PFI achieves 5.3 percent increase in distributable profit
News release to New Zealand Stock Exchange
February 23, 2009
Listed industrial property investor Property For Industry (PFI) has announced a 5.3 percent increase in net operating profit after tax for distribution for the full year to December 31, 2008.
Rentals rose 5.2 percent to $32.470 million on the strength of the company’s previous acquisitions, development projects and higher rents following rent reviews, notwithstanding the sale of two of the company’s properties during the year.
PFI’s net operating profit after tax for distribution for 2008 was $15.699 million (2007: $14.905 million).
Net earnings per share for the year, based on distributable profit, were 4.4 percent higher than the previous year, at 7.42 cents per share.
In view of the current economic climate, PFI’s directors resolved that the fourth-quarter dividend for 2008 would be at the same level as in 2007 and PFI shareholders will therefore receive a final dividend for 2008 of 2.425 cents per share plus imputation credits of 0.345 cents. This brings the total net dividend for 2008 to 7.18 cents per share, 1.1 percent higher than in 2007.
The balance of 2008’s distributable profit – approximately $500,000 – will form part of retained earnings.
The record date for the fourth-quarter dividend is March 9, 2009 and payment will be made on March 18. The company’s dividend reinvestment scheme is in place for the dividend and the discount rate for shares issued under the scheme remains at 2.5 percent.
PFI has completed its revaluation of its portfolio as at December 31, 2008 (following an earlier valuation review as at September 30). The full-year revaluation, by independent valuers DTZ, Jones Lang LaSalle and CB Richard Ellis, has resulted in an unrealised net reduction in portfolio value of $43.128 million or 10.2 percent over the 12 months.
PFI general manager Ross Blackmore reiterated that this is an unrealised reduction which, most importantly, does not impact the company’s revenue streams or the profit available for distribution to shareholders.
The unrealised portfolio revaluation loss, along with other NZ IFRS non-cash adjustments such as unrealised losses in the fair value of interest rate swaps and deferred taxation, means that PFI recorded a full-year loss after tax and unrealised losses of $31.912 million for 2008, compared with a profit of $44.450 million the previous year.
Net tangible assets per share (NTA) reduced from its December 31, 2007 value of $1.46 per share to $1.24.
Mr Blackmore said the reduction in PFI’s property values attributable to capitalisation rate expansion was offset to a limited extent by a slight amount of rental growth, along with the company’s development, lease restructuring and add-value activity.
The capitalisation rate of PFI’s portfolio rose from 7.79 percent to 8.65 percent, a movement of 86 basis points. Mr Blackmore said it was pleasing that PFI’s portfolio value had reduced less than the market norm as indicated by CB Richard Ellis research (a movement of 86 basis points for PFI’s portfolio, as compared to 103 basis points for the wider industrial market).
He noted that PFI’s portfolio had previously enjoyed a sustained period of strong valuation growth, with valuation uplifts totalling almost $137 million or 46 percent over the past five years. He described 2008’s reduction as “an unfortunate but inevitable consequence of current global economic conditions.”
PFI’s gearing ratio (debt to total assets) based on the revised portfolio value is 28.9 percent (2007: 28.6 percent), well below the company’s self-imposed maximum of 35 percent and one of the lowest in New Zealand’s listed property sector. During 2008, PFI renewed its $120 milliion banking facility with longstanding banker the Bank of New Zealand for a three-year term extending until late 2011.
Commenting on the industrial property investment market, Mr Blackmore said that rapidly-falling interest rates had sparked a resurgence of investor interest in well-leased industrial property since the end of 2008, particularly from private investors, syndicates and promoters of proportional-title schemes. This meant that small to-mid sized industrial was one of the few property sectors with reliable transactional evidence to support valuations. “With PFI’s average property value at $7 million, this demonstrable investor demand bodes well for relative resilience and transparency of market values.”
In addition to the two properties sold at book value during 2008, PFI sold a third (7-13 Fisher Cres, Mt Wellington) post-balance date to a private investor for $6.502 million, representing an 8.5 percent yield and slightly above its December 31, 2008 book value. Settlement took place earlier this month [February].
Mr Blackmore noted that the proceeds of the three sales totalled $33.6 million. “For PFI, 2008 was about locking in our banking facility for a further three years, and then recycling capital into better-quality or higher-yielding opportunities, such as the company’s development pipeline as and when tenant pre-commitment is secured.”
Despite current economic conditions, PFI is still receiving good levels of tenant enquiry on its few vacancies and new projects currently being marketed.
2008 highlights
- Leases due to expire during 2008: of a total of seven, PFI found new tenants for four, retained one and the remaining two are in a building which the company is refurbishing
- Leases due to expire in 2009 and beyond: of a total of 15, seven tenants have already been retained and one new tenant found. “There is a powerful message in the fact that so many of our tenants had the opportunity to consider other options and yet have chosen to re-commit ahead of time.”
- Three lease restructures which, in combination with the tenant retentions, helped to shield the portfolio from falling values.
- The 2008 rent review programme was the largest in the company’s history and added $1.098 million to the company’s rent roll. This is the fourth consecutive year that PFI’s rent reviews have made a contribution of more than $1 million. “We have largely caught up with the under-renting in the portfolio and the coming years will not see such significant growth,” said Mr Blackmore.
- In 2008, PFI completed new developments for Bridgestone (Seaview Business Park, Wellington) and USL Medical (Peninsula Business Park, Auckland). Further projects are underway for Brewcraft and Dorma in Auckland, along with the repositioning of 8 Hugo Johnson Drive (formerly 415 Church St).
The combined cost of the USL, Brewcraft and Dorma projects (for which the rentals will fall into the 2009 year) is $8.75 million and the return on additional funds invested is 10.1 percent.
Outlook
In 2009, as with 2008, maintaining high occupancy is a prime focus. At year-end, PFI’s portfolio occupancy rate was 99.37 percent, with a weighted average lease term (WALT) of 4.6 years. The company’s 56 properties are leased to more than 100 tenants.
While there are many unknown factors, Mr Blackmore said falling interest rates offer some respite. He noted that PFI’s average term of interest rate swaps is the lowest in the listed property sector.
Over a five-year time frame, PFI’s average total return to shareholders has been just over 11 percent – one of the best in the sector.
PFI is New Zealand’s only listed company specialising in industrial property investment, and is managed by AMP Capital Investors.
For further information:Ross Blackmore, General Manager, Property For Industry
Ph 09-307 8393 or 029-307 8393
Email ross.blackmore@ampcapital.co.nz