50 slides from Precinct Properties Nz Ltd & Precinct Properties Investments's earnings presentation, August 2021
Slide 1: Precinct Properties 30 June 2021 Results
Precinct Properties 30 June 2021 Results PRECINCT PROPERTIES, ANNUAL RESULTS PRESENTATION - Page 1 Photo Credit: Simon Devitt
Slide 2: Agenda
Agenda Highlights / Strategy / Key themes Pages 3 Section 1 – Financial results & capital management Page 11 Section 2 – Our markets Page 20 Section 3 – Operations Page 25 Section 4 – Developments Page 33 Section 5 – Outlook Page 39 Precinct Properties New Zealand Limited Scott Pritchard, CEO George
Slide 3: Highlights
Highlights Financial Performance • +20.7% uplift in operating income before indirect expenses • Comprehensive income after tax of $179.9 million (2020: $35.1 million) • 6.48 cps AFFO representing a pay-out ratio of 100% • 6.50 cps dividend • 6.70 cps FY22 dividend guidance representing a 3.1% increa
Slide 4: Internalisation
Internalisation • Precinct internalised its Management function in March 2021 • Overall net cost to Precinct of ~$145 million • Provides significant benefits to Precinct and its shareholders • Positions the business to deliver on the next phase of its strategy Increased Pro forma Retention of Manage
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. Portfolio transformation AFFO and Dividend per share growth 2014 2021 7.00 cps 6.50 cps Size $1.75 b $3.3 b 6.00
Slide 6: Strategy progress
Strategy progress Operational excellence • Business has demonstrated significant resilience with quality occupier base and solid demand for new developments • Precinct received a 2020 Global Real Estate Sustainability Benchmark (GRESB) score of 83 (Global average: 70) • Office portfolio positioned w
Slide 7: Key themes
City Centres • City centre continuing to recover with public transport usage at 80% of pre-covid levels • Demand for city centre real estate remains • Pedestrian count has recovered significantly in Key themes past 6 months Occupier Market • Two-tier occupier market with clear location and quality b
Slide 8: City centres
City centres Auckland – Return to the city accelerating Auckland Waterfront Pedestrian Count 1,800,000 100% 79% 1,600,000 90% 1,400,000 80% 70% AKL waterfront pedestrian counts Jun-21 1,200,000 60% (rolling 3 months average) vs. pre-pandemic 1,000,000 50% pcp (Dec-20: 69%) 800,000 40% 73% 600,000 30
Slide 9: PCT occupier trends
PCT occupier trends Work from office remains a priority Physical building occupancy • Client survey completed in Feb-21 confirmed 100% PCT client workplace strategies continue to 80% % of 2018/19 average prioritise working from office • ~85% of client employees have 60% returned to the office 40% •
Slide 10: Key PCT occupier considerations
Key PCT occupier considerations Location and asset quality remain key themes Top 3 considerations • 28,200m2 development pre-commitment secured post-Covid totalling circa $250m of operating lease commitments • Survey of key pre-commit clients indicated: Asset quality • Asset quality and location equ
Slide 11: Section 1 Financial results & capital management
Section 1 Financial results & capital management
Slide 12: Financial performance
Financial performance For the 12 months ended 30 June 2021 30 June 2020 ($m) Audited Audited Movement Operating income before indirect expenses $127.7 m $105.8 m +$21.9 m Indirect expenses Net interest expense ($17.5 m) ($27.2 m) ($13.3 m) ($5.0 m) ($4.2 m) ($22.2 m) $179.9 m Total comprehensive inc
Slide 13: Operating income
Operating income For the 12 months ended $m (Audited) 30 June 2021 30 June 2020 ∆ • Like-for-like net property income (NPI) rose Auckland $41.8 m $41.6 m +$0.2 m 1.2%, with Wellington increasing 2.2% Wellington $31.6 m $30.9 m +$0.7 m • Following the completion of Mayfair Investment portfolio $73.4
Slide 14: FFO and AFFO
FFO and AFFO For the 12 months ended 30 June 2021 30 June 2020 Movement AFFO Operating income before indirect expenses Indirect expenses $127.7 m ($17.5 m) $105.8 m ($13.3 m) +$21.9 m ($4.2 m) 6.48 cps Net interest expense Operating profit before tax ($27.2 m) $83.0 m ($5.0 m) $87.5 m ($22.2 m) ($4.
Slide 15: Tax overview
Tax overview For the 12 months ended $m 30 June 2021 30 June 2020 • Tax loss in the period resulted in a tax benefit of $67.8 million Net profit before taxation $146.0 m $33.2 m • Deferred tax asset (DTA) related to tax losses carried forward At the statutory income tax rate of 28.0% $40.9 m $9.3 m
Slide 16: Revaluations
Revaluations NTA movement • Revaluation gain of $282.9m or 9.3%, attributable primarily to cap rate compression 180.0 NTA per share • NAV per share of $1.52 (Jun-20: $1.45) 160.0 • Accretion from revaluation partly offset by net termination payment • Wellington saw the biggest % change YoY with 140.
Slide 17: Capital management
Capital management Supporting our long term strategy Key metrics June 2021 June 2020 • Multiple capital management initiatives including Debt drawn ($m) $1,052.7 $951.7 selling the ANZ Centre, $400m of new debt facilities and $250m of new equity Gearing - banking covenant (%) 28.2 28.8 • Gearing as
Slide 18: Sustainability at Precinct
Sustainability at Precinct Improved our key performance measure, GRESB, to 83 (Global average: 70) ESG Progress • GRESB is the most relevant ESG measure for real Last reported 2019 2020 estate entities GRESB (Global Average) 77 83 (70) • Demonstrated by 73 Australian participants (12 listed & 61 unl
Slide 19: FY22 guidance 6.70 cps
FY22 guidance Historical AFFO and Dividend 7.00 cps 6.50 cps 6.70 cps 6.00 cps 5.50 cps 5.00 cps FY22 dividend guidance 4.50 cps 4.00 cps 2016 2017 2018 2019 2020 2021 2022F Adjusted funds from operations Dividend (cps) A $0.8b development pipeline benefiting from 90% pre-leasing will underpin a sta
Slide 20: Section 2 Our markets
Section 2 Our markets Photo Credit: Simon Devitt
Slide 21: Our city centre markets
Our city centre markets Prime office (Auckland city centre) • Two-tier occupier market conditions with clear location and quality bias • Prime vacancies increased to 7.3% at Jun-21 (Jun-20: 4.8%) albeit this vacancy is unevenly spread throughout the market • Prime rentals were relatively stable, how
Slide 22: Auckland city centre office
Auckland city centre office Prime vacancy by location • Strengthening overall demand on the back of robust business confidence underpinned by strong GDP growth and low unemployment CBD Waterfront • Two-tiered market with occupier demand widening between prime and secondary CBD Other • Increase in pr
Slide 23: Wellington city centre office
Wellington city centre office Prime vacancy by location • Demand remains underpinned by Government growth, flight to quality and seismic obsolescence CBD Core • Low prime vacancy rates reported in Thorndon and parts of the CBD Core where many agencies are located Fringe / Te Aro • Corporates continu
Slide 24: Prime yields
Prime yields Key sector yield vs. 10-year swap • Material firming in yields in the second half, with 12% 8% defensive assets, e.g. prime industrial, prime office 11% 7% and LFR, attracting strong bids 10% 6% • Abundant liquidity expected to underpin yields 9% 5% • Despite concerns around inflation a
Slide 25: Section 3 Operations
Section 3 Operations Photo Credit: Simon Devitt
Slide 26: Leasing activity
Leasing activity Through FY21 Precinct has experienced strong leasing demand from high quality occupiers 11.2 years underpinned by robust business confidence and a Weighted average lease term shift to quality (on new leasing including developments) Key investment portfolio and development 4.7 years
Slide 27: 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 • Corporate real estate strategies increasingly span the office space spectrum • Precinct
Slide 28: Earnings quality
Earnings quality Our portfolio benefits from high quality FY22 Key leasing events (by NLA) occupiers, a long weighted average lease term, low expiry risk and a high degree of 6% structured growth 16% 7% Market • Circa 6% of portfolio by income is subject to 7% CPI expiry over the next 12 months Fixe
Slide 29: Commercial Bay Retail
Commercial Bay Retail • Foot traffic and sales showing significant improvement post the last lockdown in March • Food & beverage continues to be the strongest performer, particularly Harbour Eats • Streetscape improvement continues with the opening of Te Komititanga and Te Wānanga • Lower Albert Str
Slide 30: Commercial Bay Retail
Commercial Bay Retail Centre composition • The centre has shown strategic resilience in its first year of operation considering the context of a global pandemic • Foot traffic has built strongly through 2021 to date and is translating to sales growth • Commercial Bay Hospitality achieved successful
Slide 31: Generator performance
Generator performance FY21 FY20 Revenue1 $15.5m $18.6m EBITDA ($0.8m) $1.8m 1Note: Generator performance includes intersegment revenue Resilient business performance given impacts of Covid-19 • Occupancy recovering strongly with active cost control mitigating lost revenue • Events revenue impacted b
Slide 32: Transactions and opportunities
Transactions and opportunities Wellington acquisitions support business strategy • Leverage government asset redevelopment experience, market position and strong Wellington market to generate value accretion Further value-add opportunities under investigation • Precinct to participate in the market
Slide 33: Section 4 Developments
Section 4 Developments
Slide 34: Committed developments
Committed developments FY22 FY23 FY24 Development TPC Office NLA % Let WALT (Let) Dec-21 Jun-22 Dec-22 Jun-23 Dec-23 Jun-24 30 Waring Taylor $27 m 1,800 m² 100% 10.0 years 40 Bowen $90 m 9,800 m² 72% 9.7 years 44 Bowen $105 m 11,500 m² 100% 12.8 years Bowen House $148 m 14,000 m² 100% 15.0 years Del
Slide 35: 40 & 44 Bowen (Bowen Campus Stage 2)
40 & 44 Bowen (Bowen Campus Stage 2) • Pleasing progress to date despite tight construction market • 40 Bowen – superstructure nearing completion, 1st fix services and façade install progressing 30% Forecast return on cost • 44 Bowen – groundworks complete, superstructure to commence in Aug-21 • 44
Slide 36: Deloitte Centre (1 Queen Street)
Deloitte Centre (1 Queen Street) • Construction commenced in Jun-21 and remains on programme to complete all works in 2H-23 • Commercial – 14,300m2 premium grade office and 21% Forecast return on cost supporting F&B/retail amenities to complete Aug-23 (stabilised) • Hotel – target opening of 139-roo
Slide 37: Other committed developments
Other committed developments 30 Waring Taylor Bowen House • Works remain on programme to • Refurbishment and seismic upgrade complete Oct-21 works commenced on 2 August 2021 • Generator opening its first Wellington • Building is leased by The Parliamentary site in early Nov-21 with good levels of Se
Slide 38: Uncommitted pipeline
Uncommitted pipeline • Current internal development pipeline totalling ~34,800m2 forecast to be delivered by FY24/25 ~15% • Wynyard Quarter Stage 3 – final stage of the Wynyard Target return on cost Quarter Innovation Precinct (20,000m2 prime NLA) • Freyberg Building – repositioning opportunity (14,
Slide 39: Section 5 Outlook
Section 5 Outlook
Slide 40: Outlook
Outlook • Precinct demonstrated significant resilience over the past 18 months and is well placed for the future • Following internalisation, Precinct is considering its strategic options in order to optimise returns for shareholders • Workplace strategies are evolving and this is likely to support
Slide 41: Appendices
Appendices PRECINCT PROPERTIES FY21 ANNUAL RESULTS - PAGE 41
Slide 42: Financial Summary
Financial Summary (Amounts in $ millions unless otherwise stated) 2021 2020 Change (%) Rental revenue 199.8 151.8 31.6 Funds from operations (FFO) 96.6 90.5 6.7 Adjusted funds from operations (AFFO) 85.3 82.7 3.1 Total comprehensive income after tax attributable to equity holders 179.9 35.1 412.5 Fu
Slide 43: Operating income
Operating income For the 12 months ended 30 June 2021 30 June 2020 ∆ $m AMP Centre $11.5 $11.4 $0.0 HSBC Tower $17.8 $17.8 $0.1 Zurich House $5.6 $5.6 $0.0 Mason Brothers $2.4 $2.3 $0.1 12 Madden Street $4.5 $4.5 ($0.0) Auckland total $41.8 $41.6 $0.2 NTT Tower $7.2 $7.1 $0.1 AON Centre $10.5 $10.5
Slide 44: Balance sheet
Balance sheet Financial Position as at 30 June 2021 30 June 2020 ($m) Audited Audited Movement Assets Development properties $232.4 $190.6 + $41.8 Investment properties $3,076.4 $2,800.1 + $276.3 Investment properties held for sale - - - Intangible assets $9.0 $18.9 ($9.9) Deferred tax asset $7.4 -
Slide 45: Asset level valuations
Asset level valuations Value Movement Cap Rates %* 30 Jun 2020 Additions / 30 Jun 2021 30 Jun 2021 Revaluation Revaluation 30 Jun 2020 30 Jun 2021 Change Market Value Disposals Book Value Market Value % Investment Properties NTT Tower $124.0 m $0.0 m $124.0 m $27.0 m $151.0 m 21.7% 6.38% 5.50% (88 b
Slide 46: Reconciliation from NPAT to AFFO
Reconciliation from NPAT to AFFO (Amounts in $ millions unless otherwise stated) 2017 2018 2019 2020 2021 Dividends Net dividend (cents) 5.60 5.80 6.00 6.30 6.50 Reconcilation from NPAT to Adjusted funds from operations Net profit after taxation (NPAT) 162.1 254.9 190.2 30.2 187.7 Unrealised net (ga
Slide 47: 5-year income summary
5-year income summary (Amounts in $ millions unless otherwise stated) 2017 2018 2019 2020 2021 Financial performance Gross rental revenue 126.2 130.7 135.7 151.8 199.8 Less direct operating expenses (35.8) (35.4) (40.4) (46.0) (72.1) Operating profit before indirect expenses 90.4 95.3 95.3 105.8 127
Slide 48: 5-year balance sheet
5-year balance sheet (Amounts in $ millions unless otherwise stated) 2017 2018 2019 2020 2021 Financial position Total investment assets 1,535.4 1,678.8 1,870.5 2,800.1 3,076.4 Total development assets 509.2 838.1 923.2 190.6 232.4 Other assets 34.6 44.8 97.7 194.5 147.6 Total assets 2,079.2 2,561.7
Slide 49: Investment portfolio overview
Investment portfolio overview Key metrics Portfolio metrics Total portfolio Auckland Wellington WALT 7.7 years 7.1 years 8.8 years 7.7 years Occupancy (%) 98% 97% 100% Weighted average lease term 98% Investment Portfolio Value ($m) $3,076 m $2,185 m $891 m Weighted average market cap rate 4.8% 4.7%*
Slide 50: 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