Archive | Property For Industry

Updated: PFI adds to Wiri portfolio

Published 25 October 2018, yield corrected 1 November 2018:
NZX-listed Property for Industry Ltd has bought an industrial property at 12 Hautu Drive, Wiri, for a net $12.3 million at a 5.25% yield (originally given as 5.35%).

The 10,946m² site has a 4488m² warehouse with 514m² of office & amenities, and is leased to Kiwi Steel Ltd until 31 January 2030. The lease, currently $645,611/year net + gst + opex, provides fixed rental growth of 3.0% annually. Kiwi Steel is also the tenant at PFI’s 2500m² warehouse development on surplus land at Cavendish Drive, Manukau.

PFI general manager Simon Woodhams said yesterday: “This acquisition increases our presence in Wiri, one of Auckland’s major industrial hubs and a key precinct for PFI. The company currently owns 8 properties in the wider Wiri/Manukau area, representing more than 10% of the portfolio.

“The acquisition of 12 Hautu Drive is in line with the company’s strategy of investing in quality industrial property, and the acquisition will be accretive across a broad range of measures. The acquisition will also increase PFI’s weighting to Auckland industrial property.”

Settlement is expected to take place on 31 October.

Attribution: Company release, agency additions.

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PFI issues full $100 million of bonds

Property for Industry Ltd will issue $100 million of 7-year senior secured fixed rate bonds next Monday, after closing its bookbuild process on Friday with the full allocation of $75 million plus $25 million of oversubscriptions.

The interest rate was set at 4.25%/year, reflecting a margin of 1.60%/year over the 7-year swap rate.

All the bonds have been allocated to intermediaries for distribution to their clients – there’s no public pool.

NZX-listed PFI has a portfolio of 93 properties leased to 146 tenants.

Attribution: Company release.

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PFI considers retail bond offer

NZX listed industrial property landlord Property for Industry Ltd said on Monday it was considering an offer of 7-year senior secured fixed-rate bonds to NZ institutional & retail investors.

They’ll be in the same class as existing quoted debt securities. PFI expects to announce details, and open the offer, next week.

Attribution: Company release.

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PFI settles on addition to Onehunga estate

Property for Industry Ltd settled its $16 million purchase of an industrial property at 306 Neilson St in Onehunga on Friday.

This property comprises a 5490m² warehouse and 812m² of office & amenities on a 9781m² site. It’s leased for 10 years on a triple-net basis to Trade Depot Ltd, a specialist in home improvement products. The lease provides fixed rental growth of 2.25%/year.

PFI bought it in a sale-&-leaseback transaction. Mr Woodhams said the $16 million net purchase price represented a 5.5% yield on purchase.

The property (outlined in picture) was put on the market a month ago in Colliers’ latest portfolio offering.

The ING Property Trust (forerunner to what is now Argosy Property Ltd) sold the Onehunga property in 2007 in a swap-&-leaseback arrangement involving 5 properties – this one and 2 others it sold, and 2 it bought.

Earlier story:
5 June 2007: ING trust does swap & leaseback to buy at Albany & East Tamaki

Attribution: Company release, Colliers image.

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PFI reports strong year

Property For Industry Ltd came out ahead on its preferred funds from operations measures of performance in 2017, a year when it internalised management, paid no tax and generally lifted returns.

Highlights:

  • Significant acquisition activity: $84.3 million of property acquired, improving portfolio metrics and providing significant medium to long-term development potential
  • Transition of the Penrose portfolio: approximately $14 million of shareholder value created equating to a property level internal rate of return of about 26%
  • Strong balance sheet: $70 million rights offer, $100 million of senior secured fixed rate 7-year bonds, gearing of 30.8%
  • Dividend policy change & increased dividend for the 2018 financial year: guidance of full-year cash dividends of about 7.55c/share, about 95-100% of adjusted funds from operations
  • Governance & management changes: David Thomson, a senior partner & member of the board of management at law firm Buddle Findlay, appointed to the board today as an independent director, internalisation of management on 30 June 2017

Chair Peter Masfen noted: “PFI’s 2017 financial results reflect strong leasing outcomes with nearly 97,000m² leased during the year. A series of important strategic initiatives have also been completed during the year, with the internalisation of management, portfolio acquisition, rights offer & bond offer all contributing to a very successful year.”

Summary:

  • Including the impact of the internalisation payment, net of tax, PFI recorded a profit after tax for the year of $51.7 million, or 11.25c/share, and net tangible assets of 163.2c/share
  • Excluding the impact of the internalisation payment, net of tax, PFI recorded profit after tax for the year of $82.6 million, or 17.96c/share (down 34.5%) and NTA of 169.4c/share (up 5.4%)
  • Distributable profit for the year up 6.6% to 8.08c/share
  • Fourth quarter cash dividend of 2.15c/share, total cash dividends for the year of 7.45c/share, an increase of 0.1c/share
  • $43.6 million, or 3.7%, increase in the value of the property portfolio from independent valuations
  • 63% of contract rent varied, leased or reviewed during the year
    Year-end portfolio occupancy at 99.9%, 2018 expiries of 7.4%

Cost savings as a result of the internalisation in the second half of 2017 are estimated at $2.7 million before interest & tax, equating to an increase in distributable profit of 0.59c/share. After allowing for interest & tax, the increase is $1.4 million, or 0.3c/share, a contribution of 7.1% to the increase in distributable profit in the second half of 2017. This contribution is ahead of the 6% estimated by Northington Partners in its independent appraisal report.

Financial performance:

Operating revenues for the year increased by $2.4 million, or 3.4%, to $73.5 million, as increases due to positive leasing activity ($1.9 million), acquisitions ($1.7 million) & completed developments ($800,000) were partially offset by decreases due to increased intra-period vacancy ($1.2 million) & disposals ($800,000). The transition of the portfolio of 5 Penrose properties from former tenant Sistema to new tenants contributed about $800,000 to the increase in vacancy.

The company cut operating expenses by $2 million, or 7.3%, to $25.9 million. The internalisation of management in June cut costs by $4.3 million, partially offset by a $1.6 million increase in administrative expenses incurred from July-December in lieu of management fees. Non-recoverable property costs also increased by $700,000 due to the higher levels of vacancy, and costs incurred due to PFI’s recent asbestos testing programme.

Given these changes, the ratio of operating expenses to operating revenues was reduced from 39.3% to 35.3%.

In May 2017, a binding ruling from Inland Revenue confirmed that the proportion of the payment relating to the termination of the PFI management contract was deductible for income tax purposes. As a result, PFI recorded no current tax expense in 2017. The company will carry current-year tax losses of $2 million forward and expects to use them fully in 2018.

Excluding the impact of the internalisation payment, PFI’s effective current tax rate (the ratio of current taxation to operating earnings) increased to 21.0% (19.8% in 2016), largely due to the timing of deductible capital expenditure.

Non-operating income & expenses, which, for the most part, comprised the $42.9 million gross charge for termination of the management agreement, offset by a $43.6 million fair value gain on investment properties, totalled income of $1.9 million, as compared to income of $88.9 million in 2016.

After allowing for these non-operating income & expenses and deferred tax, the company made a $51.7 million profit after tax, or 11.25c/share. Excluding the impact of the internalisation payment, net of tax, the company recorded profit after tax of $82.6 million or 17.96c/share, down 34.5%.

PFI recorded distributable profit of 8.08c/share (7.58c/share), up 0.5c/share, or 6.6%.

The PFI board resolved today to pay a fourth quarter final cash dividend of 2.15c/share. As the company paid no tax paid in 2017, the dividend will have no imputation credits attached and a supplementary dividend won’t be paid to non-resident shareholders. The fourth quarter final dividend will take cash dividends for the year to 7.45c/share, up 0.1c/share. The dividend payout ratio was 96% (97%).

PFI also reported funds from operations (FFO) earnings of 8.57c/share (7.99c/share) and adjusted funds from operations (AFFO) earnings of 7.49c/share (6.95c/share), resulting in an FFO dividend payout ratio of 87% (92%) and an AFFO payout ratio of 99% (106%).

Change in dividend policy:

The PFI board resolved today to change the company’s dividend policy. It was based on distributable profit, but from this financial year will be based on FFO & AFFO: “Put simply, the new policy means dividend payments will reflect cashflow from sustainable rental activity alone.”

The PFI board believed the new policy was in line with best practice in this area and was expected to have a minimal impact on the quantum of dividends paid.

Balance sheet:

PFI’s net tangible assets/share (NTA) increased by 2.5c/share, or 1.6%, from 160.7c/share at the end of 2016 to 163.2c/share at December 2017.

After rebasing for additional shares on issue (-14.9c/share) and allowing for the rights offer & dividend reinvestment scheme (+13.9c/share), the change in NTA/share was driven by the increase in the fair value of investment properties (+8.7c/share), retained earnings (+0.8c/share) and a gain on the disposal of PFI’s property at 65 Hugo Johnston Drive in Penrose (+0.4c/share). Offsetting this were reductions in NTA as a result of the decrease in fair value of derivative financial instruments (-0.2c/share) and the net internalisation payment (-6.2c/share).

Excluding the impact of the internalisation payment, net of tax, PFI’s net tangible assets/share would have increased by 8.7c/share, or 5.4%, over the year to 169.4c/share.

The company ended the year with gearing of 30.8%, well within its self-imposed gearing limit of 40% & bank covenants of 50%. The interest cover ratio of 3.7 times was also well within bank covenants of 2.0 times.

Links:
NZX announcement
NZX presentation

Attribution: Company release.

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PFI lifts guidance on valuation gain

Property For Industry Ltd upgraded earnings guidance yesterday on an expected $44 million (3.8%) portfolio valuation increase to $1.21 billion.

The NZX-listed industrial property landlord began the year with a portfolio of 84 properties valued at $1.083 billion, acquired 9 more for a total $84 million and sold one for its $12 million book value.

Independent valuers CBRE, Colliers International, JLL & Savills carried out the valuations, which remain subject to finalisation & audit.

PFI chair Peter Masfen said a driver of the valuation gain was the leasing of nearly 88,000m² – 12% of its portfolio. The company secured 24 new & existing tenants for an average term of 5.5 years. Half the contract rent was secured by lease renewals with 9 existing tenants for an average term of 4.3 years. The average term for the 15 new leases was 6.4 years.

Mr Masfen said the company had also completed a series of important strategic initiatives during the year, internalising management, adding to the portfolio and making rights & bond offers.

“These factors have combined to allow us to increase guidance for full-year distributable profit from 7.7-7.9c/share to around 8.0c/share. Guidance for full-year cash dividends totalling 7.45c/share is unchanged.”

PFI will release its full-year results, including the final valuation, on Monday 12 February.

Attribution: Company release.

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Updated: PFI $100 million bond issue fully subscribed

Published 2 November 2017, updated 12 November 2017:
Property for Industry Ltd confirmed its $100 million 7-year bond issue on 2 November. On 10 November, the interest rate was set at 4.59%/year, reflecting a margin of 1.65%/year above the 7-year swap rate.

PFI offered $75 million of senior secured fixed rate bonds to institutional & New Zealand retail investors and $25 million in oversubscriptions, and it was fully subscribed. There was no public pool. The company will use the proceeds to repay existing bank debt.

PFI expects the offer to open next Monday, 13 November, and to close on Friday 24 November. The indicative margin range above the 7-year swap rate for the bonds was 1.65-1.8%/year, subject to a minimum interest rate of 4.55%/year. The margin & interest rate were set following a bookbuild process on Friday 10 November.

Link: PFI bond offer product disclosure statement, terms sheet & presentation

Earlier stories:
1 November 2017: PFI settles portfolio purchase
6 October 2017: PFI uses new credit facility & rights issue to buy low-site-coverage freight portfolio

Attribution: Company release.

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PFI gets 79% takeup for rights offer

NZX listed industrial property landlord Property for Industry Ltd said on Thursday 78.7% of the new shares available under its 1:10 pro rata renounceable rights offer were taken up.

The 35.7 million new shares represent gross proceeds of $54.9 million. The new shares not taken up under the rights offer will be allotted to the underwriter, Forsyth Barr Group Ltd.

New shares will be allotted & begin trading on Tuesday 7 November.

Earlier stories:
2 November 2017: PFI launches $100 million bond issue
1 November 2017: PFI settles portfolio purchase
6 October 2017: PFI uses new credit facility & rights issue to buy low-site-coverage freight portfolio

Attribution: Company release.

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PFI settles portfolio purchase

NZX-listed industrial property landlord Property For Industry Ltd (PFI) has settled its $69.5 million purchase of a portfolio of 8 industrial properties & one head office.

The portfolio comprises 7 properties leased to the Transport Investments Ltd group, one of New Zealand’s largest private domestic freight & logistics businesses, and 2l properties leased to NZ Post, Aviagen & Rockgas.

PFI has initially funded the acquisition via an extension of its banking facilities. It will repay those facilities with the proceeds of its $70 million 1:10 pro rata renounceable rights offer, which closes today.

Earlier story:
6 October 2017: PFI uses new credit facility & rights issue to buy low-site-coverage freight portfolio

Attribution: Company release.

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PFI considers $100 million bond issue

NZX-listed industrial property landlord Property for Industry Ltd said on Friday it was considering issuing up to $100 million of bonds to institutional & New Zealand retail investors.

The offer would be up to $75 million of senior secured fixed rate bonds, expected to have a term to maturity of 7 years, with the ability to accept up to $25 million in oversubscriptions. The company would use the proceeds to repay existing bank debt.

It expects to release full details this week.

Attribution: Company release.

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