PCT
07/11/2013 11:41
ADDRESS
REL: 1141 HRS Precinct Properties New Zealand Limited
ADDRESS: PCT: Precinct 2013 AGM - Chairman and CEO Address
Precinct Properties New Zealand Limited Annual General Meeting
10:00am (New Zealand time), Thursday 7 November 2013
Stamford Plaza Hotel, 22-26 Albert Street, Auckland
Chairman's Opening address
Good morning everyone, and on behalf of the Precinct Board I am delighted to
welcome you to this year's AGM.
It is two years since we last met in Auckland. And in reflecting on the gains
that have been made since then, I am reminded of just how far the company has
progressed.
Earnings have recovered and are now growing. The operational performance of
the portfolio has been a highlight. We have made some exciting acquisitions;
and we are in a strong position for continued gains.
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.
During the year we said farewell to Anthony Beverley as a director. Anthony
had been with us from 1997. So he had seen us move to a new structure and,
only just over a year ago, to a new name. We thank him for a highly valued
contribution and wish him the best for the future.
I would also like to welcome Chris Judd who joined the Board last year and
Mohammed Al Nuaimi who was appointed as a director last month. Chris is the
head of property funds management for AMP Capital in Australia and brings a
wealth of experience in property, funds management and capital markets. He is
a valuable addition to the team.
Mohammed joins the Board replacing Mohamed Alhameli and is appointed by our
Manager, AMP Haumi Management Limited.
Strong Results
This was a year of strong gains. We achieved not only a strong financial
result but also strong gains in all areas of the business.
A net profit after tax of $157.5 million was significantly up on last year
and dramatically ahead of the preceding four years.
This profit included a $39.7 million non-operating deferred tax gain. But
pleasingly it also reflected a near 14% increase in operating profit and a
solid $46.3 million revaluation gain.
Supporting these results were some good acquisitions which have provided
strategic value and earnings accretion.
These acquisitions in Auckland now mean Precinct has a unique footprint on
the city's prime downtown waterfront, while continuing to enjoy good returns
and having good options for its future use. The nature of these acquisitions
is similar to our acquisition last year of Bowen Campus whereby the asset
presents development potential but provides a secure holding income.
It was also really pleasing to see our $75 million redevelopment of the ANZ
Centre, completed on budget and on time.
As you will recall, this redevelopment was an important part of securing a
landmark occupier and ensuring the building continued to be rated as one of
Auckland's best. It fitted with our belief that where our clients thrive we
thrive. We were thrilled that the quality of the work undertaken at this
site, both in the building and in the way it was integrated with the
surrounding St Patrick's Square area, saw us win the Supreme Award at the
2013 Rider Levett Bucknall Property Council Awards.
Well done to all concerned and I encourage all of you who are present today
to take the opportunity to look through the lobby following our meeting
today. We would also like to offer those present here today the opportunity
to enjoy a coffee inside the ANZ Centre lobby something I will provide more
detail on following today's formal business.
We upgraded our earnings forecast during the period due to recent
acquisitions and increasing occupancy. This allowed us to increase our
dividend in the period by around 1.6% to 5.12 cents per share.
Insurance Savings
Some other operational gains that might have been less obvious were
nevertheless important. Our clients have a focus on total occupancy costs
which includes insurance premiums. Reducing insurance premiums directly
benefits our clients and ensures our portfolio remains competitive.
Over recent years all property owners have had concerns about rising
insurance costs. But by taking a proactive approach with international
insurers we secured a 12% reduction in our insurance premium costs.
Importantly the savings were achieved without compromising the scope of our
cover.
This saving was the result of building better relationships with our insurers
and ensuring they understand our approach to managing risk including the
seismic performance of our assets. The quality of our portfolio, our
commitment to quality seismic assessments and to high ratings for seismic
performance has without question helped in securing this saving. Seismic
performance is an important area for our clients and one where we take our
responsibilities seriously.
We inspected all our buildings following the two earthquakes in Wellington in
August, and I am pleased to say that none sustained damage to their
structural integrity.
As a board, we were proud of the highly professional way our management team
responded at the time, contacting all clients immediately with updates and
support. This reflected the commitment to best practice that is part of the
Precinct culture.
Financial position
The growth in value of our portfolio, to approximately $1.64 billion,
reflected a continuing positive turn-around in market valuations and the
acquisitions we made during the year.
Consistent with the valuation gains and the change in deferred tax, Precincts
net tangible assets increased from 88 cents per share to 99 cents per share
an increase of around 12%
Overall, our 16.3% total return for the year exceeded the benchmark New
Zealand-listed property sector return (excluding Precinct) of 15.8%.
This out-performance of the market saw approximately two-thirds of the
maximum performance fee paid. We believe that this close alignment of
management fees with company performance is continuing to deliver good
outcomes for shareholders.
Equity Issue
Most shareholders will be aware that post balance date Precinct undertook an
equity issue. We were pleased with the success of this equity-raising.
Consistent with our target, we raised $50 million through a placement and a
further $12.5 million in a share purchase plan.
Scott will shortly speak to the exciting opportunities we see ahead through
developing the potential of the Downtown Shopping Centre and redeveloping
Bowen Campus.
The capital we have raised ensures our gearing levels remain conservative and
position the business to deliver on these medium term opportunities within
the portfolio.
When issuing any capital the key consideration for us is to treat all
shareholders fairly and to consider the impact on shareholder value both for
investors who participate in the offer and those who do not participate.
After careful consideration and reflecting on the size of the issue, the
level of discount relative to recent trading price and issue costs, we
adopted a structure we considered represented the fairest balance between
equitable participation, issue costs and risks of dilution to
non-participating shareholders.
Although a placement and Share Purchase Plan was used, all shareholders were
given the opportunity to participate as close as possible to pro rata to
their shareholdings. Shareholders with holdings less than around 250,000
shares were able to participate at least pro rata through the share purchase
plan. We took steps to ensure that larger retail shareholders for whom the
Share Purchase Plan maximum of $15,000 would not provide pro rata
participation, were given the opportunity to participate in the $50 million
placement through direct contact via brokers.
The cost of issuing this amount of equity under a rights issue would have
been significantly higher. In addition the value of the rights given the
relatively small amount of capital raised and the low level of discount would
have been negligible, and likely outweighed by the cost of brokerage.
Finally, it was very pleasing to see strong support from our existing
institutional shareholders in the placement and around a quarter of our
retail shareholders participating in the offer, supporting the company and
its strategy.
Outlook and dividend
We see continued scope for earnings growth; underpinned by improved
occupancy, minimal expiry risk and market rental growth.
This expectation along with our recent acquisitions has led to our
anticipated dividend for 2014 increasing by 5.5% to 5.4 cents per share.
Shareholders can expect a 2014 first quarter dividend of 1.35 cents per share
paid on the 12th of December.
We believe our portfolio is well positioned to meet demand from both
Auckland and Wellington occupiers. And that Precinct is well positioned
through its ownership of prime assets and its opportunities in the future.
Future focus balanced growth
We are excited about the opportunities we have. But we remain focused on
prudent risk management and continuing steady dividends.
We will retain a focus on creating value for shareholders. We are continuing
to follow a strategy of focusing on our core assets while divesting others
that we do not see as central to our growth.
This has been a good year. Success is following from our strategy for growth
that is delivering good returns. We have some exciting times ahead, and we
look forward to continued strong progress.
I will now hand you over to Scott who will take you through some of the
operational highlights and decisions of the year in more detail.
Scott Pritchard: CEO Address
Strong vision, strong result
Thank you Craig, and I'd like to add my welcome to you all today.
From what you have heard so far it will be obvious to you, that we are
excited about where the company is right now. We see good potential for
growth. And we are pleased that the strategy of focusing on our strengths as
an office specialist has allowed us to outperform the market.
Operational update
Following a strong financial result, it is pleasing to have also enjoyed
operational success throughout the company.
We are in our strongest leasing position for four years, with few pending
expiries over the next 36 months. This is a big step forward from previous
years, where we have started each financial year with a big challenge of
vacant space to fill in. It is a good place to be.
Overall, the year's excellent financial results have been driven by income
from new acquisitions and successful leasing activity.
In Wellington, we have cut vacancy by 50% since January. During the year we
let 4,000 square metres to ANZ at 171 Featherston St and we concluded
significant leasing at 80 The Terrace.
These transactions have placed the portfolio in a strong position with
occupancy now at 97%.
Bowen Campus continued to provide good returns and remains 100% occupied,
mostly by the Ministry of Social Development. We are now focused on the
second tranche of the Government RFP for office space which has recently been
announced.
Key events
This year the real highlights were in Auckland. The Downtown Shopping Centre
and HSBC House acquisitions mean we now own a strategic contiguous
two-hectare block right on the waterfront. I will talk more about this
development in a moment.
We also applied a "precinct" approach to the redevelopment of the ANZ Centre
in thinking about how it fitted in with its environment and the amenity it
offered to the people who use it. As Craig has noted, we were thrilled to
see this work win the Property Council of NZ Supreme award.
It has also been a good investment. Three years ago, the building would have
been valued at $150 million if ANZ had departed. Precinct has invested $75
million and now has a premium asset valued at $250 million, with a ten-year
average lease term.
Key metrics
The numbers on this slide tell their own story. The year has seen strong
leasing, and as a result delivered good security of income.
We have every indication that markets are recovering. In the last quarter we
saw a significant increase in demand for prime and A-grade space in Auckland
and Wellington. Indeed, in Auckland we now have no full floors available for
lease.
Strategy and execution
As I have mentioned, our strategy is to focus firmly on strategic holdings,
play to our strengths and create new opportunities to add value.
By way of putting this in context, three years ago when the market was facing
oversupply, our focus was on protecting what we had.
Since then, however, we have reviewed all our assets to determine clearly
which ones are core and to supporting future growth. And we have also
invested in assets where we see active potential for development and
increased returns.
We are focusing clearly on downtown areas where we can create new
environments. By doing this, particularly where we own a block of buildings,
we can generate value out of a new critical mass that clients will appreciate
and which will also deliver better long-term earnings security.
This means focusing on core, strategic assets and recycling capital out of
non-core stock. We have determined that we currently hold around $230 million
worth of non-core assets that can be sold to support continued investment in
identified strategic opportunities.
In Wellington, Bowen Campus remains an important source of income and offers
a good range of opportunity. But overall we are increasing our weighting of
our investment to Auckland, where we are seeing particularly strong growth.
Strategy is of course only as good as its execution. On an operational level,
we have continued a programme of seismic upgrades. This includes advanced
strengthening works at Wellington's Old Police Station and Auckland's SAP
building. We now have 82% of the portfolio considered at low risk. Only
Wellington's Old Police Station is considered high risk and following seismic
works this asset will be considered low risk.
Along with the significant savings in insurance costs that your Chairman
outlined, we introduced new procurement policies that cut the number of our
suppliers by half. We also began training staff in the NABERSNZ tool to
measure energy performance of buildings and will shortly deliver a programme
to improve energy efficiency across our portfolio.
Vision for downtown waterfront
I want to share more about our vision for Auckland's downtown waterfront with
you now, as the acquisitions we made there were a real highlight of the year.
The development of this precinct is a key focus for the future.
Combined with our existing assets (possibly point to on photo on slide) PWC
Tower, the AMP Centre and Zurich House, the Downtown Shopping Centre and HSBC
buildings give us a unique footprint, with two hectares of land on arguably
Auckland's best commercial real estate.
In creating a new precinct here our focus remains very much on quality office
space. But to complement this we will also offer Aucklanders a new level of
retail experience. By combining both retail and office, we will bring
something new and exciting to the whole area.
We are ambitious to see this development bring more people into the city. We
have already had positive community and business feedback. We were also
pleased to go into positive negotiations with Auckland Council with a view to
coordinating the timing of our works at the Downtown Shopping Centre with the
building of a tunnel for the City Rail Link. Obviously, the rail link would
only add further to the area's importance as a transport hub for the whole
city.
To make sure we deliver something really special here we have sought
expressions of interest from 14 master planners, both from New Zealand and
abroad. Through the process this was reduced to a short-list of four.
Masterplanner
Following a series of interviews, presentations and the preparation of actual
designs for the site, I can now announce that we have appointed the master
planner for this work, who is Woods Bagot based out of San Francisco. Woods
Bagot is globally renowned as leading architects having completed a range of
office and mixed use developments the world over including New Zealand. Woods
Bagot will be supported by one of New Zealand's leading architecture firms
Warren and Mahoney and Surface Designs also from San Francisco.
The master planning phase is very important as it knits together all of the
different uses which we will have on the site and also considers what
buildings are built and where they are built. At the conclusion of the master
planning phase, we will have a design for the site and have a very clear idea
of what we are going to build and how it will look.
Market outlook
We see good prospects in both Auckland and Wellington. Auckland is
particularly strong. All property research houses are forecasting strong
rental growth in the city over the next four to five years. CBRE, for
example, is forecasting total rental growth of around 16% by 2017.
There are no developments currently in the pipeline that will materially
impact supply in the short to medium term. This coupled with a positive
employment growth forecast in the short to medium term should have a positive
effect on rental levels.
We have seen a big increase in Auckland CBD office workers, a result of a
strong Auckland economy and associated population growth. The office
employment losses that occurred in the CBD following the global financial
crisis have now been recouped. 10,000 new workers have entered the CBD in the
last three years, reflecting an increase of around 17%. CBRE are forecasting
continued strong CBD employment growth over the next 5-10 years. This growth
in CBD employment is forecast to require around 200,000 square meters of new
office space.
In Wellington, we expect stability with the potential for some growth as the
market remains sound for quality office space. Overall, Wellington CBD
A-Grade office space vacancy remains low at 3.7%, a reduction of around 1% in
the year. Wellington will continue to be a solid market for us and
contributes a good balance in our overall portfolio.
Seismic considerations are increasingly important in Wellington, those with
the ability to fund seismic works and reposition assets should outperform.
Outlook
In conclusion, property markets are in the best shape they have been for some
years. And in particular with the acquisitions we have made and the
improvements to the portfolio, Precinct is well-positioned for growth. The
challenge for the next few years is to capitalise on the opportunities within
our portfolio, build on our client relationships and improve service levels
across the business.
It's only just over a year ago that we changed our name to "Precinct". It
seems longer than that, perhaps because so much has happened. But the name
was intended to signal a fresh approach to creating opportunity and
environments where our clients and ourselves both succeed. That still remains
very much the vision. And it is one from which we see continuing good results
in the coming year.
On behalf of the Executive Team I would like to thank both the Board for its
guidance and you, our shareholders, for your continued support.
It has been a year of great progress and we look forward to building on its
success. I will now hand you back to our Chairman.
Thank you.
Craig Stobo - Chairman
Thank you Scott
It is has been a positive year and we look forward to some exciting
developments.
As Scott mentioned, we see every sign of continuing recovery in the New
Zealand economy. But as we all know we are very much part of a larger global
marketplace. We will always have to allow for international developments that
could affect current local expectations.
That said, however, Precinct is in a strong position and we look forward to
another successful year.
End CA:00243477 For:PCT Type:ADDRESS Time:2013-11-07 11:41:06
