Ann: HALFYR: PCT: Precinct records solid start to

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• Summary: HALFYR: PCT: Precinct records solid start to year
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					PCT
18/02/2014 09:14
HALFYR

REL: 0914 HRS Precinct Properties New Zealand Limited

HALFYR: PCT: Precinct records solid start to year

Performance summary for six months to 31 December 2013

Increase in net operating income  of 22% and 5.5% lift in first-half dividend

- Net profit after tax increased 67% to $39.5 million (2012: $23.6 million)
following improved Auckland occupancy, recent acquisitions, and gains on
interest rate swap valuations.
- Net operating income increased 22% to $32.0 million (2012: $26.2 million)
or 3.10 cents per share (cps) (2012: 2.63 cps).
- Half year dividend of 2.7 cps (2012: 2.56 cps).

Higher total portfolio occupancy of 97% (2012: 95%), improved occupancy and
market rental growth in Auckland

- Across the portfolio, 30 leasing transactions covering 38,700 square
meters.
- Strong Auckland office market rental growth with 24 market events (leasing
and reviews), excluding Downtown Shopping Centre secured on average at a 6%
premium to June valuations, underpinned by growth in occupier demand.
- Eight market events in Wellington were secured at levels consistent with
June valuations.
- Weighted average lease term across the portfolio of 5.5 years (2012: 5.5
years).

Capital management initiative

- Successfully raised $62.5 million of new equity, putting the company in a
strong position to deliver on existing development opportunities through
future asset sales.

Precinct in exclusive negotiations at Wynyard Quarter

- Precinct announces today that it is in exclusive negotiations with
Waterfront Auckland to become their development partner for commercial office
within the Innovation Precinct on the Auckland waterfront at Wynyard Quarter.
This development will be part of one of the country's largest urban
regeneration projects with which Precinct is excited to be involved.

Precinct Properties New Zealand Limited (Precinct) (NZX: PCT) today reported
its financial results for the six months to 31 December 2013, recording a net
profit after tax of $39.5 million, up on the $23.6 million for the same
period last year.

Scott Pritchard, Precinct's CEO, said it had been a good start to what will
be another active and important year for the company when it will focus on
optimising the investment portfolio, designing the Downtown Shopping Centre
development, repositioning non-core assets for disposal and participating in
the Government Wellington office accommodation process.

"We are pleased to have started the year so strongly. These results put us in
a good position to continue a strategy of focusing on key assets, driving new
leasing and progressing the development opportunities we have built up in the
portfolio."

Improved Auckland occupancy and recent acquisitions contributed to a 22%
increase in net operating income for the period of $32.0 million (2012: $26.2
million).

Improved occupancy was matched by market rental growth, with leasing
transactions and market reviews in Auckland secured on average at a 6%
premium to 30 June valuations. "We have been anticipating Auckland market
rental growth for some time and it is pleasing to now see this coming
through. With no significant vacancy within the Auckland portfolio we expect
this trend to continue," he said.

In Wellington, the July and August earthquakes contributed to a further
increase in market awareness of the seismic performance of Wellington's CBD
office stock with increasing demand for strong, quality buildings.

DOWNTOWN SHOPPING CENTRE

During the period Precinct also entered into negotiations with Auckland
Council to coordinate the timing of works for the City Rail Link and the
Downtown Shopping Centre development. Mr Pritchard said this project will
take advantage of strong growth in demand for city centre office space and
will reinvigorate the heart of the city's main transport hub and waterfront
area.

Planning was progressing well towards a 2016 start for work when current
leases in the centre expire. Precinct has appointed a leading international
master planner, Woods Bagot, to work closely with local architects, Warren
and Mahoney, in planning for this development and the company looked forward
to sharing its vision for this new precinct as planning work is completed in
the second half of 2014.

WYNYARD QUARTER

Precinct is in exclusive negotiations with Waterfront Auckland to become its
development partner for commercial office property within the Innovation
Precinct at Wynyard Quarter.
Non-binding commercial terms have been agreed with Waterfront Auckland, with
negotiations progressing well and a development agreement expected to be
signed in the coming months. Final approval remains conditional on Precinct
board and Waterfront Auckland approval.

Wynyard Quarter is one of New Zealand's largest urban regeneration projects
and the sites in question have a land area of approximately 1.1 hectares and
the potential to develop around 46,000 square metres of gross floor area. The
leasing strategy for the sites will build upon existing efforts to create a
purpose-built information communication technology and digital media hub that
brings together innovative entrepreneurs and larger scale companies as part
of Auckland Tourism Events and Economic Development's (ATEED's) plans for a
multi-building innovation precinct in the Wynyard Quarter.

Scott Pritchard, Precinct's CEO, said. "Since our inception we have retained
a city centre office sector specialist strategy. This has not changed. This
opportunity will complement our existing core CBD offering and allow us to
widen our client base to innovative businesses through ATEED's planned
initiatives for high-growth technology businesses. We will also be targeting
occupiers whose preference is for low rise, larger floor plate accommodation
but with all the benefits of a central city location."

"The proposed partnership structure provides for a staged approach including
a pre-paid leasehold structure."

Mr Pritchard said, "Waterfront Auckland have already made huge progress in
transforming Wynyard Quarter into one of Auckland's most exciting precincts
for businesses and the public alike.  Wynyard Quarter will benefit further
over the coming years from considerable public and private investment and its
location within close proximity to the core CBD. These factors should attract
occupiers and ensure the success of the commercial development."

Precinct's previously announced programme of recycling capital out of its
existing portfolio will provide funding for this opportunity, taking
advantage of strong investment market conditions and a lack of competing
stock.

INTERIM RESULT OVERVIEW

Rental revenue for the six months was up 20% to $82.6 million (2012: $68.9
million). The increase was primarily due to new rental income from recent
acquisitions, the ANZ Centre becoming fully income-producing and improved
Auckland occupancy. Excluding the impact of acquisitions and the ANZ Centre
redevelopment, revenue was 3% higher than the previous interim period.

Property expenses were $23.8 million. This was 12% higher than the previous
interim period, but once adjusted for recent acquisitions it represented a
reduction of 3%.

Following the two earthquakes that struck Wellington the company engaged
Holmes Consulting Group to undertake comprehensive inspections of its
buildings in the city. These found no material damage to their structural
integrity and the non-recoverable cost to repair superficial damage was
minor.

Interest expense increased $4.6 million to $16.7 million, reflecting higher
debt levels following the purchase of the Downtown Shopping Centre and HSBC
House and interest costs associated with the ANZ Centre redevelopment being
fully expensed.

Other expenses increased by around 13% as the size of the portfolio grew.
Precinct outperformed the benchmark New Zealand-listed property sector return
(excluding Precinct) resulting in a performance fee of $1.3 million being
payable in the second quarter.

Tax expense of $3.9 million was at a similar level to the previous interim
period (2012:  $3.8 million) despite higher pre-tax profit. This period's tax
expense relating to the higher profit was offset by an increase in
depreciation associated with acquisitions and recognition of a tax deduction
relating to the sale of Chews Lane in 2011 which reduced tax expense by
around $1.2 million.

The fair value gain in interest rate swaps of $10.6 million (2012: $1.7
million) reflected the increase in market interest rates since 30 June 2013
and the unwinding of interest rate positions.

An internal review of the 30 June 2013 valuations was undertaken in
accordance with our accounting policies. It indicated no material value
movement in the period. The 31 December 2013 investment property book values
were consistent with Precinct's policy of carrying investment property at
fair value.

Precinct's NTA per share at balance date increased to one dollar per share,
compared with 99 cents per share as last reported. The increase in NTA mainly
reflected fair value gain in interest rate swaps and Precinct's policy of
retaining earnings.

CAPITAL MANAGEMENT

Two equity initiatives were undertaken in the period. The proceeds from a $50
million placement and a $12.5 million share purchase plan were used to repay
bank borrowings which reduced to $556 million (2012: $603 million).
Precinct's gearing decreased to 34.1% (30 June 2013: 37.3%).

Precinct's existing bank debt facilities were also reduced during the period
to $610 million (30 June 2013: $660 million) as the company carried excess
funding capacity following the successful equity issues. The 2016 tranche was
reduced resulting in a weighted average term to expiry at 31 December of 3.6
years (30 June 2013: 4.0 years).

Of Precinct's drawn bank debt, 67% (30 June 2013: 57%) was effectively hedged
through the use of interest rate swaps. This hedging resulted in a weighted
average interest rate including all fees of 5.8% (30 June 2013: 5.6%) and a
weighted average term of 2.4 years (30 June 2013: 2.2 years).

PORTFOLIO PERFORMANCE

As noted, portfolio occupancy was maintained at 97% (30 June 2013: 97%) and
new leasing was secured at a 3% premium to valuations.

In Auckland, we started the year with income generating occupancy of 97%,
significantly higher than at the same time last year. After allowing for
recent acquisitions and the ANZ Centre redevelopment, this improved position
led to a 19% increase in Auckland's net property income compared to the
previous interim period.

The Auckland portfolio is now almost fully occupied with only 600 square
metres of office space available in the city. HSBC House, which was acquired
in May 2013 and had benefited from a six-month vendor underwrite, is now 100%
occupied. 2,500 square metres of space within the building has been secured
at a premium to 30 June valuations.

In Wellington, continued success at State Insurance Tower has led to the
portfolio being 96% occupied. With the strengthening works in the former
Central Police Station com and reinstatement works almost complete, further
leasing progress is anticipated in the next 12 months. Precinct has responded
to the first stage of the Government office accommodation RFP for Bowen
Campus, 1-3 The Terrace, Pastoral House and Mayfair House.

In total, 30 leasing transactions covering 38,700 square metres were secured
in the period this helped maintain a strong portfolio WALT of 5.5 years.

Precinct settled 5,200 square metres of market rent reviews at a 6% premium
to valuation in the period. Across the 6,800 square metres of rent reviews,
we saw an increase in passing rents of around 2%.

OFFICE MARKET UPDATE

The outlook for prime CBD office stock continues to firm as vacancy remains
at low levels. According to CBRE, Auckland Prime CBD vacancy decreased from
6.0% to 4.0% in the six months to December 2013. As a result, most research
houses are forecasting meaningful rental growth over 2014, consistent with
recent leasing transactions in the Auckland portfolio.

Wellington's Prime CBD vacancy also continues to decrease, with vacancy
reducing from 2.9% to 1.2% over the six months to December 2013. The
Wellington portfolio is positioned well given low levels of prime supply and
a concentration of leasing activity for well-located, seismically strong
buildings. A key consideration for the Wellington market is the Government's
accommodation plans.

DIVIDEND PAYMENT

Precinct shareholders will receive a second-quarter dividend of 1.35 cents
per share plus imputation credits of 0.21567 cents per share. Offshore
investors will receive an additional supplementary dividend of 0.09787 cents
per share to offset non-resident withholding tax. The record date is 6 March
2014. Payment will be made on 20 March 2014.

EARNINGS AND OUTLOOK

Precinct is well positioned to capture earnings growth in the medium term
with the portfolio no longer over-rented and an expectation in Auckland of
sound market rental growth. Earnings growth however will lag market due to a
lower level of impending expiry and a higher weighting to structured leases.
In Wellington, market awareness of seismic performance and our commitment to
seismic upgrades is contributing to an increase in occupier demand and an
improved occupancy outlook. Sustained low prime vacancy rates and price
stability returning to the insurance market should provide for some modest
rental growth in the medium term.

Guidance for the 2014 financial year remains unchanged with full-year
operating earnings after tax expected to be around 6.2 cents per share
(before performance fees) or 6.0 cps (assuming 50% of the maximum performance
fee is payable).
Dividend guidance for the 2014 financial year also remains unchanged at 5.4
cents per share, consistent with the 90% pay out dividend policy.

-ends-

For further information, contact:

Scott Pritchard
Chief Executive Officer
Office: +64 9 927 1640
Mobile: +64 21 431 581
Email: [email protected]

George Crawford
Chief Financial Officer
Office: +64 9 927 1641
Mobile: +64 21 384 014
Email: [email protected]

About Precinct (PCT)
Precinct is New Zealand's only specialist listed investor in prime and
A-grade commercial office property. Listed on the New Zealand Exchange, PCT
currently owns 17 New Zealand buildings - Auckland's PwC Tower, ANZ Centre,
SAP Tower, AMP Centre, Zurich House, HSBC House and Downtown Shopping Centre;
and Wellington's State Insurance Tower, Vodafone on the Quay, 171 Featherston
Street, 125 The Terrace, No. 1 and 3 The Terrace, Pastoral House, Mayfair
House, 80 The Terrace, Deloitte House and Bowen Campus.

Note 1 - Net Operating income reconciliation

Net operating income is an alternative performance measure which adjusts net
profit after tax for a number of non-cash items as detailed in the
reconciliation below. Precinct's Dividend Policy is based upon net operating
income. This alternative performance measure is provided to assist investors
in assessing Precinct's performance for the year.

$M 31 December 2013 31 December 2012
Net profit after taxation   39.5 23.6
Unrealised net (gain) / loss in value of investment properties - -
Realised loss / (gain) on sale of investment properties - -
Unrealised interest rate swap (gain) / loss   (10.6) (1.7)
Deferred tax (benefit) / expense   3.1 4.3
Net operating income   32.0 26.2
End CA:00247100 For:PCT    Type:HALFYR     Time:2014-02-18 09:14:42