A $228 million reversal in valuations slashed Precinct Properties NZ Ltd’s profit for the June year, far outweighing the small increase in property income.
The NZX-listed commercial property owner & developer ended the year with profit down 82% at $35.1 million.
Chief executive Scott Pritchard said completion of Bowen Campus stage 1 in Wellington & Commercial Bay in Auckland, both fully leased, boosted the portfolio with high quality assets occupied by a mix of Government & investment-grade office occupiers, coupled with some of the best global & local retailers.
“While work from home has been the topic of much debate, our own attendance records demonstrate that the vast majority of our occupiers are back in the office, highlighting that the office remains key to the success of any business.”
Precinct received 91% of its rent during lockdown levels 3 & 4 and supported occupiers who needed assistance.
Construction resumed at 10 Madden St in Auckland’s Wynyard Quarter in May and is still expected to be completed at the end of 2020, despite the impacts of Covid-19. Its office space is fully leased and 3 retail units are available for lease.
The Covid-19 shutdown impacted the Generator business, which provides variable short-term office & events space, primarily due to the lack of demand for events space in the last quarter of the financial year. But Mr Pritchard said the medium-term outlook for Generator remained positive, as occupiers increasingly valued flexibility.
During the year & since year-end, Precinct has entered into new direct leases totalling around 5250m² for 5 Generator members to accommodate their growth, demonstrating the benefits that Generator provides to the wider portfolio.
Recognising these benefits, Precinct has acquired the Dunbar Sloane Building to be the first Generator site in Wellington, centrally located at 30 Waring Taylor St. The 5-level 2300m² character building will be fully redeveloped & seismically strengthened to 100% of new building standard, and will offer private offices, coworking & event spaces.
Following the successful delivery of Bowen Campus stage 1, Precinct announced in June that it would start development of the second stage, where EY & Fujitsu have committed to leases.
In addition, the ground & first floors at 40 Bowen St will have a Generator facility. A portion of the Generator private office desks have already been precommitted to EY.
Mr Pritchard said that project was scheduled for completion in late 2022, and discussions were underway with potential corporate & Government occupiers for 44 Bowen St.
Financial performance summary, year to June (2019 in brackets):
Revenue, up 11.9% to $151.8 million ($135.7 million)
Net profit, down 81.6% to $35.1 million ($190.4 million)
Net tangible assets/security, $1.44 ($1.47)
Net property income, up 2.1% to $97.2 million ($95.3 million)
Like-for-like net property income after adjusting for development projects, transactions & Covid-19 abatements, up 3.2%
Net tangible asset value/share, down 2% to $1.45 ($1.49)
Net asset value/share, down 2.7% to $1.45 ($1.49)
Total assets, up 10.2% to $3.19 billion ($2.89 billion)
Revaluations, $66.3 million decrease ($161.7 million gain)
Funds from operations, up 6.3% to $90.5 million ($85.1 million)
Adjusted funds from operations (AFFO), a measure which adjusts for several non-cash items, up 11.8% to $82.7 million ($74.0 million)
Adjusted funds from operations/share, up 5.9% to 6.29c/share (5.94c)
Dividends, up 5% to 6.3c/share (6c/share)
AFFO dividend payout ratio, down 1% to 100.1% (101.1%)
Dividend guidance for new financial year to June 2021, up 3.2% to 6.5c/share
Refinanced $150 million bank debt facility due to expire in November
Settled the $162.8 million US private placement (USPP) issue
Continued with asset recycling programme, sale of Pastoral House in Wellington settled
Gearing, up 28.6% to 28.8% (22.4%), still well under borrower covenant level of 50%
Investment portfolio performance:
Occupancy level, 98% (99%)
Weighted average lease term, 8.0 years (9.0 years)
32 leasing transactions completed on 21,300m² new & existing space
28 leases signed on total 12,600m², on average 8% higher than previous contract rentals
Covid-19 lockdown rental abatement, 1.3% of gross annual income ($1.7 million)
Generator, revenue growth 13%, EBITDA $1.8 million
Retail & hospitality precinct officially opened on 11 June, fully leased
Office tower opened 97% leased
Mr Pritchard said the first 2 months of retail trading at the new Commercial Bay precinct on the Auckland city centre waterfront outperformed expectation. It had over 2 million visitors and sales were ahead of valuation levels.
Post-balance date, following the announcement on 12 August that Auckland had moved to Covid-19 alert level 3, the Commercial Bay retail precinct was closed.
Gross operating revenue $18.6 million, contribution to net operating income $1.8 million
Construction resumed at 10 Madden St in May and is still expected to be completed at the end of 2020, despite the impacts of Covid-19. Its office space is fully leased and 3 retail units are available for lease.
Development projects update
Wynyard Quarter, 10 Madden St, second stage fully leased, on budget and on programme for completion end of 2020
Expected total project cost $72 million, yield on cost around 7.0%
1 Queen St, redevelopment project on hold, options being assessed
Bowen Campus, 40 Bowen St, second stage underway
Project 72% precommitted, leasing to EY & Fujitsu secured
Expected total project cost $90 million, expected to generate 6.6% yield on cost once fully leased
44 Bowen St, discussions progressing with potential occupiers
30 Waring Taylor St, redevelopment underway for first Generator site in Wellington
Environmental, social & governance risks:
Precinct achieved internationally recognised Toitu Envirocare carbon zero certification
Precinct achieved a 2019 global real estate sustainability benchmark (GRESB) score of 77 in the December 2019 half-year (69 in the December 2018 half-year), now trending ahead of the global average of 72
Attribution: Company release, annual report.