Precinct Properties Nz Ltd & Precinct Properties Investments Ltd · NZX:PCT
Precinct Properties Nz Ltd & Precinct Properties Investments — Precinct Properties — Investor Day (April 2015)
85 slides from Precinct Properties Nz Ltd & Precinct Properties Investments's investor day presentation, Apr 22, 2015
Slide 1: Precinct Properties Investor Briefing
Precinct Properties Investor Briefing 22 April 2015
Slide 2: Agenda
Agenda Welcome and Introduction 2:00 pm Strategy Overview 2:10 pm Capital Management 2:30 pm Portfolio Overview 2:50 pm Establishing the Opportunities 3:10 pm Break 3:30 pm Wynyard/Downtown Development 3:45 pm Canapés and Refreshments 5:00 pm PRECINCT PROPERTIES INVESTOR BRIEFING Page 2
Slide 3: Strategic Overview
Strategic Overview Starting Point Considerations Progress Direction Focus and Execution Clear, long-term Strategy PRECINCT PROPERTIES INVESTOR BRIEFING Page 3 Page 3
Slide 4: Starting Point – January 2011
Starting Point – January 2011 ■ Precinct Team – 5 full time staff – Outsourced arrangements with • AMP Capital Investors • JLL • CBRE ■ Assets – $1.3bn ($680m Wellington, $600m Auckland) – 4 year WALT – 90% occupancy ■ Gearing 24% PRECINCT PROPERTIES INVESTOR BRIEFING Page 4
Slide 5: Challenges 2011
Challenges 2011 ■ Strained occupier relationships ■ Investors dissatisfied ■ Agency relationships were poor ■ Auckland portfolio under pressure; – Zurich House empty – ANZ leaving – Westpac Leaving – PwC under threat ■ 40,000sqm of expiries with intent to vacate ■ Threat of new Auckland supply with
Slide 6: Considerations
Considerations ■ 2011 strategic review considering: – Portfolio structure – Asset exposure – Sector specialism – Management philosophy ■ Outcome – Remain sector specialist – build expertise – Increase weighting to Auckland – Become more active in managing portfolio – Importance of Auckland Unitary P
Slide 7: Challenges – Strategic review
Challenges – Strategic review ■ Office market is cyclical – Requires a clear strategy – Requires long term thinking – Complemented by a flexible mind set – Implementation of strategy must take account of the cycle ■ Location is everything – Consolidate ownership by location rather than asset quality
Slide 8: Progress
Progress ■ Established a clear strategy – ‘20:20 Vision’ ■ Enhanced occupier relationships – Team structure • In-sourced management functions – Team culture • New brand, new philosophy – Remuneration • PCT performs well, team paid well ■ Provided transparency to investors – Listened to investors - i
Slide 9: Progress
Progress Through our revised asset management approach: – Grown our team to 38 FTE – Grown occupancy to 98% – Increased WALT to 5.5 years – Increased client satisfaction by 26% – Increased market rents by 3.9% from 2011 to 2014 • Auckland 9.0% • Wellington 1.3% PRECINCT PROPERTIES INVESTOR BRIEFIN
Slide 10: Progress
Progress Secured unrivalled set of opportunities ■ Preferred location with value upside ■ Secured opportunities which provide yield ■ Focused on underlying value (land/building psm) ■ Consolidated ownerships in preferred locations ■ Resulted in: – Acquisition of Bowen Campus $1,400psm (L&B) – Acquis
Slide 11: Progress
Progress ■ Reset dividend policy – Pay-out reset to around 90% of operating income – Sustainable allowing for ongoing capex ■ Extended tenor and diversification of debt – Longer term debt secured from banks, USPP and retail bond ■ Used balance sheet strength to compliment property strategy – Capex a
Slide 12: Challenges of progress to date
Challenges of progress to date ■ Changing dividend policy at trough earnings ■ Establishment of PMCoE and impact on returns for Wellington Portfolio ■ Impact of de-gearing to prepare for impending expansionary phase ■ Building a capable team PRECINCT PROPERTIES INVESTOR BRIEFING Page 12
Slide 13: Direction
Direction 2011 2020 Age 26 years 15 years Quality A-Grade Premium WALT 4.0 years +6.0 years Maintenance Capex Allowance (est) 0.60%-0.80% p.a 0.40% p.a. Auckland value $600 million $1.6 billion Wellington value $680 million $600 million Government exposure (by area) 30% 15% PRECINCT PROPERTIES INVES
Slide 14: Direction
Direction Net operating income per share pathway scenario Pre-funding Active period Repositioned Note: The graph presented above represents a hypothetical scenario only and should not be considered a budget, plan or forecast. There is no certainty that gearing or earnings growth will eventuate as il
Slide 15: Summary
Summary ■ 20:20 Vision established in 2011 ■ Very clear strategy providing clarity to team and market ■ Number of steps taken to achieve 20:20 Vision ■ Execution phase now underway ■ Economy and property market supports strategy PRECINCT PROPERTIES INVESTOR BRIEFING Page 15
Slide 16: Capital Management
Section 2 Capital Management
Slide 17: Balance sheet since 2011
Balance sheet since 2011 ■ Active 4 year period – $320 million of development and acquisition activity – Asset recycling of $130 million – $236 million of new equity issued ■ Resulted in a repositioned business with opportunities to add value ■ Gearing around 19% Balance sheet utilisation since June
Slide 18: Entitlement offer
Entitlement offer Participation ■ First entitlement offer utilising Dec 2014 Institutional Allotment same class issue exemption Participation 95% $51.1 m Bookbuild 5% $2.8 m – Reduced timeframe Sub Total $53.9 m – Lower issue costs Retail Allotment Participation 50% $60.7 m ■ 64% shareholder partici
Slide 19: Borrowings outlook
Borrowings outlook ■ Total development activity of $740 million over a 4-6 year period ■ Execution of strategy will see borrowings increase to $800-$900 million ■ New debt facilities required Total borrowings – Example scenario $1,200 m Total Borrowings $1,000 m $800 m $600 m $400 m $200 m Mar-2015
Slide 20: Historical loan facilities
Historical loan facilities Weighted average debt maturity 6.0 years Years 5.0 years 4.0 years 3.0 years 2.0 years 1.0 years Total Facilities (ex MCN’s) and participants $700 m USPP $600 m Listed bond $500 m Bank of Tokyo $400 m CBA $300 m ANZ $200 m Westpac $100 m BNZ PRECINCT PROPERTIES INVESTOR BR
Slide 21: Background to initiatives
Background to initiatives ■ Prior to development commitments – Committed funding secured – Increase the level of borrowing diversity – Increase tenor with a desire to reduce refinancing risk during the development phase ■ Consideration given in May 2014 to; – Domestic listed bond – Retail investor –
Slide 22: Retail bond postponement
Retail bond postponement ■ During July and August swap rates fell 25-30 bps while the retail coupon benchmark rate remained unchanged at +6.1% – This resulted in the implied margin increasing ■ During July also held introductory calls with USPP investors – Good initial feedback and interest – The po
Slide 23: USPP market conditions
USPP market conditions ■ Reduction in supply during 2014 despite investor demand ■ Volume scarcity was beneficial to new issuers and led to tightening in credit spreads especially for lower rated credit ■ 2014 transactional activity from similar A-REIT’s credits (GAIF, Investa Office, Dexus) ■ No pr
Slide 24: Roadshow feedback
Roadshow feedback ■ ‘Club style’ approach targeting a smaller number of pre-qualified investors ■ Supportive of a Precinct deal with all investors supportive of the credit, company strategy and market fundamentals ■ Only 1 of the investors dropped out due to non-price considerations. ■ Attracted to
Slide 25: USPP final pricing
USPP final pricing ■ Total firm bids for $US230 million or 3.1x coverage ■ Focused on relative value – Spread relative to the Boston Properties 2024 bond (S&P: A-) was a key benchmark – Over the 6-8 weeks Boston’s yield widened around 25 bps – Precinct’s effective spread narrowed to 35 bps, despite
Slide 26: Retail bond offer
Retail bond offer ■ From August market conditions became favourable for corporate bond issuers, with no new issuance and redemptions – Created imbalance with strong retail and Institutional demand. ■ Small window of opportunity – There were a number of corporates and banks looking to issue in early
Slide 27: Borrowing summary
Borrowing summary ■ Secured $173m for a weighted Debt expiry profile (30 June 2014) average term of 9.1 years at an all in $250 m cost of around 200bps $200 m ■ Since June 2014 the weighted average $150 m debt maturity profile has increased by $100 m 1.8 years at no increase in overall funding cost
Slide 28: Benefits of initiatives
Benefits of initiatives ■ Borrowing diversity away from bank debt, and in the case of the USPP, New Zealand ■ Provides competitive tension to the banking syndicate ■ Provides access to two ‘deep’ markets ■ Ability to access additional tenor – Reduces refinancing risk during the construction phase ■
Slide 29: Portfolio Overview
Section 3 Portfolio Overview Wynyard – Innovation Building
Slide 30: Portfolio metrics
Portfolio metrics Lease expiry profile by Income 5.3years Weighted average lease term % of Income Auckland Wellington 40% 98% Occupancy 30% 11% 20% of Auckland portfolio has a market event in FY15 10% 58% 0% Vacant 15 16 17 18 19 20 Beyond weighting to Auckland Financial Year Occupancy PRECINCT PROP
Slide 31: Auckland CBD office market overview
Auckland CBD office market overview Forecast vacancy (CBRE, Dec 2014) Historically low vacancy for Occupier prime stock with strong Demand ▲ forecasted CBD employment growth Stable but emerging new supply expected in view of Supply ► supportive market fundamentals. Forecast net effective rent growth
Slide 32: Wellington CBD office market overview
Wellington CBD office market overview Forecast vacancy (CBRE, Dec 2014) Some growth in CBD Occupier employee numbers. Quality Demand ▲ buildings expected to attract occupiers. Some new developments being considered albeit Supply ► the required rents are 20% above market and require pre-commitments F
Slide 33: Historical operational performance
Historical operational performance ■ Since 1998 Precinct has achieved an average occupancy of 96.5% and WALT of 5.7 years. PRECINCT PROPERTIES INVESTOR BRIEFING Page 33
Slide 34: Portfolio Overview - Auckland
Portfolio Overview - Auckland ■ Occupancy 99.7% ■ Occupier base demanding more space as clients grow their employee base and acquire smaller businesses ■ Demand/Supply balance shifted significantly in previous 24 months ■ Situation leading to growth in contracted rents through leasing and rent revie
Slide 35: Portfolio Overview - Wellington
Portfolio Overview - Wellington ■ Occupancy 97% ■ Occupier demand remains stable driven by occupiers relocating and trading up to better quality premises ■ CBD based employees remaining stable. Greater opportunity for growth. ■ Market rental levels remaining stable as the demand/supply balance has m
Slide 36: Government RFP - Wellington
Government RFP - Wellington ■ Submitted RFP responses to PMCoE for 6 assets comprising 70,836 sqm of existing NLA. – 1 & 3 The Terrace – Pastoral House – Mayfair House – Bowen Campus – 125 The Terrace ■ All properties shortlisted through 2 submission rounds. Three accommodation scenarios being consi
Slide 37: Portfolio Strategies
Portfolio Strategies Auckland ■ Maintain relationships during a period of rental growth ■ Drive growth in contract and market rents ■ Target occupiers with mid term expiries to accelerate backfill strategy Wellington ■ Successful outcome for Government accommodation RFP ■ Maintain and grow occupancy
Slide 38: Establishing the Opportunities
Section 4 ESTABLISHING THE OPPORTUNITIES Wynyard – Mason Brothers
Slide 39: Auckland development rationale
Auckland development rationale ■ NZ GDP growth UN 2010-2026 total population growth forecast – GDP forecast to range around 2.5% p.a. over next 5 years (Source: Treasury) ■ Auckland Population growth – Forecast to outstrip most developed countries – 50% of NZ population growth is in Auckland Source:
Slide 40: AKL - CBD Office employment
AKL - CBD Office employment ■ Projections indicate CBD office based employment to increase by 22,000 by 2022 – This growth will underpin office space demand – Key drivers are outstripping expectations Auckland CBD Office vacancy and Employment Growth Source: Stats NZ, CBRE PRECINCT PROPERTIES INVEST
Slide 41: AKL - Office Demand projection
AKL - Office Demand projection Period 2014-17 2017-22 Total Current Stock (Source: CBRE 2013) 1,328,866 m² Current Vacancy (Source: CBRE 2013) 139,197 m² Current Vacancy rate (Source: CBRE 2013) 10.5% CBD Office employment Current employee capacity (16 m² per person) 8,768 Increase CBD employees (So
Slide 42: Establishing Wynyard Quarter opportunity
Establishing Wynyard Quarter opportunity Wynyard – Innovation Building
Slide 43: Background
Background History ■ Waterfront Auckland (previously Sea+City) commenced Wynyard Quarter urban renewal c.10 years ago ■ Investment of c.$120 m in public spaces and Wynyard Quarter creation ■ First commercial development was ASB headquarters launched in 2009 ■ 2013 - Waterfront Auckland launched an i
Slide 44: Precinct approach
Precinct approach Precinct’s proposal ■ Competitive process – multiple NZ businesses shortlisted ■ Focus on delivering to WA objectives – not solely maximising land price ■ Complete transparency of our view on value drivers ■ Demonstration of expertise – urban office specialist ■ Flexible approach t
Slide 45: Development agreement overview
Development agreement overview ■ Residual value approach to determining land value: – Precinct develops proposal on target site – ‘As if complete’ independent valuation prepared – QS cost estimate prepared – construction, fees, contingencies – Precinct development profit calculated based on agreed r
Slide 46: Development agreement implications
Development agreement implications ■ Strong alignment between Precinct and Waterfront Auckland – Waterfront Auckland can control specification, but if cost exceeds value this reduces land value payment ■ Intensive process to facilitate Waterfront Auckland design objectives – Requires high level of d
Slide 47: Establishing Downtown Development opportunity
Establishing Downtown Development opportunity East-west laneway
Slide 48: Acquisition background
Acquisition background ■ Downtown Shopping Centre acquisition opportunity identified early 2011 – Attracted to best office development site in NZ with strong holding income – Consistent with long term view on Auckland growth – Complimentary to existing Auckland portfolio ■ CRL major impediment to de
Slide 49: Auckland Council engagement
Auckland Council engagement ■ Engagement with mayor and senior executive immediately post acquisition ■ Key benefits to Council – Remove capital requirement for acquisition – Accelerate delivery of City Centre Master Plan objectives ■ June 2013 Auckland Council approved diversion of route protection
Slide 50: Development Agreement
Development Agreement Approach ■ Provides Precinct with certainty it can proceed with development ■ Provide fair compensation for impacts of CRL tunnels Key Terms ■ CRL tunnel construction procured by Precinct, to Auckland Transport specifications and paid for by Auckland Transport ■ Payment to Prec
Slide 51: Queen Elizabeth Square acquisition
Queen Elizabeth Square acquisition ■ Acquisition price of $27.2 million – Conditional on successful rezoning1 of land – Provides gross land area of around 1,900sqm – Settlement post – February 2018 at earliest2 ■ Provides significantly strengthened retail opportunity with 130m of Queen St frontage ■
Slide 52: Wynyard & Downtown Development Overview
WYNYARD & DOWNTOWN DEVELOPMENT OVERVIEW PRECINCT PROPERTIES INVESTOR BRIEFING Page 52
Slide 53: Development Background
Development Background % pre- Project Total project Development City Completion let cost cost PwC Tower Auckland 2002 54% $121 m $148 m No1 and 3 The Terrace Wellington 2006 100% $33 m $77 m 21 Queen Street (Zurich House) Auckland 2009 0% $76 m $109 m ANZ Centre Auckland 2013 100% $77 m $236 m PRECI
Slide 54: Development Pipeline Overview
Development Pipeline Overview Downtown Project Wynyard Bowen Campus Acquisition (secured): 2012 2013 2012 City: Auckland Auckland Wellington Acquisition price: $91.7 million Determined on commitment $51.4 million Asset type: Income producing Development partnership Income producing Potential occupie
Slide 55: Wynyard Quarter
WYNYARD QUARTER PRECINCT PROPERTIES INVESTOR BRIEFING Page 55
Slide 56: Overview
Overview ■ Precinct has development rights over 1.1 hectares of land ■ Approach this as a JV with Waterfront Auckland ■ Provides for 46,000 sqm in GFA ■ Completed in 4 stages ■ Stage 1 to commence in 2015 consisting of: – 2 buildings – 1 new, 1 refurbished – home to GRID AKL – Innovation Precinct –
Slide 57: Wynyard Quarter
WYNYARD QUARTER PRECINCT PROPERTIES INVESTOR BRIEFING Page 57
Slide 58: Wynyard Quarter Building 5a – Innovation Building
WYNYARD QUARTER Building 5a – Innovation Building PRECINCT PROPERTIES INVESTOR BRIEFING Page 58
Slide 59: Wynyard Quarter Building 5a – Innovation Building
WYNYARD QUARTER Building 5a – Innovation Building PRECINCT PROPERTIES INVESTOR BRIEFING Page 59
Slide 60: Add in 5A images
Add in 5A images PRECINCT PROPERTIES INVESTOR BRIEFING Page 60
Slide 61: Wynyard Quarter Mason Brothers
WYNYARD QUARTER Mason Brothers PRECINCT PROPERTIES INVESTOR BRIEFING Page 61
Slide 62: Wynyard Quarter Mason Brothers
WYNYARD QUARTER Mason Brothers PRECINCT PROPERTIES INVESTOR BRIEFING Page 62
Slide 63: Wynyard Quarter Mason Brothers
WYNYARD QUARTER Mason Brothers PRECINCT PROPERTIES INVESTOR BRIEFING Page 63
Slide 64: Wynyard Quarter Buildings 6a and 6b
WYNYARD QUARTER Buildings 6a and 6b 6b 6a PRECINCT PROPERTIES INVESTOR BRIEFING Page 64
Slide 65: Wynyard Quarter Building 6b
WYNYARD QUARTER Building 6b PRECINCT PROPERTIES INVESTOR BRIEFING Page 65
Slide 66: Wynyard Quarter Building 6b
WYNYARD QUARTER Building 6b PRECINCT PROPERTIES INVESTOR BRIEFING Page 66
Slide 67: Downtown Development
DOWNTOWN DEVELOPMENT PRECINCT PROPERTIES INVESTOR BRIEFING Page 67
Slide 68: Commercial Rationale
Commercial Rationale ■ Intention to restore Downtown and lower Queen Street as the heart of Auckland City ■ Macro-environmental factors – Significant increase in number of CBD office workers is forecast – Core CBD shifting to along waterfront – An aspirational and supportive council – Growing inner
Slide 69: Milestones to date
Milestones to date Feb 2015 Oct 2012 Nov 2014 April 2014 Development Site agreement Design Balance sheet acquired concluded competition strengthened & QE Square - $173m debt acquisition Nov 2013 Aug 2014 Dec 2014 Feb 2015 Master Concept Concept $174m equity planning design design raised commenced co
Slide 70: Downtown Development
DOWNTOWN DEVELOPMENT $550 million 37,000sqm commercial office space 20,000sqm retail space PRECINCT PROPERTIES INVESTOR BRIEFING Page 70
Slide 71: Beginnings of the site
DOWNTOWN DEVELOPMENT Beginnings of the site PRECINCT PROPERTIES INVESTOR BRIEFING Page 71
Slide 72: A New Beginning
DOWNTOWN DEVELOPMENT A New Beginning PRECINCT PROPERTIES INVESTOR BRIEFING Page 72
Slide 73: Integrated project led by Warren & Mahoney
DOWNTOWN DEVELOPMENT Integrated project led by Warren & Mahoney with Woods Bagot and NH Architecture PRECINCT PROPERTIES INVESTOR BRIEFING Page 73
Slide 74: A business precinct with 10,000 people
DOWNTOWN DEVELOPMENT HSBC House A business precinct with 10,000 people PwC Tower Zurich AMP New House Centre Tower PRECINCT PROPERTIES INVESTOR BRIEFING Page 74
Slide 75: Retail: a network of laneways over 3 levels
RETAIL Section 1 Interim A network ofResults and laneways Capital over 3 Management levels PRECINCT PROPERTIES INVESTOR BRIEFING Page 75
Slide 76: Downtown retail progress
Downtown retail progress Leasing update ■ Presentations to potential retail clients have commenced – Positive initial responses ■ A proposed retail tenancy mix comprising of: – Number of prominent international and local mini major anchors – Mix of premium and high end apparel retailers – Attractive
Slide 77: New Zealand's finest commercial tower
NEW ZEALAND’S FINEST COMMERCIAL TOWER PRECINCT PROPERTIES INVESTOR BRIEFING Page 77
Slide 78: Downtown office progress
Downtown office progress Leasing update ■ Occupier demand is strong with high levels of interest from pre- commitment targets ■ Key pre-commitment target of 50% ■ Occupiers attracted to: – Efficiency gains on new floor plate – Design ambition of creating NZ’s best workplace destination – Level of am
Slide 79: Arrival to the Sky Lobby
ARRIVAL TO THE SKY LOBBY PRECINCT PROPERTIES INVESTOR BRIEFING Page 79
Slide 80: Floor Plate – Mid Rise
Floor Plate – Mid Rise ■ Side core ■ Large open floor ■ 3 columns ■ 3 metre ceiling height ■ Floor to floor glazing PRECINCT PROPERTIES INVESTOR BRIEFING Page 80
Slide 81: Floor Plate – High Rise
Floor Plate – High Rise ■ Natural daylight ■ Lighting sensor controlled ■ Active chilled beam ■ Diverse mains power ■ 100% back up power ■ 5 star Greenstar PRECINCT PROPERTIES INVESTOR BRIEFING Page 81
Slide 82: PRECINCT PROPERTIES INVESTOR BRIEFING Page 82
PRECINCT PROPERTIES INVESTOR BRIEFING Page 82
Slide 83: Development Summary
Development Summary ■ Auckland is poised for continued growth ■ Precinct’s waterfront developments are well placed ■ Each development caters to different sub-markets: – Wynyard – Innovation / corporate – Downtown – Retail – fashion, F&B, services & amenities – Office – professional and financial ser
Slide 84: Conclusion
Conclusion ■ Transformation of Precinct is underway ■ Strategy is clear ■ Long term thinking is critical in the success of Precinct ■ Ambitious projects but risks mitigated through: – Funding capacity established – Office occupiers engaged – pre-commitment required – Fixed price construction contrac
Slide 85: PRECINCT PROPERTIES INVESTOR BRIEFING Page 85
PRECINCT PROPERTIES INVESTOR BRIEFING Page 85