Ann: FLLYR: PFI: PFI Announces Annual Results

• Release Date: 15/02/16 08:35
• Summary: FLLYR: PFI: PFI Announces Annual Results
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					PFI
15/02/2016 08:35
FLLYR
PRICE SENSITIVE
REL: 0835 HRS Property for Industry Limited

FLLYR: PFI: PFI Announces Annual Results

PFI ANNOUNCES ANNUAL RESULTS

The PFI management team will present these results via live webcast from
11.00 am NZT today. To view and listen to the webcast, please visit
http://edge.media-server.com/m/p/79puo8ta. We recommend you log on a few
minutes before the start time, and if you cannot attend the live webcast, a
recording will be available to view on PFI's website shortly after the
conclusion of the live event.

Highlights
- Profit after tax for the year of $72.8 million or 17.25 cents per share
- Distributable profit (1) for the year of 7.42 cents per share
- Fourth quarter cash dividend of 2.00 cents per share, total cash dividends
for the year of 7.30 cents per share
- Strong balance sheet maintained via rights offer, dividend reinvestment,
loan facility renegotiation and disposal of non-core property
- $46.5 million or 4.9% portfolio revaluation uplift, 7.9% increase in net
tangible assets per share to 140.5 cents
- 61% of contract rent varied, leased or reviewed during the year
- Portfolio occupancy at 99.6%, 2016 expiries of 9.3%
- $76.0 million committed to the acquisition of six properties ($48.2
million) and new developments ($27.8 million)

NZX listed industrial property landlord Property For Industry Limited (PFI,
the company) today announced its annual results for the year to 31 December
2015.

PFI Chairman Peter Masfen said: "September 2015's rights offer marked the
first capital raising of significance for PFI in nearly 15 years, and we are
pleased to report on the successful deployment of this capital in to high
quality industrial property opportunities, whilst at the same time delivering
strong financial and operating results."

Financial performance (refer appendix 1)
Operating revenues for the year increased by $3.2 million or 4.9% to $66.9
million, as increases due to acquisitions ($2.5 million) and rent reviews and
fixed rent adjustments ($0.9 million) were partially offset by decreases due
to disposals ($0.9 million).

Operating expenses for the year of $30.4 million were up $3.5 million or
12.9%, predominantly due to increases in management performance fees
(increase of $1.7 million) and interest expense and bank fees (increase of
$1.2 million), this increase in interest expense and bank fees being driven
by an increase in average borrowings as a result of acquisition and
development activity. As a result of these increases, the ratio of operating
expenses to operating revenues rose from 42.2% to 45.4%.

PFI's effective current tax rate for the year, being the ratio of current
taxation to operating earnings, remained static at 19.6% (2014: 19.3%).

After allowing for non-operating income and expenses and deferred tax, PFI
recorded an increase in profit after tax to $72.8 million or 17.25 cents per
share (2014: $59.9 million or 14.55 cents per share).

Distributable profit (refer appendix 2)
PFI recorded distributable profit of 7.42 cents per share for the year, a
small decrease of 0.11 cents per share or 1.5% over the prior year (2014:
7.53 cents per share).

Subsequent to year-end, the PFI board has resolved to amend the definition of
distributable profit to include management performance fees net of tax
(previously excluded) whilst at the same time lifting the allowable pay-out
ratio to above 100% should management performance fees be earned in any given
period. Applying this new definition of distributable profit results in an
increase in the 2015 pay-out ratio from 100% to 106%.

Dividends
The PFI board has today resolved to pay a fourth quarter final cash dividend
of 2.00 cents per share. The dividend will have imputation credits of 0.3367
cents per share attached and a supplementary dividend of 0.1528 cents per
share will be paid to non-resident shareholders. The record date for the
dividend is 29 February 2016 and the payment date is 9 March 2016.

The fourth quarter final dividend will take cash dividends for the year to
7.30 cents per share (2014: 7.25 cents per share).

The PFI board has today also resolved to operate the dividend reinvestment
scheme (DRS). A discount of 2% will be applied to the volume weighted average
sales price for the five trading days ended 3 March 2016. Further details on
PFI's DRS can be found on PFI's website:
https://www.propertyforindustry.co.nz/investor-centre/dividend-information/di
vidend-reinvestment/.

PFI Chairman Peter Masfen said: "Looking to next year we expect distributable
profit before management performance fees, if any, to be largely unchanged
from 2015 and cash dividends to be approximately 7.30 cents per share,
subject as always to economic conditions."

Balance sheet
PFI's net tangible assets per share increased by 10.3 cents per share or 7.9%
from 130.2 to 140.5 cents per share. This increase was driven by the uplift
in the fair value of investment properties (described below, +10.4 cents per
share) with other changes accounting for the remaining -0.1 cents per share.

Capital management
PFI carried out a number of capital management initiatives during the year to
ensure that the company maintained a strong balance sheet.

In September 2015, PFI raised $47.9 million through a pro rata 1 for 12
renounceable rights offer. The fully underwritten offer, at an issue price of
$1.44 per share, was used to pay down bank debt relating to recent
acquisitions and committed developments.

The company's DRS also operated during the year, with $2.8 million being
raised from the Q1 and Q3 dividends. The DRS will also operate for the Q4
dividend, and PFI expects to operate the DRS for the duration of 2016.

In May 2015, the company's syndicated bank loan facility was refinanced on
competitive terms and increased from $350 million to $375 million. In
addition to this, and as announced earlier this month, these facilities were
refinanced again subsequent to year-end. Existing lenders ANZ, BNZ, CBA and
Westpac committed two $187.5 million tranches until May 2020 and 2021,
extending the average term to expiry to 4.7 years as at today's date. The
cost of the facilities was also reduced, which will provide PFI with savings
on interest expense and bank fees during 2016.

In addition to these facilities, PFI carries current total hedging (2) with a
notional value of $308 million at an average rate of 4.52% for an average
duration of 3.5 years. Based on current hedging and debt levels, an average
of ~70% of the company's debt will be hedged at an average rate of ~4.6%
during 2016.

When combined with PFI's syndicated bank loan facility this hedging provides
the company with a weighted average cost of debt of 5.71% (3), as compared to
the rate as at 31 December 2014 of 5.96%.

The company ended the year with gearing (4) of 33.3%, down from 35.8% as at
31 December 2014 and well within PFI's self-imposed gearing limit of 40% and
bank covenants of 50%. The interest cover ratio (5) reduced slightly from 3.0
times to 2.9 times but also remains well within bank covenants of 2.0 times.

Portfolio performance
(Refer attached PDF for table)
Further to the announcement in December, PFI recorded an annual increase from
independent valuations in the value of its property portfolio of $46.5
million or 4.9% to $986.6 million. Whilst asset management over the year was
reflected in a number of individual property values increasing, this increase
was also attributable to continued market capitalisation rate compression,
with PFI's passing yield firming from 7.51% to 7.33%.

More than 90,000 square metres of PFI's existing portfolio was leased during
the year to 27 new and existing tenants for an average term of 5.7 years.
More than 75% of the contract rent secured by this leasing was as a result of
lease renewals, evidencing the enduring appeal of PFI's high quality
industrial portfolio. In addition to this, eight new leases were secured for
an average term of 7.4 years. Across these renewals, retentions and new
leases, there has been a noticeable decrease in incentives required to
attract and retain tenants.

The company also completed rent reviews on 60 leases during the year,
resulting in an average annual uplift of 1.6% on almost $32.8 million of
contract rent. Fixed and index linked reviews, a feature of 25% and 38%
respectively of the next lease event, remain an important source of growth in
PFI's leases. However, with almost 20% of 2016's lease events being market
related, the company also has the opportunity to access projected market
rental growth.

PFI's near term leasing outlook remains positive: at 31 December 2015 the
company's portfolio is almost 100% occupied and only 9.3% of contract rent is
due to expire during 2016.

Acquisitions, development and divestment
A total of $48.2 million was invested in the acquisition of an industrial
property at 232 Cavendish Drive in Manukau and a portfolio of five industrial
properties in Penrose, located on Hugo Johnston Drive and Autumn Place.

The company's development at 9 Narek Place, Manukau of a $3.6 million
purpose-built facility leased to Z Energy for 10 years, was completed
mid-2015. PFI also committed $25.9 million to the construction of four
pre-leased bulk store facilities at 124 Hewletts Road in Mount Maunganui, and
the first of these facilities - leased to RMD Bulk Storage - was completed in
September 2015, with the remainder due for completion in May and August 2016.
Construction also commenced during the year on a new $1.9 million warehouse
at 54 Carbine Road & 6a Donnor Place, Mount Wellington.

With the sale of PFI's non-core property at 85 Cavendish Drive, Manukau, PFI
has divested of almost $40 million of property over the last two years.
Approximately 5% of the portfolio is still considered non-core, which PFI may
look to divest over the medium term as and when value has been maximised.

Market update
The industrial property sector continued to perform well during 2015.
According to the MSCI, industrial property generated a total return of 10.7%
in the year to 31 December 2015 (2014: 12.3%), with capital growth accounting
for 3.0% of that return (2014: 4.2%).

Research indicates that Auckland, where almost 86% of PFI's portfolio is
located, continues to be the strongest performing market, with returns more
muted outside of the region.

Industrial property capitalisation rates have continued to compress, as
evidenced by the results of PFI's year-end valuation round. Investor demand
for industrial property remains strong, reflective of, amongst other things,
industrial property returns relative to the cost of debt.

According to CBRE, Auckland's industrial vacancy is just 1.8% as at December
2015, down from 2.1% as at December 2014. Much of this vacancy is
concentrated in "secondary" as opposed to "prime" industrial property, and
this low level of vacancy is being met with higher levels of development
activity.

The industrial property sector experienced modest growth in rents in 2015,
with CBRE estimating this to be ~5%, this growth being achieved by a
reduction in incentives and, to a lesser extent, growth in "face" rents.

Strategy and outlook
PFI remains focused on its strategy of investing in quality industrial
property in New Zealand's main urban centres. In 2016, the company will
continue to execute this strategy by:
- opportunistically pursuing both core and value-add industrial acquisitions;

- maximising utilisation of the portfolio by the development of surplus
Auckland land over the medium term, subject to commercial viability and
consents;
- divesting of non-core assets when value has been maximised and an
opportunity to recycle capital into industrial property arises.

PFI General Manager Simon Woodhams concluded: "PFI has produced a robust 2015
result and is in excellent shape to capitalise on any continuation of
favourable market conditions."

Contact
For further information please contact:

Simon Woodhams
General Manager
Phone: +64 9 303 9652
Email: [email protected]

Craig Peirce
Chief Financial Officer and Company Secretary
Phone: +64 9 303 9651
Email: [email protected]

About PFI
PFI is New Zealand's only listed company specialising in industrial property.
PFI's portfolio of 84 industrial properties in Auckland, Hamilton, Mount
Maunganui, Wellington and Christchurch, is leased to 141 tenants.

www.propertyforindustry.co.nz

Attachments
NZX Appendix 1 - 31 December 2015
NZX Appendix 1 - 31 December 2015 - Financial Statements
NZX Appendix 7 - 31 December 2015
NZX Annual Results Presentation - 31 December 2015

Appendices
(Refer attached PDF for appendices)

Endnotes
(1) Distributable profit is a non-GAAP performance measure used by the PFI
board in determining dividends to shareholders. Please refer to the appendix
for more detail as to how this measure is calculated.
(2) PFI defines hedging as any debt that has an interest rate secured for
more than three months.
(3) As at 31 December 2015. Weighted average cost of funds comprises BKBM,
hedging, margins and all borrowings related fees.
(4) That is, total borrowings as a percentage of the most recent independent
valuation of the property portfolio.
(5) That is, the ratio of interest expense and bank fees to operating
earnings excluding interest expense and bank fees.
End CA:00277619 For:PFI    Type:FLLYR      Time:2016-02-15 08:35:59