Precinct Properties Nz Ltd & Precinct Properties Investments Ltd · NZX:PCT
Precinct Properties Nz Ltd & Precinct Properties Investments — Precinct Properties New Zealand — FY2019 Earnings Presentation
57 slides from Precinct Properties Nz Ltd & Precinct Properties Investments's earnings presentation, August 2019
Slide 1: Precinct Properties Annual Results
Precinct Properties Annual Results August 2019
Slide 2: Agenda
Agenda Highlights / Major themes / Strategy overview Pages 3-8 Section 1 – Financial results and capital management Page 9 Section 2 – Market Page 17 Section 3 – Operations Page 24 Section 4 – Generator Page 28 Section 5 – Developments Page 33 Section 6 – Conclusion & outlook Page 43 Precinct Proper
Slide 3: Highlights
Highlights Financial Performance Capital Management Operational Performance • Operating earnings up • Successful $152 million • Strong performance with 3.7% y-o-y equity raising 99% occupancy and a 9 • 6.62 cps EPS (pre • US$110 million secured via year WALT and like for like performance fee) (+4.7%
Slide 4: Major Themes
City centres will outperform • Auckland is NZ’s gateway city • Wellington benefits from strong Crown demand • Higher growth in GDP contribution from city centres Major Themes • Growth in resident population Occupier demand remains robust driven by elevated activity levels • Continued growth in the n
Slide 5: Our strategy
Our strategy 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 to th
Slide 6: Achieving our strategy
Achieving our strategy Operational excellence 2012 2019 Empowering people Asset age 21 years 12 years Quality A-grade Premium 2012 2019 WALT 5.9 years 9.0 years Dedicated staff 14 100+1 Occupancy 94% 99% Property functions Out-sourced In-house NBS Score 85% 94% Client satisfaction 64% 72% Staff enga
Slide 7: Auckland city centre economy
Auckland city centre economy Auckland city centre leads growth Key economic measures (2008-2018) 10.0% in key economic drivers Growth pa 8.0% 6.0% Growing 2 times faster than 4.0% New Zealand 2.0% 0.0% GDP Growth Employment Growth Population growth Strong relationship between GDP and office employme
Slide 8: Wellington city centre economy
Wellington city centre economy Key economic measures (2008-2018) 4.0% Growth pa Outlook remains positive with positive economic 2.0% drivers 0.0% Labour force GDP Growth Employment Growth Population growth underpinned by growth Wellington CBD Wellington Region New Zealand in Crown employment Source:
Slide 9: Section 1 Financial results and capital management
Section 1 Financial results and capital management
Slide 10: Financial performance
Financial performance $79.4 m 6.62 cps $190.1 m EPS – pre performance fee Operating profit after tax Total comprehensive income after tax (+3.7% y-o-y) (+4.8% y-o-y) (2018: $254.9 m) For the 12 months ended 30 June 2019 30 June 2018 Change • Total comprehensive income after ($m) Audited Audited % Op
Slide 11: Net property income (NPI)
Net property Amounts in $ millions 30 June 30 June D income (NPI) 2019 2018 Auckland $40.9 $38.5 + $2.4 Wellington $20.1 $20.1 ($0.0) $97.5 m Investment portfolio $61.0 $58.7 + $2.3 Transactions and Developments $36.5 $36.6 ($0.1) 12 months ended 30 June 2019 Total $97.5 $95.3 + $2.2 Reconciliation
Slide 12: Revaluation gain
Revaluation gain $77 m • Strong revaluation gain of $162 m or 6.1% • +6.5% uplift in Auckland • +3.2% uplift in Wellington Development profit recognised • Gains attributable to further growth in market rentals, 50% capitalisation rate compression and positive leasing activity • Development portfolio
Slide 13: Capital management
Capital management ~80% Average FY20 hedging Capital initiatives supporting strategy Key metrics June 2019 June 2018 • Successful $152 million equity issue Debt drawn ($ millions)1 710.4 751.4 • Secured second USPP issue totalling Gearing - banking covenant (%) 22.4 25.0 NZD$162 million across 10 an
Slide 14: Execution of strategy has materially enhanced cash earnings
Execution of strategy has materially enhanced Adjusted funds cash earnings from operations • Since 2016 AFFO has increased by 13% and the AFFO pay out ratio has averaged 101% • Revised dividend policy • Pay out around 100% AFFO providing sustainable long term dividend Historical AFFO and Dividend •
Slide 15: FY20 Earnings and dividend guidance
FY20 Earnings and dividend guidance 6.80 cps 6.30 cps +5.0% FY20 net operating FY20 dividend Increase in dividend income after tax, before guidance performance fees Composition of the portfolio continues to lift confidence in earnings profile • High quality premium portfolio reducing capex requireme
Slide 16: Sustainability at Precinct
Sustainability at Precinct 22% reduction in carbon • Improved our key performance measures intensity emissions since 2016 • GRESB score above global average • MSCI ESG rating of A • Mason Bros. achieved 6 Star Green Star ESG Progress rating 2018 2019 • Improved environmental performance • 80% of inv
Slide 17: Section 2 Market
Section 2 Market
Slide 18: Our city centre markets
Our city centre markets Prime office • Occupier demand persists for well located high quality stock in both Auckland and Wellington due to city centre based employment growth. Occupiers continue to seek to move up the grade spectrum to attract talent and due to seismic concerns in Wellington • New s
Slide 19: Auckland CBD occupier market
Auckland CBD occupier market Forecast prime vacancy Vacancy forecasts continue to reduce CBRE Jun-18 JLL Jun-18 CBRE Jun-19 JLL Jun-19 10.0% • Prime vacancy 4.7% as at Jun-19 (Jun- Vacancy Rate (%) 18: 5.3%) 8.0% • Approx. 27,000m2 vacant prime space 6.0% (Jun-18: 31,000m2) 4.0% • Vacancy expected t
Slide 20: Wellington CBD occupier market
Wellington CBD occupier market Forecast prime vacancy Prime grade market remains virtually CBRE Jun-18 JLL Jun-18 CBRE Jun-19 JLL Jun-19 fully occupied 6.0% Vacancy Rate (%) • Prime vacancy 0.7% as at Jun-19 (Jun- 18: 1.0%) 4.0% • Approx. 2,300m2 vacant (Jun-18: 3,000m2) 2.0% • Vacancy rates forecas
Slide 21: Supply outlook
Supply outlook 2018 2019 • High level of construction activity observed, particularly in Auckland Build costs (Auckland) Elevated Elevated • Sector capacity continues to be constrained Land values (Auckland) Elevated Stable • Construction costs unlikely to ease due to Build costs (Wellington) Elevat
Slide 22: Investment market
Investment Prime office yields (historic) market 10.0% 9.0% 8.0% • Prime yields continue to firm in line with decreasing interest rates 7.0% • Whilst prime yields have reached new 6.0% lows and are well below the long-term 5.0% average, the implied yield spreads 4.0% vs. forecast 10-year swaps have
Slide 23: Valuation outlook
Valuation outlook • Robust investment fundamentals observed Portfolio cap rates vs. 10-year swap rates 10.0% • Prime yield spread remains materially 9.0% above historic average despite cap rates 8.0% reaching new historic lows 7.0% • Reinstatement values above pre-GFC 6.0% peak and at premium vs. ma
Slide 24: Section 3 Operations
Section 3 Operations
Slide 25: Portfolio activity
Portfolio activity Our investment portfolio continues to 9.0 years Weighted average lease term benefit from the significant leasing activity Including developments and high occupancy achieved in both 99% Auckland and Wellington Portfolio occupancy Key portfolio leasing deals in the period • 7,900m2
Slide 26: Lease events
Lease events Major expiries FY20 • 68% of portfolio subject to review Property Area event in FY20. Of this 14% subject Dimension Data House 2,000 m2 to market review. PwC Tower 2,800 m2 Zurich House 2,700 m2 • 6.7% or 15,400 sqm expiring in ANZ Centre (50%) 2,900 m2 FY20 Total 10,400 m2 • 89,979 sqm
Slide 27: Asset sales
Asset sales ANZ Centre • 50% sale to a fund managed by Invesco • $181 million sale price • Settled October 2018 10 Brandon Street • 100% sale • $10.2 million sale price • Settled August 2018 Pastoral House • 100% sale • $77 million sale price • Sale and purchase agreement has been executed subject t
Slide 28: Section 4 Generator
Section 4 Generator
Slide 29: Supporting our strategy
Supporting our strategy • Adapting offering to cater for evolving occupier demands • Occupiers working differently and valuing flexibility and innovation • Wider range of offering and optionality now available Office space spectrum Long term lease Turnkey Office suites Flexi space Co-working Number
Slide 30: Generator's role in Precinct's strategy
Generator’s role in Precinct’s strategy: ■ Winning new business across diverse sectors • Measurement: Portfolio occupancy, cross-sell achieved, market penetration • Examples: Major global technology companies using Generator for beachhead premises, Generator clients growing into Precinct space ■ Enh
Slide 31: Generator performance
Generator performance FY19 FY18 Revenue1 $16.4m $7.6m EBITDA ($1.2m) ($3.4m) NPAT ($1.4m) ($4.7m) 1Note: Generator performance shown at 100% before consolidation adjustments and excluding interest on intercompany loans ■ Business performing well against acquisition assumptions: • Year-end occupancy
Slide 32: Generator opportunities
Generator opportunities ■ Improve site performance • Convert coworking to private office • Improve meeting and events utilisation • Achieve desk rate uplifts on renewal ■ Provide Precinct amenity • Generator to operate Commercial Bay meeting suites • Promote Generator events offer to Precinct client
Slide 33: Section 5 Developments
Section 5 Developments
Slide 34: Development summary
Development summary Current commitments (incl. One Queen Street) Current committed developments* Total NLA 74,068 m2 • Committed developments remain on track to deliver Total Office NLA 55,857 m2 blended ROC of +30% and blended YOC of +7.0% Office NLA leased to date 41,133 m2 • Since June 2018: % of
Slide 35: Bowen Campus Stage 1
Bowen Campus Stage 1 • Redevelopment commenced October Forecast financials (subject to final accounts) 2016 and became fully income Commencement Current Change producing in April 2019 Total project cost $203 m $209 m $6 m • Further uplift in value on completion to $250m Value on PC $229 m $250 m $21
Slide 36: Commercial Bay
Commercial Bay Forecast financials $1.0 b Value on completion • Approx. $197 m uplift in estimated value on completion since commencement • Forecast total project costs expected to remain in line with recent guidance between $690 m to $700 m • Forecast ROC maintained at +40% with YOC largely unchang
Slide 37: Commercial Bay leasing
Commercial Bay Retail Office • Pleasing progress with commitment now at 95% • Leasing advanced to 82% pre-committed (Jun-18: 76%) (Jun-18: 78%) • ‘Mid-upper end’ retail mix achieved in line with • Total leasing of 8% secured in the period target at project commencement • Agreement to lease over 1,38
Slide 38: Wynyard Quarter Stage 2
Wynyard Quarter Stage 2 • Construction advancing well – on programme for completion in Oct-20 • Office NLA effectively 100% pre- committed • Development Agreement executed with Media Design School over c. 4,934m2 or 62% of office NLA • Key terms agreed for remaining office NLA with two confidential
Slide 39: One Queen Street
One Queen Street • Detailed Design well-advanced • Base build design completed • Interior design to complete end of Q3-19 • Redevelopment will commence in mid-2020 following material vacant possession • Office NLA approx. 50% pre-committed with anchor client Bell Gully exercising option over an addi
Slide 40: Future Developments
Future Developments PRECINCT PROPERTIES, ANNUAL RESULTS PRESENTATION - Page 40
Slide 41: Bowen Campus Stage 2
Bowen Campus Stage 2 Detailed Design completed • 40 Bowen (c. 10,700m2) • 44 Bowen (c. 11,750m2) Positive engagement to date • Occupiers increasingly focused on high quality, seismically resilient premises with adjacent flex-space Enabling works currently underway Intend to commit to a construction
Slide 42: Wynyard Quarter Stages 3 & 4
Wynyard Quarter Stages 3 & 4 Preliminary design in progress for an estimated 19,000 m2 • 117 Pakenham (c. 8,400m2) • 124 Halsey (c. 9,400m2) • Flowers Building (c. 1,500m2) Includes1,600 m2 of ground level retail and F&B opportunities Design programme allows for mid- 2020 works commencement Intend t
Slide 43: Section 6 Conclusions and outlook
Section 6 Conclusions and outlook
Slide 44: 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 • New portfolio of assets driving strong growth in AFFO and dividends • Strategy of being a city centre specialist e
Slide 45: Outlook
Outlook • Precinct well positioned through: • Clear strategy with market share • Capable team – in-house and external • Strong balance sheet with capacity • Precinct establishing an enviable track record of creating world class developments with world class returns • Premium quality portfolio with 9
Slide 46: Appendices
Appendices PRECINCT PROPERTIES, ANNUAL RESULTS PRESENTATION - Page 46
Slide 47: Financial summary
Financial summary ($ millions unless otherwise stated) 2019 2018 Change Operating income before indirect expenses 97.0 95.3 1.8% Operating profit after tax 79.4 76.6 3.7% Operating profit after tax pre performance fees 6.62 cps 6.32 cps 4.7% Net profit after income tax 190.1 254.9 -25.4% Net distrib
Slide 48: Balance sheet
Balance sheet Financial Position as at 30 June 2019 30 June 2018 Movement ($m) Audited Audited Assets Development properties $923.2 $838.1 + $85.1 Investment properties $1,870.5 $1,487.6 + $382.9 Investment properties held for sale $191.2 ($191.2) Other $36.5 $26.6 + $9.9 Total Assets $2,893.4 $2,56
Slide 49: Total Interest Bearing liabilities
Borrowing movement $1,200 m Total Interest Bearing liabilities $1,000 m $800 m $600 m $400 m PRECINCT PROPERTIES, ANNUAL RESULTS PRESENTATION - Page 49
Slide 50: Tax reconciliation
Tax reconciliation 30 June 2019 30 June 2018 Lower effective tax rate for FY19 Net profit after tax and unrealised gains $190.1 m $254.9 m Depreciation recovered on sale $10.7 m • Higher level of Deferred tax benefit ($0.2 m) $17.0 m deductible capex Current tax expense $6.3 m and leasing incentives
Slide 51: Funds from operations and dividends
Funds from operations and dividends (Amounts in $ millions unless otherwise stated) 2015 2016 2017 2018 2019 Dividends Net dividend (cents) 5.40 5.40 5.60 5.80 6.00 Net operating income Operating income before income tax 79.8 83.4 77.2 82.9 79.4 Less: Current tax expense (11.5) (10.6) (2.5) (6.3) Ne
Slide 52: 5 year income summary
5 year income summary (Amounts in $ millions unless otherwise stated) 2015 2016 2017 2018 2019 Financial performance Gross rental revenue 170.5 146.0 126.2 130.7 135.8 Less direct operating expenses (48.9) (41.5) (35.8) (35.4) (40.8) Operating profit before indirect expenses 121.6 104.5 90.4 95.3 95
Slide 53: 5 year balance sheet
5 year balance sheet (Amounts in $ millions unless otherwise stated) 2015 2016 2017 2018 2019 Financial position Total investment assets 1,687.8 1,513.7 1,535.4 1,678.8 1,870.5 Total development assets - 190.4 509.2 838.1 923.2 Other assets 65.4 34.5 34.6 44.8 99.7 Total assets 1,753.2 1,738.6 2,079
Slide 54: Investment portfolio overview
Investment portfolio overview Key metrics Portfolio metrics Investment Auckland Wellington portfolio WALT 1 9.0 years 8.0 years 10.7 years 9.0 years Occupancy 99% 100% 99% Weighted average lease term Investment Portfolio Value ($m) $1,813.3 m $1,088.8 m $724.5 m Weighted average market cap rate 5.7%
Slide 55: Net property income
Net property income For the 12 months ended 30 June 2019 30 June 2018 D $m AMP Centre $10.0 $9.5 + $0.5 PwC Tower $18.5 $17.4 + $1.1 Mason Brothers $2.7 $2.3 + $0.4 12 Madden Street $4.5 $4.5 ($0.0) Zurich House $5.2 $4.8 + $0.4 Auckland total $40.9 $38.5 + $2.4 157 Lambton Quay $7.4 $7.6 ($0.2) AON
Slide 56: Asset level valuations
Asset level valuations Cap Rates % Valuations Value Movement Additions / 30 June 2019 30 June 2018 Change 30 June 2019 30 June 2018 Revaluation % Disposals Investment Properties Dimension Data House 6.6% 6.8% (13 bps) $122.5 m $118.3 m $2.0 m $2.2 m 1.8% Mayfair House 6.5% 6.5% $47.3 m $44.4 m $0.9
Slide 57: 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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