Precinct Properties NZ Ltd increased its net profit after tax by 57.2% to $254.9 million (2017: $162.1 million) in the year to June. The quality of Precinct’s portfolio including its active development pipeline has resulted in a portfolio revaluation gain of $208.7 million, or 9.0%.
Image above: The trio of buildings at the centre of Precinct Properties’ strong performance – the existing PwC Tower at right, the new PwC Tower under construction and the existing HSBC House at 1 Queen St, to be redeveloped into a hotel with office above.
Net operating income (distributable earnings), which adjusts for a number of non-cash items, has increased by 2.5% to $76.6 million ($74.7 million). This equates to 6.32c/share, in line with guidance (2017: 6.17c/share).
Revenue growth of 3.6% was primarily due to the completion of Wynyard Quarter stage 1, which was partially offset by foregone income related to development activity and 10 Brandon St, Wellington. After allowing for these transactions & activity, on a like-for-like basis gross rental income was 3.7% higher. This growth has driven an uplift in NPI by 5.4% to $95.3 million ($90.4 million).
As at 30 June 2018, Precinct’s portfolio value increased to around $2.5 billion following the strong revaluation gain. Precinct’s net tangible assets/share were up 12.9% to $1.40 (2017: $1.24).
Chief executive Scott Pritchard said yesterday: “The last financial year has delivered another strong result for our business. As we moved forward with our strategy, we progressed a number of initiatives and achieved key milestones during the year. We have continued to take an active management approach with both our investment portfolio and our development pipeline, leveraging Precinct’s market position.”
Focusing on a number of capital management initiatives during the year has resulted in $250 million of capital raised through the completion of a convertible notes offer & bond issue. Precinct also sold a 50% interest in the ANZ Centre in Auckland and sold 10 Brandon St in Wellington. These assets totalled $191 million of capital recycled.
“At year end our investment portfolio has continued to benefit from strong occupier markets. Achieving a high overall portfolio occupancy of 99% at year end and weighted average lease term of 8.7 years demonstrates this. Our Auckland portfolio has performed particularly, well with occupancy sitting at 100%, reflecting demand for premium inner-city office space. In Wellington, we have also reduced vacancy.
“In both Auckland & Wellington, we have successfully leased major expiries well ahead of vacancy. At the AMP Centre in Auckland, the QBE expiry has been fully leased at a premium of 17% to previous rentals. At Aon Centre in Wellington, 3 floors have been leased on the former IAG tenancy, with 2 remaining floors becoming available in early 2019.”
Mr Pritchard said the Auckland hotel market was experiencing unprecedented levels of growth in demand, which is forecast to persist through further growth in tourism numbers until at least 2025: “While a number of new hotel projects have been announced in the last 24 months, the increase in supply is expected to still fall short of demand over the short term and reach equilibrium over the medium to long term. This is expected to underpin robust room and occupancy rates.”
Commercial Bay remains on track to deliver a yield on cost of 7.5% and an increased profit on cost of 41% (June 17: 31%) or $283 million. Based on current project metrics, there remains a further $100 million of unrecognised development profit expected to materialise on completion.
In Wellington, construction works have continued to progress well over the last 12 months. We have now completed the facade installation at Charles Fergusson Tower with on floor works continuing. All works are targeted for completion late December 2018.
At Bowen State Building we have completed the majority of the structural works for the building including the north and south shear walls. The façade is now 90% complete for the building, installed from Level 1 to 10. On floor works are also underway to all levels.
Occupation of Bowen State Building by New Zealand Defence Force is expected in Q3 2019.
- Net profit after tax increased by 57.2% to $254.9 million ($162.1 million)
- Net property income, up 5.4% to $95.3 million ($90.4 million)
- Net operating income, up 2.5% to $76.6 million ($74.7 million)
- Full-year dividend, up 3.6% to 5.8c/share (5.6c/share), representing a 100% payout ratio (under AFFO – adjusted funds from operations)
- Property revaluation gain of $208.7 million – 9% ($77.5 million)
- Net tangible assets/share, up 12.9% to $1.40 ($1.24)
- Earnings guidance for the June 2019 financial year, net operating income of about 6.60c/share, dividend expected to increase by 3.4% to 6c/share
- $191 million of asset sales, providing capacity for new projects
- $250 million of non-bank funding secured
- Post-balance date refinancing of $760 million bank debt facility
- Strong financial position, gearing of 25.0% (25.1%); pro forma gearing reduced to 19.4% at balance date following asset sales
- Advancing retail commitments to 76% (46% at June 2017) and office commitments to 78% (2017: 66%)
- Yield on cost unchanged at 7.5%, with an increased profit on cost following the revaluation of 41% (June 2017: 31%), or $283 million
- Phase 1 of the retail remains on schedule, with H&M opening its flagship 3800m² store on Thursday 30 August
- A revised completion programme has recently been provided.
- Charles Fergusson Tower on track for completion in December & occupation by Ministry of Primary Industries
- Bowen State Building to be occupied by NZ Defence Force, with lease starting April 2019
- Yield on cost of 7.0%+, with an increased profit to 18%.
Future development opportunities:
- Design has advanced for Wynyard Quarter development stages 2, 3 & 4; Precinct anticipates the second stage of the development will start in the next 6 months
- Building design & marketing underway for precommitment leasing for the remaining development land at Bowen Campus.
- Auckland fully leased
- Occupancy of 99% (2017: 100%) and a weighted average lease term across the portfolio maintained at 8.7 years (2017: 8.7 years)
- 41 lease transactions completed, encompassing over 21,900m² & 598 parking spaces
- Strong demand for space, with QBE expiring floors leased ahead of vacancy and 3 floors of IAG expiry leased at Aon Centre, Wellington
- Strong like-for-like income growth of 3.0% – Auckland up 3.1%, Wellington up 2.9%
- Generator occupancy of 73%, well above expectations; with 75% (9500m²) of its space launched during the year, the Generator business recorded a loss, as anticipated for this trading-up period.
Related stories today:
Precinct Properties presents a long list of positives from development & in financial structure
Precinct Properties valuations & profit up, debt low
The 1 Queen St redevelopment
Attribution: Company release.