- Release Date: 07/11/14 09:46
- Summary: ADDRESS: PCT: Precinct 2014 AGM Chairman and CEO Address
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PCT 07/11/2014 09:46 ADDRESS REL: 0946 HRS Precinct Properties New Zealand Limited ADDRESS: PCT: Precinct 2014 AGM Chairman and CEO Address Precinct Properties New Zealand Limited Annual General Meeting 10:00am (New Zealand time), Friday 7 November 2014 Crowne Plaza, 128 Albert Street, Auckland Chairman's Opening address Good morning. It is good to see you here today. My name is Craig Stobo. As Precinct's Chairman it is my pleasure to welcome you to our annual meeting. And also to do so when your company has had another good year. As a Board we are very happy the company has continued to build a stronger position across our portfolio. This is in large part thanks to continued good execution against a clear strategy. We remain positive about the company's direction and the opportunities it is developing. Board and Executive Before going any further, let me introduce your Board and Executive Team here with me today. I would also like to welcome our company representatives here today from our auditors, Ernst & Young, our tax advisors, KPMG, our solicitors, Russell McVeagh and of course many Precinct staff members. It has been a year of growth and change, and we have also seen changes in your Board. Post-balance date Rob Walker, who I welcome here today, stepped down from the Board. Rob, who had been the alternate director for Mohammed Al Nuaimi, has over a number of years made a real contribution to the success of Precinct. We wish him well. Replacing Rob as alternate for Mohammed we welcome Anthony Bertoldi to the Board. Anthony has 19 years of experience in the property industry including 5 years as CEO of the ING Retail Property Fund in Australia. This extensive retail expertise and experience will strengthen the Board as we look to execute on the Downtown project. Results As you can see from this slide, the company had a good year. Net profit after tax for the year was $117.2 million. This included a $47.5 million revaluation and other non-cash items. After allowing for these items our net operating income was $63.8 million. This is around 9% higher than in 2013 and reflects improved occupancy in the portfolio, increasing market rents and recent acquisitions. The momentum of the business in recent years and improving market conditions allowed us to increase the dividend paid to shareholders in FY14 by 5.5%. These solid results also came as we advanced a vision for lifting the quality of our portfolio, focusing squarely on key opportunities and quality execution and risk management. Financial position We also maintained a strong financial position. We reduced gearing from 37% to 33.8%. We raised $62 million from two successful equity initiatives. Our portfolio gained $47.5 million in revaluation to reach $1.73 billion. Importantly this revaluation gain came not just from yield compression but also from strong market rental growth. This revaluation helped lift our net tangible assets by 5.1% to $1.04. We generated a total return for the year of 8.9%. This compared to the sector total return, excluding Precinct, of 8.0%. This week we announced that we will borrow around $100 million from the United States Private Placement market or the USPP market as it is more commonly known. The US dollar issuance comprised two tranches, a $50 million 10 year note and a $25 million 12 year note. This type of term is just not available from bank debt or the New Zealand bond market and sees our weighted average debt maturity increase by 1 year to 4.5 years. The USPP market is large and sophisticated so to have gained access to this market from a funding perspective is very positive for our business. This transaction is a first for the New Zealand property sector and strengthens our capital structure by adding valuable diversity as we look to execute on our strategy. Our Vision The vision set out on this slide builds on a strategy we adopted in 2011. We determined we would grow by being true to our point of difference as specialist investors in quality CBD real estate. We undertook a comprehensive review of our assets and classified them as either active, strategic, core or non-core, as shown on the slide. Active and strategic assets are those assets with significant existing value or future value upside. These assets are central to our vision. Core assets are well located prime assets that fit firmly within our strategy. Non-core assets however are those assets that are generally considered lower quality and relative to the rest of the portfolio are sub optimal. We recognised the need to recycle funds out of non-core assets and to reweight the majority of our portfolio to Auckland. Three years on we have continued to deliver on, and see benefits from, this strategy. And in the coming year we will continue to focus on progressing the asset sales programme, maintaining high occupancy and ensuring our remaining portfolio continues to perform well. We are also continuing to focus on creating our own quality assets by developing unique precincts in unparalleled locations. As clients grow, or want to move on to bigger space, we want to move with them, offering them quality options and a high level of flexibility which is unique from an owner. For example, we anticipate that both the new Downtown building and the new buildings at Wynyard Quarter will become new offices for some of Precinct's existing clients. Anticipated Benefits This slide shows our goals for 2020 and for improved long term earnings. Currently the average quality of our portfolio is considered "A grade" by market standards. By 2020 we want our average standard to be "premium". By 2020 the current portfolio will have an average age of 26 years and by comparison under the 2020 vision we are aiming to reduce this to around 15 years. A higher quality, younger portfolio will bring operational benefits in reduced maintenance, improved client retention and ultimately higher rent levels. Words like "unique" and "unrivalled" are often bandied about. But when you look at Bowen Campus, Wynyard Central and the Downtown precinct there are simply very few other office development sites in New Zealand or globally that compare. It is an additional gain that around half the portfolio is now on Auckland's highly attractive CBD waterfront. Outlook and Dividend Selling assets will in the shorter term reduce rental income while we reduce our debt levels. But while we progress the sales programme and pre-fund planned developments we also plan to maintain dividends. Auckland's strong office market will help maintain portfolio earnings and we will work to keep occupancy high in tight markets where we are enjoying strong demand. We will also benefit from a changed tax position while we recycle much of the portfolio. The 2015 first quarter dividend of 1.35 cents per share is in line with guidance and will be paid on 11 December. Board Focus There are genuinely exciting prospects ahead for the company. But as a Board we remain focused on ensuring growth is closely managed. It's worth remembering the assets we are planning to develop are currently earning income. They are not bare land. Before moving to development the Board will want to be satisfied we have appropriate levels of pre-commitments from future occupiers. We will follow proven, pragmatic approaches. We look forward confidently to further gains in the coming year. I will now ask Scott Pritchard, Precinct's Chief Executive Officer, to take you through the year in executing the company's strategy. Thank you. Scott Pritchard, CEO Positioning the portfolio Thank you Craig. I agree with the Chairman's sentiments about the position that the business now finds itself following a number of years with a clear and concise strategy. From my perspective, it is the existence of this strategy and the clarity of it, which sets Precinct apart from it's peers. Precinct's strategy includes; - Sector specialist in CBD based real estate - Being expert in it's field - a consequence of being sector specialists - Establishing long term business partnerships with occupiers - Creating its own assets through development activities which improve the Portfolio and retain clients. To help deliver on our strategy we have strengthened our executive team with three recent appointments. We welcomed Davida Dunphy as the new General Counsel and Company Secretary, Kym Bunting as the new General Manager of Property and Andrew Buckingham to the newly created role of General Manager of Development. Andrews's involvement with the development of Sylvia Park and the recently completed ASB building located at Wynyard Quarter will be valuable as we look to execute on Downtown and Wynyard Central. I will talk shortly about these projects but before I do I would like to cover the year just gone. Key metrics As always, the numbers tell much of the story. And the ones you see on this slide confirm it has been another good year. At 98%, occupancy is well above our historical average of 96.5%. We signed 57,000 square metres in 61 deals. As evidenced by this chart we have now seen occupancy increase steadily over the past 5 years. Our weighted average lease term remains strong at 5.4 years. We expect that this will likely reduce further in the short term before once again extending out following the commencement of our development activities at Wynyard, Bowen and Downtown. Operational Update Occupancy within the Wellington portfolio has remained strong and is currently around 97%. We experienced an increase in enquiry levels which led to a number of new leasing deals. During the year we completed extensive upgrades of 80 The Terrace and the former Central City Police Station in Wellington. 80 The Terrace has now been completely repositioned and the success of this refurbishment project has led to the building being almost fully leased. Works at the former Central City Police Station have seen the buildings seismic rating improve significantly. These gains reflected a tightening market which benefitted our portfolio, with "A" grade vacancies in the city falling from 4% last year to around 2%. In Auckland we have seen a further increase in demand for space, particularly in prime and A-grade buildings. Following further success in our Auckland portfolio we are now around 99% occupied. Most pleasingly, we are now seeing strong growth in passing rents when new leases or renewal options are exercised. Again on our rent review program, we have completed reviews across about a third of the portfolio and have settled those reviews at 3.5% above valuation. Overview of Key Events This slide takes us to some of the key events over the year. We were pleased to enter into a development agreement with Waterfront Auckland to develop commercial office property at Wynyard Central. In progressing towards the planned Downtown project in Auckland we advanced negotiations with Auckland Council on coordinating the timing of works with building a City Rail Link tunnel at the site and the conditional sale of Queen Elizabeth Square. And since balance date we were pleased to be advised that Bowen Campus, and our other assets at 1 -3 The Terrace, Pastoral House and Mayfair, have been shortlisted by the Crown as part of the Wellington office accommodation project. There are no guarantees of the outcome, but we see this as an encouraging step. Wynyard Central Opportunity The area shown on this slide shows the 1.1 hectare site we will be developing at Wynyard Central. This will be part of one of the largest urban regenerations in the country, and we are partnering with Waterfront Auckland who have already invested considerably in this undertaking. The picture gives you an idea of the way business activity in the city is increasingly following a new east-west axis on the waterfront, rather than up and down Queen Street. We believe this waterfront axis will become increasingly important as both private and public investment is made in the area. Wynyard Central Wynyard is also highly attractive because of the structure of our arrangement with Waterfront Auckland and because it allows us to offer a type of space that we have never been able to provide before. As here we will be catering to clients in high-growth tech businesses or those seeking larger floor plates. Development is planned over four stages. Land will be drawn at each stage. Importantly what this means is that we will pay for land on a stage by stage basis and only once we have de-risked the development through pre-leasing. Development work also won't begin until we are comfortable with the level of occupancy pre-commitment. This structure encourages a strong partnership between ourselves and Waterfront Auckland. We are currently planning on beginning work at Wynyard Central in 2015 with the commencement of stage one. This stage will consist of a new build and the refurbishment of an adjoining character building. We are looking forward to beginning this stage and excited by the sites potential for the future. Bowen Campus Made up of the Bowen State and Charles Fergusson buildings, Bowen Campus also offers a unique position. The site occupies approximately one hectare right next to Parliament and the Beehive, with 30,000 square metres of net lettable area and resource consent for 60,000 square metres of office space. We bought the campus in 2012 for $50 million; it has been almost entirely occupied by the Ministry of Social Development, whose lease has been extended to October 2016. At expiry of this lease the property, which has a passing yield of around 12%, would have generated around $25 million in net property income. As I've mentioned, we are encouraged that Bowen has been shortlisted as part of the Crown's Wellington office accommodation project. We entered into this RFP process about this time last year. It has been a big undertaking for the Government and for ourselves. We expect to know its outcome by the end of this calendar year. Downtown Project The Downtown project In Auckland provides another exceptional opportunity. Collectively, Zurich House, the Downtown Shopping Centre, the AMP Centre, HSBC building and the PwC Tower give us a unique two-hectare land holding on the waterfront. We have always known that what we have managed to secure is an incredible opportunity. However the unique nature of the project has become more apparent the past 6-12 months. The process of engaging international and local architects and exploring the potential for the site has highlighted that this site is truly unique. We know of no other entity that owns such a prestigious position in the centre of the county's biggest city on the waterfront. The fact the site incorporates public transport, retail space and office space and is located in one of Auckland's key tourism precincts is also unique. We are determined and excited about delivering something special for shareholders and also for Aucklander's. Downtown As this slide shows, the Downtown area also stands to benefit from broader change and growth across Auckland. The number of CBD office workers and inner city residents are forecast to increase significantly over the coming years. This growth is built on the back of a strong Auckland economy and increasing population growth. We anticipate that the downtown precinct will benefit from this growth as the core CBD continues to shift to the waterfront. The addition of the city rail link will further enhance the site and connect the precinct with more Aucklanders including the projects main trade area of some 160,000 residents. The households that make up this main trade area are some of the country's most affluent. This catchment coupled with the adjacent cruise ship terminal make the site a compelling retail offering with 160,000 cruise passengers arriving or departing annually right next to the new development. Master planning & Next Steps The master plan has been a starting point for shaping the entire project. Our vision is to restore the precinct as the heart of the Auckland CBD. We also want it to have a distinctively Auckland feel. We are very pleased with the project's concept designs and look forward to sharing these with you and Aucklanders soon. As I've mentioned, we are also working to confirm arrangements with the Council and Auckland Transport soon on the CRL rail tunnel and Queen Elizabeth Square. Another big step will be the conversations we will have securing pre-commitments from clients as we go into 2015. Sales Programme We are progressing with our asset sales programme of selling non-core assets to recycle funds into development opportunities. We have recently placed 80 The Terrace - an asset in Wellington - onto the market and have been working with a number of buyers to sell SAP Tower in Auckland. We remain committed to selling assets from the existing portfolio to fund the new developments. Market Outlook Auckland's CBD market shows every sign of continued strength where financial, professional and administrative services are driving demand. Vacancy levels for prime and A-grade office have reduced from around 6% a year ago to just 1.4%. Most research houses now forecast Auckland rental growth at 4% to 7% each year in the next two years. Not surprisingly, we have witnessed valuation increase. Investors, both domestic and from offshore, are also recognizing the strength of the market in Auckland which has led to further compression in cap rates. The Wellington market remains in good shape following a number of years with little or no growth, and has very little vacancy as occupiers have targeted prime and A-grade buildings. The trend towards seismically strong and well located properties has helped us lease all vacant space within State Insurance Tower, and all but one floor in 80 The Terrace. We also see signs of rental growth from the Wellington market as the number of CBD based workers begins to rise. We agree with research houses now forecasting growth of between 1% and 4% over the next few years in Wellington. Outlook We look forward to the new year ahead. We are operating in strong markets where Wellington is improving and Auckland is showing strong gains. Over the next two years we will progress our sales programme to remain in a strong financial position. We will keep a primary focus on operational performance to keep after-tax earnings and dividends at current levels, while we reduce our debt levels. We expect to achieve earnings of 6.2 cents per share in 2015 before performance fees. Looking further to the future, we look forward to the new use of our capital bringing solid earnings and growth. Thank you. I will now hand you back to Craig. End CA:00257375 For:PCT Type:ADDRESS Time:2014-11-07 09:46:28
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- Ann: ADDRESS: PCT: Precinct 2014 AGM Chairman and CEO Address
Ann: ADDRESS: PCT: Precinct 2014 AGM Chairman and CEO Address
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