Property For Industry Limited · NZX:PFI
Property For Industry — FY2018 Earnings Presentation
38 slides from Property For Industry's earnings presentation, Feb 18, 2019
Slide 1: Welcome to the 2018 Annual Results Briefing
Slide 2: Presenting Today
PRESENTING TODAY Simon Woodhams Craig Peirce Chief Executive Officer Chief Finance and Operating Officer PROPERTY FOR INDUSTRY 2018 ANNUAL RESULTS BRIEFING 2
Slide 3: Agenda
01. 2018 HIGHLIGHTS 02. PORTFOLIO 03. 2018 ANNUAL RESULTS 04. CAPITAL MANAGEMENT 05. MARKET OG. 2019 PRIORITIES 07. REVIEW & QUESTIONS 08. APPENDICES
Slide 4: Highlights
HIGHLIGHTS
Slide 5: 2018 Highlights
2018 HIGHLIGHTS ▪ Increased earnings and dividends: profit after tax up $58.4 million, 3.2% increase in Funds From Operations (FFO)1 earnings per share, Adjusted Funds From Operations (AFFO) earnings per share in line with the prior year, cash dividend up 1.3% to 7.55 cents per share ▪ Valuation gai
Slide 6: Portfolio
~— \Ga. 4 PORTFOLIO
Slide 7: Portfolio Snapshot
PORTFOLIO SNAPSHOT ▪ PFI’s portfolio is diversified across 94 properties and 148 tenants, with 99.3% occupancy and a weighted average lease term of 5.39 years, weighted towards Auckland industrial property 31 December 2018 31 December 2017 Book value $1,322.0m $1,210.8m Number of properties 94 92 Nu
Slide 8: Historical Operational Performance
HISTORICAL OPERATIONAL PERFORMANCE ▪ Since 2009, PFI has achieved a year end average occupancy of 98.6% and WALT of 4.88 years PROPERTY FOR INDUSTRY 2018 ANNUAL RESULTS BRIEFING 8
Slide 9: Valuations & Leasing Activity
VALUATIONS & LEASING ACTIVITY ▪ Valuations: ▪ Annual increase from independent valuations of $66.4 million or 5.3% to $1,322.0 million ▪ Around one-third of valuation outcome was due to rental growth ▪ Passing yield firmed from 6.57% to 6.21%, no over or under renting on a portfolio basis ▪ Leasing
Slide 10: Rent Reviews & 2019 Lease Events
RENT REVIEWS & 2019 LEASE EVENTS ▪ 100 rent reviews delivered an average annual uplift of ~2.5% on ~$46.4 million of contract rent ▪ 17 market rent reviews delivered an annualised increase of 2.3% over an average review period of 3.5 years on $5.8 million of contract rent ▪ ~75% of PFI’s portfolio i
Slide 11: 2019 Lease Expiries
2019 LEASE EXPIRIES ▪ Portfolio is 99.3% occupied (0.7% vacancy) and 9.4% of contract rent is due to expire in 2019, a total of 10.1% (FY17: 7.5%) ▪ Carlaw Park represents 34% of PFI’s Tenant % Rent Roll Carlaw Park Jacobs 3.0% current vacancy and 2019 expiries, terms 2 Pacific Rise Hewlett-Packard
Slide 12: Carlaw Park, Parnell
CARLAW PARK, PARNELL ▪ Acquired by PFI in 2013 via the merger with Direct Property Fund, development of the property was completed in March-2009, initial lease terms expiring 2018 / 2019 ▪ Significant leasing progress during 2018 and early 2019: ▪ Nestle secured in H1 2018 for 14.4% of the property
Slide 13: Acquisitions
ACQUISITIONS ▪ PFI has maintained a cautious stance towards acquisition activity during 2018, but did purchase two Auckland industrial properties during the year 306 Neilson Street, 12 Hautu Drive, Penrose Manukau Purchase price $16.0m $12.3m Tenant Trade Depot Kiwi Steel Property description Generi
Slide 14: Development and Disposal
DEVELOPMENT AND DISPOSAL ▪ Kiwi Steel secured in March 2018 on a 15-year term for a new 2,500 square metre warehouse on surplus land at 212 Cavendish Drive, Manukau ▪ Completion of this project is expected April 2019 ▪ 50 Parkside Road, Wellington sold December 2018 for a net sales price of $3.3 mil
Slide 15: 2018 Annual Results
Slide 16: Net Rental Income
NET RENTAL INCOME ▪ Net rental income of $79.1 million up $6.1 million or 8.4% ▪ Increases due to acquisitions ($4.9 million) and positive leasing activity ($3.0 million) ▪ Decrease due to increased intra-period vacancy ($1.8 million) ▪ Average occupancy during 2018 of 98% PROPERTY FOR INDUSTRY 2018
Slide 17: Adjusted Funds From Operations (Cents per Share)
ADJUSTED FUNDS FROM OPERATIONS (CENTS PER SHARE) ▪ Profit after tax up $58.4 million to $110.1 million ▪ Cost savings offset a reduction in net rental income (on a per share basis), resulted in a 3.2% increase in FFO earnings per share ▪ Maintenance capex increased from 23 basis points in 2017 to 35
Slide 18: Earnings, Dividends, Guidance
EARNINGS, DIVIDENDS, GUIDANCE ▪ Funds From Operations earnings: up 0.27 cps or 3.2% from the prior year ▪ Adjusted Funds From Operations earnings: in line with the prior year ▪ 2018 dividend: totals 7.55 cps, up 0.10 cps or 1.3% from the prior year ▪ Dividend policy: 80-90% of FFO and 95-100% of AFF
Slide 19: Investment Properties
INVESTMENT PROPERTIES ▪ Portfolio value of ~$1.32 billion ▪ Annual increase from independent valuations $66.4 million or 5.3% ▪ Two industrial properties purchased in 2018, 306 Neilson Street in Penrose ($16.07 million) and 12 Hautu Drive in Manukau ($12.36 million) ▪ 50 Parkside Road in Wellington
Slide 20: Net Tangible Assets (Cents per Share)
NET TANGIBLE ASSETS (CENTS PER SHARE) ▪ Net tangible assets (NTA) per share increased by 14.5 cents per share or 8.9% ▪ Change in NTA per share driven by the increase in the fair value of investment properties (+13.3 cps), retained earnings (+0.8 cps) and the decrease in the net fair value liability
Slide 21: Five Year Financial Summary
FIVE YEAR FINANCIAL SUMMARY ($m, unless noted) Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Operating revenue 63.8 66.9 71.1 73.5 79.9 Total operating earnings 36.9 36.6 43.1 47.6 53.9 Total comprehensive income after tax 59.9 72.8 123.4 82.6 1 110.1 Total assets 906.9 1,027.2 1,121.8 1,242.2 1,358.9 Total li
Slide 22: Capital Management
CAPITAL Ae MANAGEMENT. __
Slide 23: Funding, Covenants, Interest Rates
FUNDING, COVENANTS, INTEREST RATES ▪ PFI carried out several capital management initiatives during the second half of 2018 ▪ Second $100 million 7-year bond issue in October, rate of 4.25%, margin of 1.60% per annum ▪ $100 million of bank facilities cancelled in October, $37.5 million of bank facili
Slide 24: Maturity Profile, Hedging
MATURITY PROFILE, HEDGING ▪ Debt facility maturity profile (graph on LHS): average term to expiry of 4.0 years, $74 million of unutilised bank facility capacity ▪ Fixed rate payer hedging profile (graph on RHS): cover profile provides for an average of ~54% of debt to be hedged at an average fixed r
Slide 25: Market
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Slide 26: Market Update: Economy
MARKET UPDATE: ECONOMY ▪ ANZ predict annual GDP growth to average ~2.5% over the next couple of years, inflation pressures not expected to intensify in this environment ▪ ANZ Truckometer indexes (December) and Quarterly Survey of Business Opinion (January) are two examples of measures that suggest t
Slide 27: Market Update: Property
MARKET UPDATE: PROPERTY ▪ CBRE December 2018 Auckland Market Outlook: ▪ “Our return forecasts have been revised slightly upwards for some asset classes based on the more bullish short-term yield forecasts and / or stronger rent growth.” ▪ Both prime and secondary industrial property have benefited f
Slide 28: 2019 Priorities
Slide 29: Purpose, Vision & Strategy
PURPOSE, VISION & STRATEGY ▪ Recognising the changing governance and reporting landscape both here in New Zealand and globally, during 2018 we spent some time considering our Purpose, Vision and Strategy ▪ Looking forward, we will continue working on integrating our Purpose, Vision and Strategy, tog
Slide 30: 2019 Priorities
2019 PRIORITIES ▪ In order to deliver on our Vision, our 2019 priorities are: ▪ Disposals: begin disposing PFI’s non-industrial assets ▪ Acquisitions: recycle capital from disposals into quality industrial properties in sought-after areas ▪ Value-add strategies: recycle capital from disposals into v
Slide 31: Value-Add Strategies
VALUE-ADD STRATEGIES ▪ PFI’s portfolio includes a number of properties with low site coverage and / or low land and building rates ▪ Value-add strategies for these properties include development of surplus land / refurbishment on lease expiry ▪ Surplus land opportunities include 47 and 59 Dalgety Dr
Slide 32: Review & Questions
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Slide 33: Review & Questions
REVIEW & QUESTIONS ▪ With an excellent portfolio, a strong balance sheet, and favourable market conditions, we are well positioned to deliver on our Purpose: creating strong, stable income for investors and generating prosperity for New Zealand ▪ 2018 highlights: ▪ Increased earnings and dividends ▪
Slide 34: Appendices
Slide 35: Appendix 1: FFO and AFFO
APPENDIX 1: FFO AND AFFO (Unaudited, $000, unless noted) YE December 2018 YE December 2017 Profit and total comprehensive income after income tax attributable to the shareholders of the Company 110,094 51,684 Adjusted for: Fair value gain on investment properties (66,370) (43,595) Material damage in
Slide 36: Appendix 2: Carlaw Park Office
APPENDIX 2: CARLAW PARK OFFICE PROPERTY FOR INDUSTRY 2018 ANNUAL RESULTS BRIEFING 36
Slide 37: Appendix 3: Distributable Profit
APPENDIX 3: DISTRIBUTABLE PROFIT (Unaudited, $000, unless noted) YE December 2018 YE December 2017 Profit and total comprehensive income after income tax attributable to the shareholders of the Company 110,094 51,684 Adjusted for: Fair value gain on investment properties (66,370) (43,595) Material d
Slide 38: Disclaimer
DISCLAIMER The information included in this presentation is provided as at 18 February 2019 and should be read in conjunction with the NZX results announcement, NZX appendix 1, NZX appendix 7 and annual report (including financial statements) issued on that same day. Property for Industry Limited (P