Ann: FLLYR: PFI: Portfolio Value Rises 3.3%; Annu

• Release Date: 18/02/13 10:58
• Summary: FLLYR: PFI: Portfolio Value Rises 3.3%; Annual Profit Rises to $26.9m
• Price Sensitive: No
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PFI
18/02/2013 08:58
FLLYR

REL: 0858 HRS Property for Industry Limited

FLLYR: PFI: Portfolio Value Rises 3.3%; Annual Profit Rises to $26.9m

PFI'S PORTFOLIO VALUE RISES 3.3%; ANNUAL PROFIT RISES TO $26.9 MILLION

Highlights

- $12.3 million or 3.3% portfolio revaluation uplift resulting in a five cent
increase in net tangible assets to 113 cents per share;
- Profit after tax up 64.7% to $26.9 million, distributable profit down 7.5%
to $14.6 million;
- Almost 50% of contract rent varied, leased or reviewed during the year;
- $37.8 million (i) of industrial property acquisitions, $16.6 million of
non-core property disposals;
- Occupancy increased to 97.4%, weighted average lease term increased to 4.80
years;
- Fourth quarter final dividend of 1.85 cents per share, total dividends for
the year of 6.60 cents per share.

NZX listed industrial property landlord Property For Industry (PFI) has today
announced its 2012 annual results including portfolio revaluation. The
revaluation uplift of $12.3 million equates to a 3.3% increase in the value
of the company's property portfolio to $382.2 million. This will increase
further to $397.2 million on settlement of the acquisition of 30-32 Bowden
Road, Mount Wellington, during the first quarter of 2013.

Profit after tax for the year rose $10.6 million or 64.7% to $26.9 million
from $16.3 million in 2011 as a result of a $15.0 million increase in non
operating income and expenses, which includes the revaluation uplift, offset
by a $2.3 million increase in deferred taxation and a $2.0 million fall in
operating earnings.

Distributable profit fell 7.5% to $14.6 million from $15.8 million,
reflective of sales of properties in the prior year and vacancy during the
year.

PFI Chairman Peter Masfen said: "The result is clear evidence of
implementation of the strategy which was articulated to the market early in
2012. PFI's lease expiry profile has been strengthened and the company's
balance sheet capacity deployed into earnings accretive industrial property
investment opportunities."

PFI General Manager Nick Cobham said: "Progress has been made repositioning
the portfolio during 2012. The acquisition of three significant industrial
properties and disposal of selected non-core properties was complemented by
more than 50 leasing transactions. This activity provides a foundation from
which to build future earnings growth."

Financial performance

Financial performance $000 $000
for the year ended 31 December 2012 31 December 2011
Rental income  29,214 30,589
Interest and management fee income 210 285
Total operating revenue 29,424 30,874
Interest expense and bank fees (8,103)  (8,343)
Management fees  (1,882)  (1,865)
Non-recoverable property costs (1,329)  (580)
Other expenses (incl. audit and director's fees)  (862)  (820)
Total operating expenses (12,176) (11,608)
Total operating earnings  17,248   19,266
Fair value change in investment properties 12,302 3,653
Gains on disposals of investment properties  1,059   261
Fair value change in derivative financial instruments  1,357   (4,219)
Total non operating income and expense 14,718 (305)
Profit before taxation 31,966  18,961
Current taxation  (3,579)  (3,490)
Deferred taxation  (1,455)  877
Total taxation (5,034) (2,613)
Profit after taxation  26,932 16,348

Distributable profit $000 $000
for the year ended 31 December 2012 31 December 2011
Profit after taxation  26,932  16,348
Adjusted for:
Fair value change in investment properties (12,302) (3,653)
Gains on disposals of investment properties  (1,059)  (261)
Tax on depreciation claw-back on disposals of investment properties (ii)  187
-
Fair value change in derivative financial instruments  (1,357) 4,219
Deferred taxation  1,455  (877)
Other (iii)   744  -
Distributable profit  14,600   15,776
Distributable profit per share (iv) 6.64 7.21

Operating revenues for the year were $1.5 million or 4.7% lower than the
prior year, at $29.4 million, primarily due to disposals of the company's
properties and vacancy during the year.

Operating expenses were largely in line with the prior year, aside from PFI's
non-recoverable property costs, which were $0.75 million higher due to the
profit impact of the adjustment of various prepayments and other assets and
increased costs associated with vacancy during the year.

No performance fee was payable to the manager in respect of the current and
prior year.

The effective current tax rate rose modestly to 21% from 18%, in part due to
the tax payable on depreciation claw-back on disposals of investment
properties. Looking forward, PFI expects the current tax rate for 2013 to be
similar to the level in 2012, following IRD changes to the taxation of lease
incentives, which become effective 1 April 2013.

The combination of lower operating revenue and higher operating expenses
resulted in distributable profit for the year of 6.64 cents per share (2011:
7.21 cents per share).

Balance sheet & capital management

PFI's net tangible assets rose five cents per share to 113 cents per share
principally as a result of the independent valuation of PFI's $382.2 million
portfolio, which resulted in a fair value increase totalling $12.3 million or
six cents per share, with other changes accounting for the one cent per share
decrease.

Utilisation of PFI's $150.0 million syndicated facility with ANZ and ASB,
which has nearly three years to expiry, increased to $114.2 million from
$102.5 million during the year, as PFI made a net investment of almost $11
million in its portfolio.

PFI invested $23.2 million via two property acquisitions. In addition to this
$6.3 million was invested in existing properties through a combination of
capital works and tenancy incentives and prepayments. Offsetting these
investments, property disposals generated net sales proceeds of $16.6
million.

PFI will invest a further $14.6 million in the first quarter of 2013 via the
acquisition of 30-32 Bowden Road, Mount Wellington. Following this
investment, gearing will rise to ~32.5%.

PFI's gearing policy limit of 35% remains unchanged, however during the last
quarter of the year PFI took advantage of favourable banking conditions to
negotiate an amendment to the facility gearing limit and definition. PFI's
gearing facility covenant now stands at 50% on a loan-to-value basis (v).

There were limited changes to the company's $73.0 million of current interest
rate hedging, the average interest rate reducing slightly to 6.40% from 6.64%
and the average period to expiry increasing slightly to 2.79 years from 2.64
years.

The average interest rate of PFI's $35.0 million of forward starting fixed
interest rate hedging fell to 4.69% from 5.41% in the prior year, as did the
average period to expiry, down to 4.45 years from 4.74 years.

The combination of increased facility utilisation and the lower cost of the
current interest rate hedging resulted in a reduction in the weighted average
interest rate on drawn borrowings to 7.29%, down from 7.85% as at 31 December
2011.

Portfolio performance

Portfolio snapshot
As at 31 December 2012 31 December 2011
Number of properties 50 49
Number of tenants 86 89
Contract rent $32.6 million $30.2 million
Occupancy 97.4% 95.6%
Weighted average lease term 4.80 years 4.17 years

The company's portfolio metrics and lease expiry profile improved
significantly following a solid year of activity. PFI's portfolio revaluation
benefited from this activity and an improving industrial property market.

Market capitalisation rates firmed an average of ~30 basis points across the
portfolio. This firming of capitalisation rates was marked for properties in
the sub-$5 million range where investment demand is very strong, particularly
for properties with long leases and sound tenant covenant. To a lesser degree
was the impact of a movement in market rents. Long term leases are still
commanding incentives in order to be achieved, however incentives for shorter
lease terms have reduced in recent times providing an improvement in net
effective rentals.

PFI entered into contracts during the year to acquire three industrial
properties for a total purchase price of $37.8 million at an average purchase
yield of 8.7%:
- $11.3 million cold store facility leased to Polarcold Stores Limited at 8A
& 8B Canada Crescent, Hornby, Christchurch, settled November 2012;
- $11.9 million bus depot and servicing centre leased to Transportation
Auckland Corporation Limited at 170 Swanson Road, Swanson, Auckland, settled
December 2012;
- $14.6 million warehouses and associated office and amenities leased to
Fletcher Building Products Limited at 30 - 32 Bowden Road, Mount Wellington,
Auckland, due to settle in the first quarter of 2013.

$16.6 million of capital was released via the disposal of non-core properties
at a combined pre-tax gain on sale of $1.1 million and a 6.8% premium to the
properties 31 December 2011 valuations.

PFI General Manager Nick Cobham said: "Almost 50% of contract rent was
varied, leased or reviewed during 2012, including 14 new leases and
retentions. A highlight was the length of the leasing transactions as the
average lease term was in excess of eight years. This included the
development of a new warehouse at Seaview Business Park, Lower Hutt, for ASX
listed subsidiary Multispares NZ Limited, where an eight year lease commenced
following completion of the building in January 2013."

Rent reviews of 39 of PFI's leases, representing more than 33% of contract
rent, resulted in an average annual uplift of 3.0%. Fixed or index-linked
review mechanisms, a feature of more than half (vi) of PFI's leases,
contributed almost 90% of the growth in contract rental income.

PFI began 2013 with 12.8% of contract rent due to expire within the year.
Since year end the company has leased or is at formal documentation stage on
approximately 50% of this contract rent, including the company's largest 2013
expiry at 36 Neales Road, East Tamaki, which has been leased to NZX listed
Mainfreight Limited.

Dividends

The fourth quarter final cash dividend of 1.8500 cents per share, with
imputation credits of 0.3038 cents per share, will have a record date of 4
March 2013 and a payment date of 13 March 2013. A supplementary dividend of
0.1379 cents per share will be paid to non-resident shareholders.

The fourth quarter final cash dividend results in cash dividends in respect
of the year ended 31 December 2012 totalling 6.6000 cents per share, in line
with recent guidance. The pay-out ratio, being the ratio of dividends paid to
distributable profit, is 100%, unchanged from the prior year.

Looking forward, PFI expects dividends in respect of the year to 31 December
2013 to be within a range of 6.6 to 6.9 cents per share based on the
company's current distribution policy (vii).

The board has again decided to suspend PFI's dividend reinvestment scheme for
the fourth quarter final dividend. With gearing comfortably within the
company's policy limit, the board will continue to assess whether to operate
or suspend the company's dividend reinvestment scheme on a quarter-by-quarter
basis, as the company's capital needs dictate.

The company's total shareholder return (viii) for the year ended 31 December
2012 was 11.76% with the total shareholder return averaging 8.44% per annum
since listing in 1994.

Market, Outlook and Strategy

Mr Cobham commented that there was considerably more optimism evidenced in
the industrial property market in 2012 than the previous three to four years.

"Whilst leasing activity may have been quieter in the last quarter of 2012
than the first three quarters, there was noticeably increased investor
activity in the second half of the year, resulting in transactional evidence
of lower yields achieved for prime industrial property.

With increasing activity we should expect to a see a reduction in incentives,
particularly for shorter term leases, and the continuing downward pressure on
yields flowing through to all grades of property. This will enable the
repositioning of secondary stock to become increasingly feasible."

The board and manager remain focused on managing the vacancy and upcoming
lease expiries in the portfolio. The development of existing expansion land
and repositioning of properties will continue be pursued as tenant demand
dictates. Selected sales of non-core property will be considered, as will the
acquisition of core industrial property in the main centres.

Contact

For further information please contact:
Nick Cobham
General Manager
DDI: +64 9 303 9656
Mob: +64 21 464 583
Email: [email protected]

About PFI

PFI is New Zealand's only listed company specialising in industrial property.
PFI's portfolio of 50 industrial properties in Auckland, Wellington and
Christchurch, is leased to 86 tenants.

www.pfi.co.nz

Attached

PFI - Appendix 1 - 31 December 2012
PFI - Appendix 1 - Financial Statements - 31 December 2012
PFI - Appendix 7 - 31 December 2012
PFI - Annual Results Briefing - 31 December 2012

Endnotes
(i) Includes the acquisition of 30-32 Bowden Road, Mount Wellington, which is
due to settle in the first quarter of 2013. All 31 December 2012 portfolio
statistics assume settlement of this property.
(ii) No adjustment was made to distributable profit for the tax on
depreciation claw-back on disposals of investment properties in the prior
year. If an adjustment were to have been made, then distributable profit
would have risen by $30,000 or 0.02 cps.
(iii) Other comprises the profit impact of the adjustment of various
prepayments and other assets ($586,000), the current tax impact of an
adjustment to one of the Group's derivative financial instruments ($66,000)
and prior period tax adjustments ($92,000).
(iv) Per share figures are on a weighted average basis.
(v) The previous gearing facility covenant required total liabilities
excluding deferred tax and unrealised gains or losses on derivative financial
instruments to be no more than 45% of total tangible assets.
(vi) Weighted by contract rent.
(vii) The Group's dividend policy is to distribute 100% of its operating
profit, subject to the approval of the board of directors. Operating profit
is defined as the profit or loss for the period before unrealised net changes
in the fair values of investment properties, realised gains or losses on
disposal of investment properties (net of tax on depreciation claw-back),
unrealised net changes in the fair values of derivative financial
instruments, deferred taxation and other one off items.
(viii) Income yield plus change in share price, assuming dividends are
reinvested.
End CA:00233046 For:PFI    Type:FLLYR      Time:2013-02-18 08:58:06