Number1 NLA contract1 WALT1 Leasing Transactions 30 16,780 m² 7.9% 5.8 years ■ 41 leasing transactions totalling 22,000 sqm Market Reviews 3 5,186 m² 11.1% or $12.5 m in contract rent Wellington Leasing Transactions 11 5,146 m² 15.4% 6.7 years –
Slide 41: AMP Centre – active management case study
AMP Centre – active management case study ■ Active management and value add investment driving strong rental growth 12.1% Increase on previous passing rent ■ Major leasing deals across 8,600 sqm across leasing deals done in FY18 – NZTA – Kindercare 26.5% ■ QBE lease expires September 2018 across 3,3
Slide 42: Lease events
Lease events ■ 52% of portfolio subject to review Major expiries FY19 event in FY19. Of this 17% subject Property Client Area to market review. AMP Centre QBE 3,300 m2 PwC Tower Servcorp 1,300 m2 ■ 3.2% or 9,509 sqm expiring in 2019 Dimension Data House Forsyth Barr 1,000 m2 Total 5,600 m2 ■ 112,300
Slide 43: Movement in uncommitted office NLA
Movement in uncommitted office NLA ■ Around 30,000 sqm of uncommitted office space at 30 December 2015 – 8.5% of PCT portfolio and 2.0% of CBD office market ■ Mitigated over 20,000 sqm through leasing by 30 June 2018 ■ Committing to One Queen Street and post pre-commitment, assumed uncommitted offic
Slide 44: Generator investment
Generator investment Factors driving growth ■ Precinct have a 50% interest in Generator: 1. New business (startups and new entrants) – Co working 2. Flexibility, ease and speed of setup – Dedicated desks and/or small suites 3. Corporate market using space as part of – Event space real estate strateg
Slide 45: Generator performance
Generator performance ■ Precinct has funded $9 m to fund expansion to two new sites totalling 9,762 sqm ■ New sites in stabilisation phase resulting in $2.3 m (50%) loss. This reflects rent expense and leasing commissions etc expensed for start-up period ■ New sites have performed well and ahead of
Slide 46: Section 6 Conclusions and Outlook
Section 6 Conclusions and Outlook
Slide 47: Conclusion
Conclusion ■ Precinct has a clear strategy which is supported by its markets ■ Strategy of active management is proving successful as newly developed real estate is of highest quality and margins are increasing ■ Strategy of being a city centre specialist enhancing returns as city centres outperform
Slide 48: Outlook
Outlook ■ Precinct well positioned through: – Clear strategy with market share – Capable team – in-house and external – Successful execution of capital management initiatives – Committed opportunities in premium locations – High quality investment portfolio with an extended WALT ■ Strong balance she
Slide 49: Appendices
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Slide 50: Financial summary
Financial summary ($ millions unless otherwise stated) 2018 2017 Change Operating income before indirect expenses 95.3 90.4 5.4% Operating profit after tax 76.6 74.7 2.5% Operating profit after tax (cents per share) 6.32 6.17 2.4% Net profit after income tax 254.9 162.1 57.2% Net distribution (cents
Slide 51: Balance sheet
Balance sheet Financial Position as at 30 June 2018 30 June 2017 ($m) Audited Audited Movement Assets Development properties $838.1 $509.2 + $328.9 Investment properties $1,487.6 $1,535.4 ($47.8) Investment properties held for sale $191.2 + $191.2 Fair value of derivative financial instruments $18.2
Slide 52: Borrowing movement
Borrowing movement $800 m Total Interest Bearing liabilities $700 m $600 m $500 m $400 m $300 m $200 m $100 m NIBD 2017 Net cash inflow Capital Capital Distributions Other NIBD 2018 from operating expenditure on expenditure on activities investment development properties properties PRECINCT PROPERTI
Slide 53: Tax expense reconciliation
Tax expense reconciliation 30 June 2018 30 June 2017 Net profit after tax and unrealised gains $254.9 m $162.1 m Depreciation recovered on sale ■ FY18 effective tax rate of 7.6% Deferred tax benefit $17.0 m $1.9 m – Higher than previous guidance due to lower level of leasing fees Current tax expense
Slide 54: FY18-19 insurance renewal
FY18-19 insurance renewal Insurance change year on year ■ Insurance costs increased to $4.8 m from $3.5 m – Represents an increase of 37% FY18-19 FY17-18 Change ■ Increase due to: Investment property $4.0 m $3.1 m 29.8% – Increase in the Fire Service Levy (effective Fire service levy $0.8 m $0.4 m 9
Slide 55: 5 year income summary
5 year income summary ($ millions unless otherwise stated) 2014 2015 2016 2017 2018 Financial performance Gross rental revenue 165.4 170.5 146.0 126.2 130.7 Less direct operating expenses (47.1) (48.9) (41.5) (35.8) (35.4) Operating profit before indirect expenses 118.3 121.6 104.5 90.4 95.3 Net int
Slide 56: Funds from operations and dividend
Funds from operations and dividend ($ millions unless otherwise stated) 2014 2015 2016 2017 2018 Dividends Net dividend (cents) 5.40 5.40 5.40 5.60 5.80 Net operating income Operating income before income tax 72.5 79.8 83.4 77.2 82.9 Less: Current tax expense (8.7) (11.5) (10.6) (2.5) (6.3) Net oper
Slide 57: 5 year balance sheet
5 year balance sheet ($ millions unless otherwise stated) 2014 2015 2016 2017 2018 Financial position Total investment assets 1,728.1 1,687.8 1,513.7 1,535.4 1,678.8 Total development assets 190.4 509.2 838.1 Other assets 19.4 65.4 34.5 34.6 44.8 Total assets 1,747.5 1,753.2 1,738.6 2,079.2 2,561.7
Slide 58: Investment portfolio overview
Investment portfolio overview Key metrics Portfolio metrics Investment Auckland Wellington portfolio WALT 1 8.7 years 7.5 years 10.9 years 8.7 years Occupancy 99% 100% 98% Weighted average lease term Investment Portfolio Value ($m) $1,668.6 m $1,232.8 m $435.8 m Weighted average market cap rate 5.8%
Slide 59: Asset level valuations
Asset level valuations Cap Rates % Valuations Value Movement Additions/ FY18 FY17 FY18 FY17 Revaluation % Disposals Investment Properties Dimension Data House 6.8% 6.9% (13 bps) $118.3 m $114.3 m $1.9 m $2.1 m 1.8% Mayfair House 6.5% 6.6% (13 bps) $44.4 m $40.8 m $0.3 m $3.3 m 8.0% No.1 The Terrace
Slide 60: CBD office market
CBD office market CBD prime face rent* $489 Average Auckland CBD face rent $600 $550 $500 2% Forecast Auckland annual growth rate $450 Net Face Rents $400 $350 $368 Average Wellington CBD face rent $300 $250 $200 4% Forecast Wellington annual growth rate $150 2001 2003 2005 2007 2009 2011 2013 2015
Slide 61: Auckland CBD retail market
Auckland CBD retail market Average prime net face rent Auckland CBD prime face rent of $2,955 psm, with average 40.0% $5,000 Prime Net annual growth to 2021 30.0% $4,000 Face Rent forecast to be 2% 20.0% $3,000 10.0% $2,000 The retail rental spread 0.0% $1,000 continues to diverge -10.0% $0 2001 200
Slide 62: Disclaimer
Disclaimer The information and opinions in this presentation were prepared by Precinct Properties New Zealand Limited or one of its subsidiaries (Precinct). Precinct makes no representation or warranty as to the accuracy or completeness of the information in this presentation. Opinions including est
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