Precinct Properties Nz Ltd & Precinct Properties Investments Ltd · NZX:PCT
Precinct Properties Nz Ltd & Precinct Properties Investments — Precinct Properties New Zealand — FY2017 Earnings Presentation
57 slides from Precinct Properties Nz Ltd & Precinct Properties Investments's earnings presentation, August 2017
Slide 1: Developing the future
Developing the future Precinct Properties New Zealand Annual Results August 2017
Slide 2: Agenda
Agenda Highlights Page 3 Section 1 – Strategy Page 4 Section 2 – Major initiatives Page 12 Section 3 – Financial results and capital management Page 21 Section 4 – Operations and market Page 30 Section 5 – Conclusion and outlook Page 44 Precinct Properties New Zealand Limited Scott Pritchard, CEO Ge
Slide 3: Highlights
Highlights ■ 100% occupancy ■ Completion of Wynyard Quarter - Stage One 100% Occupancy – Ahead of feasibility – 18% profit ■ Advancing on strategy - $900 million in committed developments 8.7 years Portfolio weighted average lease term - Total office pre-commitment increased to 80% ■ Commercial Bay
Slide 4: Section 1 – Strategy
Section 1 Strategy
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. Principles of success ■ Most recently reviewed in 2012, the strategy has been continually refined since 1997 when the 1. Concentrated owner
Slide 6: Achieving strategy
Achieving strategy Operational excellence Developing the future 2012 2017 2012 2017 Asset age 21 years 11 years Bowen Campus Downtown Shopping centre Acquisitions Quality A-grade Premium HSBC House Queen Elizabeth Square WALT 5.9 years 8.7 years Wynyard Quarter Regeneration Bowen Campus Precincts Oc
Slide 7: Auckland drivers
Auckland drivers 93,000 416,000 $60 billion Net migration over the Working age population Council identified past 3 years into expected growth to 2043 infrastructure projects Auckland over next 30 years ■ The Auckland economy continues to outperform other regions ■ Annual net migration figures remai
Slide 8: Auckland CBD
Auckland CBD Continues to benefit from the trend of Auckland CBD centralisation ■ The CBD’s increasing market share of regional office employment reflects the recent trend to greater centralisation – Currently makes up 22% of the Auckland region ■ The number of residents in the city centre continues
Slide 9: Private and Public investment
Private and Public investment Map key: - Private investment - Public investment - City Rail Link - Public regeneration Not shown: ■ Wynyard Quarter ■ Americas cup ■ Park Hyatt Hotel ■ Fanshawe Street ■ UOA Engineering ■ Albert Street PRECINCT PROPERTIES, ANNUAL RESULTS PRESENTATION - Page 9
Slide 10: Wellington CBD
Wellington CBD ■ Capital city of New Zealand supporting: – Central government offices – Corporate enterprise – Growing tech sector ■ Strategy centralised, compact city – Topography constraints – Vibrant City centre with retail concentration and strong resident population – Public transport infrastru
Slide 11: Wellington
Wellington Map key: - Current Projects - Development sites - Potential stock withdrawals PRECINCT PROPERTIES, ANNUAL RESULTS PRESENTATION - Page 11
Slide 12: Section 2 – Major initiatives
Section 2 Major initiatives
Slide 13: Wynyard Quarter Stage One
Wynyard Quarter Stage One 8 year WALT at Mason Successfully completed this year Bros. ■ The Innovation Precinct includes: – Mason Bros. redevelopment across 4,900sqm – 5A Innovation Building across 8,100sqm ■ Designed and developed with a focus on sustainability and innovation, Stage One forms the f
Slide 14: Wynyard Quarter Stage One
Wynyard Quarter Stage One 1 ■ Commencement value of $98 million 18% Return on cost increasing to $107 million on completion due to: – Additional NPI – Cap rate compression – 100% leased on completion ■ Increase in project cost to $91 million includes: – $4.3 m additional payment to PDA following 50%
Slide 15: Commercial Bay
Commercial Bay $88 million increase in value on $213M completion to $941 million of expected profit $213m expected profit on completion ■ 46% of retail space committed ■ 66% of office space committed ■ Retail launch phased with two stage opening – c. 20% opening mid 2018 – Remainder opening in Q1 20
Slide 16: Commercial Bay retail
Commercial Bay retail 46% Retail pre- ■ Significant leasing progress achieved through committed the year – 20 additional pre-commits including 2 food and beverage anchors and 2 flagship retail stores ■ Leasing secured to date is 3% above budgeted rents on a WALT of 9.4 years ■ Opening of retail now
Slide 17: Commercial Bay office
Commercial Bay office 66% pre-committed ■ Net leasing in period of 6% or 2,500sqm 66% Pre-leased by net market – 1,500sqm of option space not income required by pre-commitment clients – Minimal option space remains in 66% commitment ■ Expected WALT of 12 years on completion ■ Leasing to date secure
Slide 18: Bowen Campus
Bowen Campus 100% pre-committed ■ Crown has advised its intention to lease the remaining 4 floors of Bowen State building ■ A new lead agency is approved to occupy the Bowen State building ■ Construction works are progressing well ■ Kaikoura Earthquake impacted Crown agencies occupier arrangements f
Slide 19: Future Opportunities
Future Opportunities 1 Queen Street Wynyard Quarter 2019+ 2017+ $150 m $200 m Office/Mixed Office Bowen Campus 2019+ $150 m Office/Mixed PRECINCT PROPERTIES, ANNUAL RESULTS PRESENTATION - Page 19
Slide 20: Development Summary
Development Summary 7.5% 70% Blended yield on cost Pre-leased by NLA on office and retail 27% $160m Blended return on cost Un-recognised development profit Key development metrics 2017 2016 Strong occupier covenant (of leased space) Development Pipeline $0.9 b $1.0 b 9% Total development NLA 96,825
Slide 21: Section 3 – Financial results and capital management
Section 3 Financial results and capital management
Slide 22: Financial performance
Financial performance For the 12 months ended 30 June 2017 30 June 2016 ■ Result in line with forecast despite lost ($m) Audited Audited Movement income and costs from Kaikoura Operating income before indirect expenses $90.4 m $104.5 m ($14.1 m) earthquake Indirect expenses ($2.1 m) ($2.0 m) ($0.1 m
Slide 23: Net property income
Net property income For the 12 months ended 30 June 30 June D $m 2017 2016 ■ Transactions & developments impacts AMP Centre $9.2 $9.1 + $0.1 PwC Tower $16.7 $16.5 + $0.2 lowered NPI by $15.2 million ANZ Centre $17.9 $17.7 + $0.2 ■ Auckland up $1.8m mainly due to Mason HSBC House $8.1 $8.1 Bros compl
Slide 24: Adjusted funds from operations
Adjusted funds from operations PCA ■ Dividend of 5.60 cps 30 June 2017 Definition ■ FFO per security was 6.68 cps, 84% Net profit after tax and unrealised gains $162.1 m payout A Investment Property and Inventory ■ AFFO per security was 5.43 cps closely A2 A3 Net realised gain / (loss) on sale of in
Slide 25: Capital management
Capital management ■ $581 million of undrawn facilities to fund development Key metrics June 2017 June 2016 pipeline Debt drawn ($m) 1 452 221 ■ No debt expiries during development phase with first expiry in November 2020 Gearing - Banking Covenant 25.1% 14.4% ■ 38% of drawn debt currently from non-
Slide 26: Precinct considering a convertible note offer
Precinct considering a convertible note offer ■ Precinct is considering making an offer of up to $150m of four year, fixed rate subordinated convertible notes Up to $150m Subordinated convertible notes 4 years – The offer is expected to consist of a Priority Offer to New Zealand resident Precinct re
Slide 27: Conversion mechanism and cash election
Conversion mechanism and cash election ■ The conversion price for conversion of notes into shares will be set at the lesser of: – Fixed price per share (“Conversion Price Cap”); and – a 2% discount to the 20-day volume weighted average price (“Market Price”) ■ Cash election at Precinct’s option: – R
Slide 28: Earnings pathway and quality shift
Earnings pathway and quality shift 9.00 100% WALT Occupancy ■ Earnings pathway maintained to 2021 ■ Forecast earnings growth expected to 95% 7.00 provide CAGR of 3.5% between 2012 and 2021 90% ■ Significant quality shift occurring 5.00 85% contemporaneously ■ Committed WALT now close to 9 years 3.00
Slide 29: FY18 Earnings and dividend guidance
FY18 Earnings and dividend guidance 6.30cps 5.80cps +3.6% FY18 net operating FY18 dividend Increase in dividend income after tax, guidance before performance fees ■ Lift in dividend based on confidence in earnings growth ■ Execution of strategy – 80% pre-commitment - Commercial Bay Tower and Bowen C
Slide 30: Section 4 – Operations and market
Section 4 Operations and market
Slide 31: Investment portfolio overview
Investment portfolio overview Key metrics Portfolio metrics Investment Auckland Wellington Portfolio WALT 1 8.7 years 7.7 years 10.6 years 72% Occupancy 100% 100% 100% weighting (by value) to Auckland Investment Portfolio Value ($m) $1,535 m $1,111 m $424.5 m Weighted average market cap 100% 6.2% 6.
Slide 32: Portfolio activity
Portfolio activity ■ Major portfolio leasing has underpinned portfolio Auckland Number NLA Uplift on WALT Contract performance and driven 100% occupancy Leasing Transactions 34 24,377 m² 9.6% 6.8 years – AMP Services new 10 year lease over 4,400 sqm Market Reviews 2 1,824 m² 2.7% – Buddle Findlay ne
Slide 33: Lease events
Lease events ■ 49% of portfolio subject to review Major expiries FY18 event in FY18. Of this 9% subject to Property Client Area market review. Zurich House Zurich Financial Services 1,144,m2 ■ 9% or 19,500m2 expiring in 2018 State Insurance Tower IAG New Zealand Limited 4,292m2 ■ 120,000 sqm of leas
Slide 34: Market reversion
Market reversion Over/under rented position Portfolio reversion - cumulative Equivalent market on Under/Over renting occupied % of portfolio reviewed to market (expiry or review) % of portfolio NLA No.1 The Terrace $6.2 m -3.8% 125% 157 Lambton Quay $8.1 m -0.7% State Insurance $10.3 m -0.8% 100% Pa
Slide 35: Government RFP
Government RFP Initial Timing Property Works Commence Completion Pastoral House May 2017 April 2018 No. 3 The Terrace May 2018 March 2019 Mayfair House August 2018 August 2019 ■ Government decant plans disrupted by loss of buildings due to Kaikoura earthquake ■ Requirement for immediate capex and re
Slide 36: Auckland CBD office market
Auckland CBD office market Forecast vacancy (CBRE, June 2017) Prime CBD office vacancy remains at historic lows driven by occupiers continuing to Occupier Demand ▲ upgrade or expand within existing prime space. Strong actual forecast employment growth forecast to continue. Fringe supply increasing h
Slide 37: Auckland CBD retail market
Auckland CBD retail market Forecast vacancy (Colliers, June 2017) 4.0% Historically low vacancy Occupier with continued demand ▲ 3.5% Demand from local and international 3.0% Vacancy Rates (%) retailers. 2.5% 2.0% 1.5% Limited new CBD ▼ 1.0% Supply development outside of 0.5% Commercial Bay. 0.0% 20
Slide 38: Wellington CBD office market
Wellington CBD office market Virtually no prime grade space Forecast vacancy (CBRE, June 2017) available with prime vacancy at just 0.4%. Demand to Occupier Demand ▲ continue for high quality seismically resilient space as actual forecast occupiers finalise their medium to long term requirements. Ne
Slide 39: Auckland construction market
Auckland construction market Non-residential building cost escalation (Stats NZ/NZIER) ■ Construction cost inflation is forecast to average 4.4% p.a. through to 2021. ■ Non-residential building and infrastructure activity is forecast to grow materially over the medium term. ■ Auckland CBD office pri
Slide 40: Auckland supply outlook
Auckland supply outlook Supply Risk 2016 2017 Change Construction Elevated Elevated Decrease Costs Slight Land Values Elevated Stabilised increase Funding Good Constrained Decrease availability Funding costs Low Increasing Decrease Outlook for Moderate Limited Decreased supply PRECINCT PROPERTIES, A
Slide 41: Generator investment
Generator investment Auckland Prime CBD Office Tenancy by Size (CBRE) ■ Generator now manages 10,000sqm of 2.60% co-working and shared office space following GRID AKL appointment at 12.30% Wynyard ■ Consistent with strategic focus on building client relationships and increasing service levels ■ Futu
Slide 42: Investment Properties valuation outcome
Valuation outcome Change in property assets $2,100 m ■ Revaluation of $77.5 million or 3.9% Investment Properties $2,000 m ■ Valuation increases attributable to cap $1,900 m rate compression, progress of $1,800 m development assets and increases in $1,700 m net market rentals $1,600 m ■ Underlying p
Slide 43: Valuation outlook
Valuation outlook ■ Cap rates in Auckland are now below Historic cap rates peak levels reached in 2007 ■ Spread to 10 year swap rate remains 10.0% above historic average 9.0% ■ Auckland land and building rates 8.0% above peak ■ Rental levels remain below peak 7.0% ■ Strong investment market 6.0% – C
Slide 44: Deloitte House
Deloitte House ■ Detailed and intrusive investigations following the 2016 Kaikoura earthquake identified significantly lower structural scores for some elements in the existing buildings structure ■ Findings are not consistent with as built plans or building design ■ The building is not classified a
Slide 45: Section 5 – Conclusions and Outlook
Section 5 Conclusions and Outlook
Slide 46: Conclusion
Conclusion ■ NZ economy remaining positive due to: – Population growth – Construction and infrastructure investment in Auckland – Tourism sector growing ■ Continued global uncertainty ■ Property markets remain strong: – Auckland occupier and investment markets have strong fundamentals with expectati
Slide 47: Outlook
Outlook ■ Precinct well positioned through: – Capable team – in-house and external ■ Strong balance sheet – Considering subordinated convertible note to diversify funding and reduce committed gearing – Committed opportunities in premium locations – Supportive markets ■ Five years of preparation and
Slide 48: Appendices
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Slide 49: Balance sheet
Balance sheet Reconciliation of NTA movement (cps) Financial Position as at 30 June 2017 30 June 2016 ($m) Audited Audited Movement Reconciliation of NTA movement cps Assets 30 June 2016 116.5 Development properties $509.2 $190.4 + $318.8 Revaluation 6.4 Investment properties $1,535.4 $1,513.7 + $21
Slide 50: Borrowings movement
Borrowings movement $500 m $450 m $400 m $350 m Total Interest Bearing liabilities $300 m $250 m $200 m $150 m $100 m $50 m NIBD 2016 Net cash inflow Capital Capital Distributions Other NIBD 2017 from operating expenditure on expenditure on activities investment development properties properties PRE
Slide 51: Taxation reconciliation
Taxation reconciliation Tax expense reconciliation ■ FY17 effective tax rate of 3.3% 30 June 2017 30 June 2016 ■ Higher pre-tax profit offset by; Net profit after tax and unrealised gains $162.1 m $138.2 m – Disposal of fixtures and fittings at Depreciation recovered on sale $10.0 m Bowen Deferred t
Slide 52: 5 year income summary
5 year income summary 2013 2014 2015 2016 2017 Net operating income ($ millions unless otherwise stated) $80.0 Financial performance Gross rental revenue $147.7 $165.4 $170.5 $146.0 $126.2 $70.0 Less direct operating expenses ($43.7) ($47.1) ($48.9) ($41.5) ($35.8) $60.0 Operating profit before indi
Slide 53: 5 year dividend payout
5 year dividend payout ($ millions unless otherwise stated) 2013 2014 2015 2016 2017 Dividends Net dividend (cents) 5.12 5.40 5.40 5.40 5.60 Net operating income Operating income before income tax $63.2 $72.5 $79.8 $83.4 $77.2 Less: Current tax expense ($4.9) ($8.7) ($11.5) ($10.6) ($2.5) Net operat
Slide 54: 5 year balance sheet
5 year balance sheet ($ millions unless otherwise stated) 2013 2014 2015 2016 2017 Financial position Total investment assets $1,640.4 $1,728.1 $1,687.8 $1,513.7 $1,535.4 Total development assets $190.4 $509.2 Other assets $18.1 $19.4 $65.4 $34.5 $34.6 Total assets $1,658.5 $1,747.5 $1,753.2 $1,738.
Slide 55: Lease expiry
Lease expiry 8.7 years Weighted average lease term of portfolio Wellington Auckland 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Vacant 2018 2019 2020 2021 2022 2023 2024 2025 Beyond PRECINCT PROPERTIES, ANNUAL RESULTS PRESENTATION - Page 55
Slide 56: Asset level valuations
Asset level valuations Cap Rates % Valuations Value Movement Additions/ FY17 FY16 FY17 FY16 Revaluation % Disposals Investment Properties Dimension Data House 6.9% 7.0% (13bps) $114.3 m $109.0 m $5.2 m $0.1 m 0.1% Mayfair House 6.6% 6.8% (13bps) $40.8 m $38.5 m $1.4 m $0.9 m 2.3% No.1 and 3 The Terr
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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