Precinct Properties lifts FY profit 17pc, upbeat on development pipeline for 2018

Scott Pritchard, Precinct Properties chief executive. The listed commercial property investor is upbeat on development pipeline for 2018. Photo / Jason Oxenham

Precinct Properties New Zealand, the listed commercial property investor, increased annual profit 17 per cent and was positive about the current financial year as it completes its development pipeline. It's also considering issuing $150 million in subordinated convertible notes.

Net profit rose to $162.1m in the 12 months ended June 30, from $138.2m a year earlier, the Auckland-based company said in a statement. Net operating income, which excludes non-cash items such as unrealised movements in the value of investment properties, increased to $74.7m, or 6.17 cents per share, from $72.8m, 6.01 cents, which it said was in line with guidance.

Precinct said net property income fell to $90.3m versus $104.5m in the prior 12-month period. However, adjusting for developments and seismic repair costs its like-for-like net property income rose by 0.7 per cent.

It will pay a full year dividend of 5.6 cents per share, up 3.7 per cent on the year. Precinct shareholders will receive a final dividend of 1.56 cents per share plus imputation credits of 0.16 cents per share. The record date is September 15 and payment will be made on September 28.

Looking ahead, Precinct said it expects full year earnings in the current financial year to be 6.3 cents per share in the 12 months ending June 30, 2018, and expects to pay a dividend of 5.8 cents per share, an increase of 3.6 per cent.

"Demand for city centre office space remains strong. With limited supply available and overall vacancy rates at record lows, we expect this strong demand for office space to continue and be further driven by continuing employment growth in the coming years," said chief executive Scott Pritchard.

It noted the November 2016 Kaikoura earthquake had a significant impact on the Wellington market, and revealed structural issues at Deloitte House, resulting in a value write down of $26.1m. This seismic event also reduced Precinct's earnings per share through lost income and seismic repair costs. Despite this, it recorded an overall valuation gain of $77.5m helping lift the value of the portfolio to $2.04 billion. Net tangible assets per share rose 6 per cent to $1.24.

"We achieved strong progress across all our activities last year," Pritchard said. "We saw continued gains from executing on a strategy of specialising in our city centres."

The company's occupancy increased to 100 per cent at year end versus 98 per cent in 2016 and its weighted average lease term was 8.7 years.

Regarding its development pipeline, work has commenced at Wellington's Bowen Campus and Commercial Bay in Auckland remains on track for overall completion by mid-2019. Precinct recorded a revaluation uplift on both development sites. Forecast development profit from both Bowen Campus and Commercial Bay has increased to around $242m of which approximately $160m remains to be recognised in future years, it said. Forecast development profit is calculated as independently assessed as if complete value less forecast total project cost.

The company also said it is considering selling up to $150m of four-year, fixed rate, subordinated convertible notes to institutional and New Zealand retail investors. The notes are expected to be listed on the NZX main board. It has pre-funded its existing development pipeline but is considering issuing the notes "to provide the company the flexibility to pursue prudently other projects, should they arise. Full details of the offer are expected later this month.

Precinct shares rose 0.4 per cent to $1.285, having gained 6.7 per cent so far this year.