Ann: HALFYR: PFI: PFI Announces Interim Results, $49.5m Rights Offer

• Release Date: 11/08/15 08:30
• Summary: HALFYR: PFI: PFI Announces Interim Results, $49.5m Rights Offer
• Price Sensitive: No
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					PFI
11/08/2015 08:30
HALFYR
PRICE SENSITIVE
REL: 0830 HRS Property for Industry Limited

HALFYR: PFI: PFI Announces Interim Results, $49.5m Rights Offer

PFI ANNOUNCES INTERIM RESULTS, $49.5M UNDERWRITTEN PRO RATA RENOUNCEABLE
RIGHTS OFFER

Highlights
Financial
- Profit after tax for the six months to 30 June 2015 of $36.4 million or
8.85 cents per share
- Distributable profit (A) for the six months to 30 June 2015 of 3.64 cents
per share
- Second quarter cash dividend of 1.75 cents per share, total cash dividends
for the first six months of 2015 of 3.50 cents per share, in line with the
previous corresponding period
- $375 million bank loan facility refinanced on competitive terms
Portfolio
- $25.6 million or 2.8% portfolio revaluation uplift (B)  contributing to a
4.0% increase in net tangible assets to 135.4 cents per share
- 38% of contract rent varied, leased or reviewed during the first six months
of 2015
- Occupancy improved to 100%, weighted average lease term stable at 5.26
years, only 3.4% of contract rent due to expire during the remainder of 2015
Recent acquisitions and developments
- PFI has committed to a series of value enhancing acquisition and
development opportunities to drive growth
- $18.4 million acquisition of 232 Cavendish Drive, Manukau, completed Q2
2015
- $28.5 (C) million acquisition of a portfolio of five properties in Penrose,
to be completed Q3 2015
- $26.5 million committed to pre-leased developments at 124 Hewletts Road,
Mount Maunganui
- $12.9 million of development planned on Auckland expansion land
Underwritten renounceable pro rata rights offer
- PFI to raise approximately $49.5 million through a pro rata renounceable
rights offer
- 1-for-12 rights offer, at issue price of $1.44 per share, fully
underwritten by Forsyth Barr Group Limited
- Proceeds of the rights offer to be used to repay bank debt and reduce
gearing related to the acquisition and development programme

NZX listed industrial property landlord Property For Industry Limited (PFI)
today announced its interim results for the six months to 30 June 2015 and an
underwritten pro rata renounceable rights offer to fund earnings accretive
acquisition and development activity.

PFI Chairman Peter Masfen said: "PFI has produced a robust half year result
from its fully occupied high quality industrial property portfolio. In
addition, the company has secured acquisition and development activity
totalling $86 million."

In order to fund this activity, the company plans to use a combination of
existing bank loan facilities and the proceeds of an underwritten $49.5
million pro rata renounceable rights offer.

Mr. Masfen continued: "Post acquisition, development and completion of the
rights offer, PFI is expecting pro forma year end gearing of around 35%, 2015
full year earnings per share of at least 7.35 cps, and an enhanced earnings
growth profile driven in part by future development activity."

Financial performance
Operating revenues for the six months of $32.1 million in line with the
previous corresponding period, as increases due to acquisitions and rent
reviews were offset by decreases due to disposals and vacancy. The company
expects operating revenues in second half of 2015 to be ~5% higher than in
the first half of the year, as recent acquisitions and developments begin to
contribute, or contribute further.

Operating expenses for the six months of $15.3 million were up $2.3 million
or 17.8%, due to increases in management fees incurred (increase of $1.7
million) and interest expense and bank fees (increase of $0.6 million).

The effective current tax rate (D) decreased to 18.8% (2014: 20.6%) due to
increased operating expenses reducing taxable income.

After allowing for non-operating income and expenses and deferred tax, PFI
recorded profit after tax of $36.4 million or 8.85 cents per share (2014:
$14.4 million or 3.5 cents per share).

Distributable profit & dividends
PFI recorded distributable profit of 3.64 cents per share, a decrease of 0.16
cents per share or 4.2% over the previous corresponding period (2014: 3.80
cents per share).

The PFI board has today resolved to pay a second quarter cash dividend of
1.75 cents per share. The dividend will have imputation credits of 0.4590
cents per share attached and a supplementary dividend of 0.2083 cents per
share will be paid to non-resident shareholders. The record date for the
dividend is 25 August 2015 and the payment date is 3 September 2015.

The second quarter dividend will take cash dividends for the first six months
of 2015 to 3.50 cents per share, in line with the previous corresponding
period.

The dividend reinvestment scheme (DRS) has been suspended for the quarter
ended 30 June 2015 due to the timing of the scheme coinciding with the rights
offer. The board of PFI will continue to assess whether to operate or suspend
the DRS on a quarter-by-quarter basis, as PFI's capital needs dictate.
Notwithstanding this, the board of PFI expects to recommence the DRS in the
following quarter, ended 30 September 2015.

Following the rights offer, PFI continues to expect to meet the earnings
guidance announced at the time of the 2014 annual results, but with
materially lower gearing and enhanced growth prospects, driven in part by a
number of the new development opportunities announced today. For the 2015
financial period, PFI expects distributable profit to be at least 7.35 cents
per share and cash dividends to be 7.30 cents per share, subject to economic
and market conditions.

Balance sheet & capital management
PFI's valuers, CB Richard Ellis, Colliers International and Jones Lang
LaSalle completed a desktop review of the company's property portfolio as at
30 June 2015. 12 properties were also subject to full independent valuations
due to significant capital expenditure or changes in contract rental during
the six month period. As a result of the desktop and full independent
valuations, PFI recorded a portfolio revaluation uplift of $25.6 million or
2.8% to $930.3 million.

PFI's net tangible assets per share increased by 5.2 cents per share or 4.0%
from 130.2 to 135.4 cents per share. This increase was driven by the uplift
in the fair value of investment properties described above (+6.2 cents per
share), but was partially offset by the fair value change in PFI's
derivatives (-0.9 cents per share). Other changes accounted for the remaining
-0.1 cps.

In May 2015, the company's syndicated bank loan facility was refinanced on
competitive terms and increased from $350 million to $375 million. The
facility, provided by existing lenders ANZ, BNZ, CBA and Westpac, comprises
two $187.5 million tranches committed for four and five year terms
respectively. The refinance extended the average term to expiry to 4.3 years
(E) as at 30 June 2015 and at the same time the cost of the facilities was
reduced.

PFI carries current hedging (F) of $233 million at an average rate of 4.88%
for an average duration of 3.6 years (G). Based on current hedging and debt
levels, an average of ~70% of the company's debt will be hedged during the
remainder of 2015.

When combined with PFI's syndicated bank loan facility this hedging provides
the company with a weighted average cost of debt of 5.92% (H), in line with
the rate as at 31 December 2014 of 5.96%.

The company ended the interim period with gearing (I) at 36.8%, up slightly
from 35.8% as at 31 December 2014 but well within PFI's self-imposed gearing
limit of 40% and bank covenants of 50%. The interest cover ratio (J) reduced
slightly to 2.8 times but also remains well within bank covenants of 2.0
times. As noted earlier in this announcement, post acquisitions, developments
and completion of the rights offer, PFI is expecting pro forma year end
gearing of around 35%.

In order to manage the timing of cash-flows associated with the acquisitions,
developments and rights offer, PFI has today entered into a $25 million
Institutional Credit Agreement with ANZ. The facility has an initial expiry
date of six months, with an option to extend the expiry to 12 months. The
facility ranks alongside PFI's existing syndicated bank loan facility, and
PFI does not expect to retain this facility at the completion of the rights
offer.

Portfolio performance
(See attachment for table)
More than 56,000 square metres of PFI's existing portfolio was leased during
the first six months of 2015 to 11 new and existing tenants for an average
term of 6.7 years. PFI also completed its development at 9 Narek Place,
Manukau, Auckland during the interim period, with a new 10 year lease to Z
Energy commencing at this purpose-built facility.

The company also completed rent reviews on 40 leases, representing almost
$20.4 million of contract rent, during the interim period. These reviews
resulted in an average annual uplift of 2.0%, with fixed or index-linked
review mechanisms, present in around two thirds of PFI's leases (K),
contributing almost 90% of the growth.

PFI's near term leasing outlook remains positive: at 30 June 2015 the
company's portfolio is 100% occupied and only 3.4% of contract rent is due to
expire during the remainder of 2015. The largest single 2015 expiry
represents just 0.8% of rent.

Market update
The industrial property sector experienced continued growth in prime
industrial rents in first half 2015, following a period of stability
throughout the second half of last year, while transactional activity
continues to remain high following a strong 2014.

Attractive yields are being paid for secondary properties offering
redevelopment potential, while relatively low prime yields persist reflecting
the weight of capital seeking investment opportunities relative to the
availability of those opportunities, lower interest rates, good occupancy
conditions, and income growth.

Strategy and outlook
PFI's portfolio is well positioned to benefit from continued favourable
market conditions. Momentum in leasing activity following a strong 2014 has
allowed PFI to achieve an occupancy rate of 100% as at 30 June 2015 and
provides the opportunity for rental growth in the medium term.

Investor sentiment towards investment grade industrial property is strong and
this has led to the firming of capitalisation rates for these assets. PFI has
benefited from this trend through a 2.8% portfolio revaluation uplift and
expects buoyant market conditions to persist in the near term.

In the current market, securing prime industrial property accretive to
shareholder returns continues to be a challenge given the dearth of high
quality assets available and the intensity of competition to acquire,
particularly from private investors and owner occupiers. Despite this, PFI
has successfully completed a number of acquisitions since the start of 2015
which have enhanced earnings and provided PFI with "core" industrial property
in key locations. In addition, PFI has committed to a number of existing
development opportunities within the portfolio that will contribute
meaningfully to earnings once completed.

Recent acquisitions and development
PFI has had a busy start to 2015, acquiring 232 Cavendish Drive in Manukau
and a portfolio of five industrial properties in Penrose, located on Hugo
Johnston Drive and Autumn Place. These acquisitions cost a total of $46.9
million.

PFI has also committed to various pre-leased development opportunities,
estimated to cost $26.5 million in total. This comprises construction of four
new bulk store facilities at 124 Hewletts Road in Mount Maunganui, leased to
RMD Bulk Storage, ADM, Glencore Grain and Regal Haulage.

In line with its objective of maximising utilisation of the portfolio, PFI is
also projecting to spend $12.9 million on the development of surplus Auckland
land. This will be at 212 and 232 Cavendish Drive, Manukau, 9 Narek Place,
Manukau and a new warehouse at 54 Carbine Road & 6a Donnor Place, Mount
Wellington.

These acquisitions and developments, expected to represent a total capital
commitment of $86.3 million, are in line with PFI's strategy of delivering
incremental value enhancing growth opportunities for shareholders. PFI
intends to fund this capital commitment via the rights offer announced today,
existing debt facilities and by recycling capital through minor, selective
asset sales.

Details of the offer
PFI will raise approximately $49.5 million through a renounceable pro rata
rights offer. The offer is fully underwritten by Forsyth Barr Group Limited
at an issue price of $1.44 per share.

Under the offer, eligible shareholders will be entitled (but not obliged) to
acquire 1 new share for every 12 existing shares held at 5:00 pm on the
record date of 20 August 2015. Further details of the offer can be found in
the rights offer document released today and expected to be mailed to
shareholders on 21 August 2015.

The Manager and the Board have committed to exercise and take up all rights
in respect of their beneficial shareholdings, which represents a commitment
to subscribe for 1,037,048 new shares as part of the offer.

It is intended that the net proceeds of the rights offer will be used to pay
down bank debt relating to the recent acquisitions and committed
developments, increasing available headroom in banking facilities, with
gearing of ~35% expected at the end of the 2015 financial year.

Contact

For further information please contact:

Greg Reidy
Managing Director
Phone: +64 9 303 9653
Email: [email protected]

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

Nick Cobham
General Manager (Joint)
Phone: +64 9 303 9656
Email: [email protected]

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

About PFI

PFI is New Zealand's only listed company specialising in industrial property.
PFI's portfolio of 80 industrial properties in Auckland, Hamilton, Mount
Maunganui, Wellington and Christchurch, is leased to 142 tenants.

www.propertyforindustry.co.nz

Attached

(1) Appendix 1 - 30 June 2015
(2) Appendix 1 - Interim Financial Statements - 30 June 2015
(3) Appendix 7 - 30 June 2015
(4) Interim Results Presentation - 30 June 2015

Appendix
(See attachment for table)

(A) 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.
(B) Unrealised fair value gain on investment properties as a result of a
desktop review of 68 properties and independent valuation of 12 properties.
Please refer to note 6(iii) in the unaudited financial statements as at and
for the six months ended 30 June 2015, attached to this announcement.
(C) There is potential additional deferred consideration payable totalling
$1,214,113, with a total potential purchase price of $29,710,486.
(D) That is, the ratio of current taxation to operating earnings.
(E) 3.8 years as at 31 December 2014.
(F) PFI defines hedging as any debt that has an interest rate secured for
more than three months.
(G) PFI also carries forward starting hedging of $55 million at an average
rate of 3.88% for an average duration of 3.8 years, resulting in total
hedging of $288 million at an average rate of 4.69% for an average duration
of 3.6 years.
(H) As at 30 June 2015. Weighted average cost of funds comprises BKBM,
hedging, margins and all borrowings related fees.
(I) That is, total borrowings as a percentage of the most recent property
desktop or full independent valuations of the property portfolio.
(J) That is, the ratio of interest expense and bank fees to operating
earnings excluding interest expense and bank fees.
(K) By contract rent.
End CA:00268169 For:PFI    Type:HALFYR     Time:2015-08-11 08:30:08