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- Summary: ADDRESS: PCT: Precinct 2013 AGM - Chairman and CEO Address
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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
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