Precinct Properties Nz Ltd & Precinct Properties Investments Ltd · NZX:PCT
Precinct Properties Nz Ltd & Precinct Properties Investments — Precinct Properties New Zealand — FY2016 Earnings Presentation
57 slides from Precinct Properties Nz Ltd & Precinct Properties Investments's earnings presentation, June 2016
Slide 1: Precinct Properties New Zealand Annual Results June 2016
Precinct Properties New Zealand Annual Results June 2016
Slide 2: Agenda
Agenda Highlights Page 3 Section 1 – Strategy Page 4 Section 2 – Major initiatives Page 9 Section 3 – Financial results and capital management Page 24 Section 4 – Operations and market Page 33 Section 5 – Conclusion and outlook Page 45 Precinct Properties New Zealand Limited Scott Pritchard, CEO Geo
Slide 3: Highlights
Highlights ■ Growing our capability 135,000sqm – Team enhanced with key appointments Office space leased by the team ■ Advancing on strategy - $1 billion in committed developments 6.3 years Portfolio weighted average lease term ■ Launching Commercial Bay – Following pre-commitment by anchor clients
Slide 4: Section 1 Strategy
Section 1 Strategy “UK py | JULY, Wiaauuius ay ae SSA AR
Slide 5: Strategy Overview
Strategy Overview ■ Strategy formed in 2012 ■ Provides clear direction for the Precinct team and shareholders ■ Strategy focused on: - Concentrated ownership in strategic city centre locations - Increasing quality of real estate to: • Enhance growth in revenues • Reduce Maintenance CAPEX costs • Red
Slide 6: Strategy Overview
Strategy Overview PRECINCT ANNUAL RESULTS, 30 JUNE 2016 Page 6
Slide 7: Strategic direction and portfolio transformation
Strategic direction Anticipated geographic mix 11% Auckland - CBD Core Weighting to Wellington corporate assets, on Wellington completion of developments Auckland - Waterfront 76% Retail Auckland - Weighting to Premium assets, on completion Wynyard of developments Quarter $396 million Auckland - Wat
Slide 8: Market timing
Market timing ■ Long term strategic focus matches long term nature of assets ■ Requirement to make long term decisions looking through the cycle ■ Returns optimised through being conscious of cycle in execution Historical asset performance since acquisition 20.0% Property IRR Property Purchase Date
Slide 9: Section 2 Major initiatives
Section 2 Major initiatives
Slide 10: Development resourcing
Development resourcing ■ New hires over past 18 months have strengthened the development team. – Retail leasing managers/development managers – 11 strong dedicated team supported by wider business ■ Development team led by; – Andrew Buckingham – GM of Development. Andrew was responsible for the deve
Slide 11: Major Initiatives
Major Initiatives Commercial Bay Bowen Campus Wynyard Quarter Construction Start May 2016 November 2016 October 2015 Completion June 2019 April 2019 June 2017 Total project cost $681m $203m $84m Value on completion1 $813m $229m $98m Return on cost 19% 13% 15% Yield on cost 7.5% 7.5% 8% 1adjusted for
Slide 12: Future opportunities
Future opportunities Wynyard Quarter 2-4 Bowen Campus 1 Queen Street Timing 2017+ 2019+ 2020+ Value on completion $200m $100m $200m Use Office Office/Mixed Office/Mixed Artist impression of Wynyard Quarter Site 6A/6B Focus beyond 2020 for future opportunities Retain City Centre focus Supplemen
Slide 13: Bowen Campus
Bowen Campus ■ Purchased in 2012 for $50.4 million and has generated $27 87% million in income (12% p.a.) Office space committed by the Crown ■ The building will undergo significant redevelopment increasing the existing area, excluding the annex building, from 26,100sqm to 38,400sqm 2,800sqm Level 1
Slide 14: Bowen Campus scope of works
Bowen Campus Scope of works ■ Demolition of existing façade, removal of all plant/equipment and demolition of existing fit out ■ Increase seismic strength to 100% ■ Extension of floor plates over levels 1- 6 at Bowen State ■ Installation of new curtain wall Artist render of Charles Ferguson Building
Slide 15: Bowen Campus project and lease details
Bowen Campus Project: ■ Construction will start November 2016 on expiry of the existing lease to the Ministry of Social Development ■ Project is expected to reach practical completion in early 2019 ■ A construction contract has been signed with LT McGuiness – Fixed price lump sum contract providing
Slide 16: Bowen Campus – Future Potential
Bowen Campus – Future Potential ■ Future development potential is retained over the balance of the Bowen Campus site with 4,000sqm of land remaining available for future development ■ Land provides opportunity for two additional buildings ■ Land retained at $2,500/m² Bowen Campus - Balance land Arti
Slide 17: Commercial Bay
Commercial Bay Progress to date ■ Project launched in December 2015 ■ $681m development including: – New 39 level office tower – World class retail centre ■ Office Tower was 52% pre- committed by anchor clients: – PwC – Chapman Tripp ■ Downtown Shopping Centre closed May 2016 after its 40th birthday
Slide 18: Office Leasing
Office Leasing Significant leasing success through the year 60% Pre-leased by net market ■ Secured 6,000sqm from outside the income portfolio – MinterEllisonRuddWatts committing to 4,000sqm at Commercial Bay – Re-located Colliers International across 1½ floors to 188 Quay Street ■ Occupier demand r
Slide 19: Retail Leasing
Retail Leasing ■ Secured major international fashion retailer H&M for a flagship store – One of the fastest growing international retailers – A major anchor for the centre ■ Specialty retail leasing campaign yet to commence ■ Significant unsolicited interested following the announcement of H&M ■ F&B
Slide 20: Wynyard Quarter Stage 1
Wynyard Quarter Stage 1 ■ Development agreement secured in May 2014 ■ Onsite works commenced end of 2015 13,400sqm Net lettable area ■ 86% pre-leased, by market income ■ Total project cost of $84 million 8% ■ Value on completion of $98 million Expected yield on cost PRECINCT ANNUAL RESULTS, 30 JUNE
Slide 21: Wynyard Quarter Stage 1 progress
Wynyard Quarter Stage 1 Innovation Building ■ Basement works complete with concrete structure and ground beams in place ■ Steel framing is now underway ■ Practical completion on target for July 2017 Mason Brothers ■ Cladding and roofing complete ■ Fit out works have commenced ■ Remaining space is un
Slide 22: Wynyard Quarter Future Stages
Wynyard Quarter Future Stages ■ 3 remaining sites ■ c.30,000sqm of GFA to be developed ■ In discussion with occupiers for stage 2 (site 5b) ■ Timing determined by: – Strength of occupier market (supply) – Growth of Innovation Precinct (future stages) ■ Future land payments determined by residual lan
Slide 23: Development Summary
Development Summary 7.5% $396m Blended yield on cost Of Retail development by value 18% $744m Blended return on cost Of Office development by value Key development metrics Strong occupier covenant (of leased space) Total Development NLA 109,827 m² 7% Total Office NLA 89,542 m² 32% Office leased to d
Slide 24: Section 3 Financial Results and Capital Management
Section 3 Financial Results and Capital Management
Slide 25: Financial performance
Financial performance For the 12 months ended Jun-2016 Jun-2015 ($m) Audited Audited D ■ Strong result in line with forecast Net property income $104.5 m $121.6 m ($17.1 m) ■ Record low gearing following asset Indirect expenses ($2.0 m) ($1.9 m) + $0.1 m sales resulted in lower EPS of 6.01 cps Perfo
Slide 26: Net property income
Net property income ■ Overall net property income (NPI) was $m FY16 FY15 D AMP Centre $9.1 $8.7 + $0.3 14% down or $17.1 million lower due to PwC Tower $16.5 $16.0 + $0.6 – Sale of non-core assets ANZ Centre $17.7 $17.0 + $0.6 – Downtown Shopping Centre moving HSBC House $8.1 $8.0 + $0.1 from an inv
Slide 27: Adjusted funds from operations
Adjusted funds from operations PCA FY16 Definition ■ Dividend of 5.40 cps Net profit after tax $138.2m A Investment Property and Inventory ■ FFO per security was 6.50 cps, 83% A2 Losses from Sales of investment property $2.7m payout A3 Fair Value Gain on investment property ($81.2m) ■ AFFO per secur
Slide 28: Valuation outcome
Valuation outcome ■ Revaluation of $81.2 million or 5.0% Change in property assets ■ Valuation increases attributable to $1,750 m $1,700 m cap rate compression, progress to $1,650 m development assets and increases in $1,600 m net market rentals $1,550 m ■ Underlying portfolio cap rate $1,500 m comp
Slide 29: 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 above historic average ■ Rental levels remain below peak ■ Strong investment market – Continued strength in Auckland – Strengthening in Wellington taking advan
Slide 30: Capital management
Capital management ■ $812 million of undrawn facilities to fund Key metrics June 2016 June 2015 development pipeline Debt drawn ($m) 1 221 326 ■ No debt expiries during development phase with Gearing - Banking Covenant 14.4% 20.1% first expiry in November 2020 Weighted facility expiry (years) 5.1 4.
Slide 31: Earnings pathway
Earnings pathway ■ Earnings pathway updated and ranges narrowed from previous guidance ■ Leasing certainty with 74% of office pre-leased providing pathway confidence ■ FY17 and FY18 supported by low interest costs and tax expense, switching to NPI growth from FY19 Earnings per share – Actual and pat
Slide 32: FY17 Earnings guidance
FY17 Earnings guidance 6.2cps 5.6cps +3.7% FY17 net operating FY17 dividend Increase in dividend income after tax, guidance before performance fees ■ Lift in dividend based on confidence in earnings growth ■ Execution of strategy – 60% pre-commitment - Commercial Bay Tower – Strong interest in Comme
Slide 33: Section 4 Operations and market
Section 4 Operations and market
Slide 34: Investment portfolio overview
Investment portfolio overview Key metrics Portfolio metrics Investment Auckland Wellington 87% Portfolio WALT 1 6.3 years 5.4 years 7.6 years proportion of office revenue Occupancy 98% 99% 96% Portfolio Value ($m) $1,456 m $998 m $458 m 69% weighting (by value) to Auckland Weighted average market ca
Slide 35: Portfolio activity
Portfolio activity Uplift on Auckland Number NLA WALT Contract Leasing Transactions 14 11,558 m² 5.2 years Market Reviews 12 20,848 m² 11.6% Wellington Leasing Transactions 19 10,912 m² 4.9 years Market Reviews 19 24,749 m² -1.4% Portfolio Leasing Transactions 33 22,471 m² 5.1 years Market Reviews 3
Slide 36: Lease events
Lease events ■ 40% of portfolio subject to review Major expiries FY17 event in FY17. Of this 21% subject Property Client Area to market review. ANZ Centre Mighty River Power 1,947m2 ■ 5% or 12,000m2 expiring in 2017 157 Lambton Quay Servcorp Wellington Limited 999m2 ■ 135,000 sqm of leasing PwC Towe
Slide 37: Lease expiry
Lease expiry 8.2 years Weighted average lease term (including developments) PRECINCT ANNUAL RESULTS, 30 JUNE 2016 Page 37
Slide 38: Major Crown leasing
Major Crown leasing ■ Announced successful conclusion of the Wellington Accommodation Project (WAP) 68,000sqm ■ Comprehensive and rigorous 3 year process Office space leased by the Crown ■ Crown committed to long term leases at: – Bowen Campus 14.6years – Pastoral House Weighted average lease term –
Slide 39: Pastoral House, Mayfair House & The Terrace
Pastoral House, Mayfair House & 3 The Terrace Pastoral House ■ Building will vacate in March 2017 with $55 million works taking place over the following 12 Forecast spend for Pastoral House, Mayfair House and 3 The Terrace months ■ Scope of works include: – Complete refurbishment of all base build p
Slide 40: Auckland drivers
Auckland drivers ■ The Auckland economy will continue to outperform due to strong working age population growth, positive tourism outlook, construction and infrastructure investment and continued centralization. ■ Auckland Council has identified around $60 billion of capital expenditure activities o
Slide 41: Auckland CBD office market
Auckland CBD office market Forecast vacancy (CBRE, June 2016) Historically low vacancy for Prime PCT View Occupier prime stock with strong ▲ Vacancy Rate % 7.0% Demand forecasted CBD employment growth. 6.0% 15 year average 5.0% 4.0% Fringe supply increasing. CBD supply is yet to emerge 3.0% Supply ►
Slide 42: Auckland CBD retail market
Auckland CBD retail market Forecast vacancy (Colliers, June 2016) Historically low vacancy CBD Occupier with strong demand from ▲ Vacancy Rate % 4.0% Demand local and international retailers. 3.5% 3.0% 2.5% Decreased through the 2.0% closure of Downtown 1.5% Supply ▼ Shopping Centre. Limited new CBD
Slide 43: Wellington CBD office market
Wellington CBD office market Forecast vacancy (CBRE, June 2016) CBD based employment Occupier remains static. Quality Prime PCT View ► Vacancy Rate % 10.0% Demand buildings expected to attract 9.0% occupiers. 8.0% 7.0% 6.0% New supply emerging in the 5.0% CBD. Impact likely for 4.0% Supply ▲ corpora
Slide 44: Supply
Supply ■ High barriers to entry through increasing land and construction costs ■ Construction cost escalation outstripping office rental growth ■ 77,300sqm of projects under construction in Auckland – c.50,000sqm pre-leased ■ A further 65,000sqm of total potential projects identified ■ 91,000sqm of
Slide 45: Section 5 Conclusions and Outlook
Section 5 Conclusions and Outlook
Slide 46: Conclusion
Conclusion ■ New Zealand economy remaining positive due to: – Population growth – Construction activity in Auckland and Christchurch – Historically low interest rates ■ Continued global uncertainty ■ Property market divergent between cities: – Auckland vacancy at historic lows with rental growth con
Slide 47: Outlook
Outlook ■ Precinct well positioned through: – Capable team – in-house and external – Strong balance sheet – Committed opportunities in premium locations – Supportive markets ■ Four years of planning to prepare ■ Strategy designed to reposition portfolio during a period of market strength ■ Portfolio
Slide 48: Appendices
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Slide 49: Balance sheet
Balance sheet Financial Position as at Jun-2016 Jun-2015 ($m) Audited Audited Movement Reconciliation of NTA movement (cps) Assets Reconciliation of NTA movement cps Property Assets $1,513.7 $1,611.8 ($98.1) NTA 30 June 2015 110.5 Equity issue 1 CCIRS Credit Adjustment ($2.8) ($2.9) + $0.1 Revaluati
Slide 50: Borrowings movement
Borrowings movement $350 m Total Interest Bearing liabilities $300 m $250 m $200 m $150 m $100 m $50 m 30/06/2015 Sale of 171 Sale of 80 The Sale of 125 Net cash Development Capex on Dividend 30/06/2016 Featherston Terrace The Terrace inflow from capex investment Street operating properties activiti
Slide 51: Taxation reconciliation
Taxation reconciliation Tax expense reconciliation ■ FY16 effective tax rate of 12.6% FY16 FY15 ■ Higher pre-tax profit offset by; Net profit before taxation $135.5 m $127.3 m – Disposal of fixtures and fittings Less non assessable income at Downtown Shopping Unrealised net gain in value of investme
Slide 52: 5 year income summary
5 year income summary ($ millions unless otherwise stated) 2012 2013 2014 2015 2016 Net operating income Financial performance $8 0.0 Net Operating Income after tax Gross rental revenue $127.3 $147.7 $165.4 $170.5 $146.0 Less direct operating expenses ($36.4) ($43.7) ($47.1) ($48.9) ($41.5) $6 0.0 (
Slide 53: 5 year dividend payout
5 year dividend payout ($ millions unless otherwise stated) 2012 2013 2014 2015 2016 Dividends Net dividend (cents) 5.04 5.12 5.40 5.40 5.40 Net operating income Operating income before income tax $58.5 $63.2 $72.5 $79.8 $83.4 Less: Current tax expense ($7.2) ($4.9) ($8.7) ($11.5) ($10.6) Net operat
Slide 54: 5 year balance sheet
5 year balance sheet ($ millions unless otherwise stated) 2012 2013 2014 2015 2016 Financial position Total investment assets $1,332.1 $1,640.4 $1,728.1 $1,687.8 $1,513.7 Total development assets $190.4 Other assets $18.3 $18.1 $19.4 $65.4 $34.5 Total assets $1,350.4 $1,658.5 $1,747.5 $1,753.2 $1,73
Slide 55: Capital recycling
Capital recycling $300 Millions $200 $100 $0 -$100 -$200 -$300 FY11 FY12 FY13 FY14 FY15 FY16 Development and Refurbishment Capex Acquisitions Disposals PRECINCT ANNUAL RESULTS, 30 JUNE 2016 Page 55
Slide 56: Asset level valuations
Asset level valuations Cap Rates % Valuations Value Movement Additions/ FY16 FY15 FY16 FY15 Revaluation % Disposals Investment Properties 157 Lambton Quay 7.0% 7.5% (50bps) $109.0 m $106.0 m $5.2 m ($2.2 m) -2.0% Bowen Campus 6.6% 9.6% (300bps) $58.0 m $49.0 m $6.9 m $2.1 m 3.7% Deloitte House 8.0%
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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