Annual results year ended 30 June 2014 13.08.2014 Agenda Highlights Page 3 Section 1 – Financial Results and capital management Page 4 Section 2 – Market and portfolio overview Page 13 Section 3 – Strategy Page 21 Section 4 – Active Opportunities Page 25 Section 5 – Conclusion and Outlook Page 32 Precinct Properties New Zealand Limited Scott Pritchard, CEO George Crawford, CFO Note: All $ are in NZD PRECINCT ANNUAL RESULTS, 30 JUNE 2014 Page 2 Highlights Financial performance $117.2m net profit after tax $63.8m net operating income +9.4% increase in net operating income $47.5m revaluation gain Strong results and Portfolio performance operational 98% gains occupancy Wynyard Central Development agreement with Waterfront Auckland PRECINCT ANNUAL RESULTS, 30 JUNE 2014 Page 3 Section 1 Financial Results and Capital Management Financial performance For the 12 months ended Jun-2014 Jun-2013 ($m) Audited Audited D Net property income $118.3 m $104.0 m + $14.3 m Indirect expenses ($2.2 m) ($1.9 m) + $0.3 m Performance fee ($2.2 m) ($3.4 m) ($1.2 m) EPS Reconciliation Base fees ($8.3 m) ($7.5 m) + $0.8 m EBIT $105.7 m $91.2 m + $14.5 m Net interest expense ($33.2 m) ($28.0 m) ($5.2 m) Operating profit before tax $72.5 m $63.2 m + $9.3 m Current tax expense ($8.7 m) ($4.9 m) ($3.8 m) Operating profit after tax $63.8 m $58.3 m + $5.5 m Unrealised net gain in value of investment $47.5 m $46.3 m + $1.2 m properties Realised gain on sale of investment properties - ($0.0 m) + $0.0 m Deferred tax (expense) / benefit ($5.0 m) $39.7 m ($44.7 m) Unrealised interest rate swap (loss) $10.9 m $13.2 m ($2.3 m) Net profit after tax and unrealised gains $117.2 m $157.5 m ($40.3 m) Net operating income before tax - gross (cps) 6.93 cps 6.34 cps + $0.59 cps Net operating income after tax - (cps) 6.10 cps 5.85 cps + $0.25 cps Net operating income after tax - pre 6.24 cps 6.09 cps + $0.15 cps performance fees (cps) Dividend 5.40 cps 5.12 cps + $0.28 cps Payout ratio 88.5% 87.5% 1.0% PRECINCT ANNUAL RESULTS, 30 JUNE 2014 Page 5 Net property income $m FY14 FY13 D ■ Overall net property income (NPI) was AMP Centre $9.0 $7.5 + $1.5 $14.4 million or 14% up SAP Tower $6.4 $5.5 + $0.9 – Excluding acquisitions NPI was 5.7% up. PwC Tower $13.6 $15.1 ($1.5) – Increased occupancy within ANZ ANZ Centre $17.1 $13.3 + $3.9 Centre, AMP Centre, SAP Tower and Zurich House $6.0 $5.4 + $0.6 State Insurance Auckland total $52.1 $46.8 + $5.3 125 The Terrace $5.2 $5.3 ($0.1) – Straight-line rent correction of around $1m relating to prior periods impacting 171 Featherston Street $5.6 $5.8 ($0.2) current year NPI Pastoral House $4.5 $4.6 ($0.1) Vodafone on the Quay $7.0 $7.0 ($0.0) State Insurance Tower $8.6 $7.3 + $1.3 Reconciliation of movement in net property income Mayfair House $2.9 $3.1 ($0.2) 80 The Terrace $1.9 $2.8 ($0.9) Deloitte House $3.8 $3.9 ($0.1) Bowen Campus $6.1 $5.7 + $0.3 No 1 The Terrace $6.4 $6.1 + $0.3 Wellington total $52.0 $51.7 + $0.3 Sub Total $104.1 $98.5 + $5.6 Acquisitions Downtown Shopping Centre $6.5 $4.5 + $2.1 HSBC House $7.7 $1.0 + $6.7 Total $118.3 $104.0 + $14.4 PRECINCT ANNUAL RESULTS, 30 JUNE 2014 Page 6 Taxation impacts ■ Higher tax charge: Tax expense reconciliation – Reflecting higher pre-tax profit and the 2013 deduction for assets 2014 2013 scrapped at ANZ Centre Reconciliation of tax expense $m $m Net profit before taxation $130.9 $122.7 redevelopment Less non assessable income – Offset by a tax deduction relating Unrealised revaluation movement ($47.5) ($46.3) to the 2011 sale of Chews Lane Unrealised interest rate swap movement ($10.9) ($13.2) Operating profit before Tax $72.6 $63.2 ■ FY15 expected effective tax rate of Other deductible expenses 12% to 14% Depreciation ($30.5) ($24.0) ■ Future tax profile will be impacted by Disposal of depreciable assets ($4.2) ($8.7) deductible costs associated with Leasing fees and incentives in the period ($2.8) ($7.5) developments Other ($3.8) ($5.5) Taxable income $31.2 $17.5 Current tax expense $8.7 $4.9 PRECINCT ANNUAL RESULTS, 30 JUNE 2014 Page 7 Balance sheet Financial Position as at Jun-2014 Jun-2013 ($m) Audited Audited D Reconciliation of NTA movement (cps) Assets Reconciliation of NTA movement cps Property Assets $1,632.5 m $1,640.4 m ($7.9 m) NTA 30 June 2013 99 Fair Value of Swap's $6.0 m $3.8 m $2.2 m Revaluation 4 Deferred Tax - Fair Value of Swap's $0.9 m $4.0 m ($3.1 m) Interest rate swap movement 1 Assets held for sale $95.6 m $95.6 m Retained Earnings 1 Other $12.5 m $10.3 m $2.2 m NTA 30 June 2014 104 Total Assets $1,747.5 m $1,658.5 m $89.0 m Liabilities Bank Debt $572.0 m $603.0 m ($31.0 m) Deferred Tax depreciation $42.2 m $40.3 m $1.9 m Fair value of swaps $9.4 m $0.4 m $9.0 m Other $17.1 m $31.0 m ($13.9 m) Total Liabilities $640.7 m $674.7 m ($34.0 m) Equity $1,106.8 m $983.8 m $123.0 m Liabilities to Total Assets - Loan Covenants 33.8% 37.3% -3.5% Shares on Issue (m) 1,059.7 m 997.1 m 62.7 m Net tangible assets per security 1.04 0.98 0.06 PRECINCT ANNUAL RESULTS, 30 JUNE 2014 Page 8 Capital management ■ Reduced bank borrowings to Key metrics June 2014 June 2013 $572m through equity initiatives Debt drawn $572m $603m totalling $62.5m Gearing - Banking Covenant 33.8% 37.3% Weighted facility expiry 3.1 yrs 4.0 yrs – Gearing fell to 33.8% Weighted average debt cost (incl fees) (WACD) 6.0% 5.6% ■ Post balance date, refinanced Hedged 67% 57% existing secured bank debt facility ICR 3.2 times 3.0 times – Reduced to $600m Weighted average hedging 2.3 yrs 2.2 yrs Notional value of swaps $482m $491m – Material savings through lower margins Debt Facility Expiry and Hedging Profile – Increased tenor to 3.8 years ■ 67% of drawn bank debt effectively hedged – Weighted average interest rate of 6.0% PRECINCT ANNUAL RESULTS, 30 JUNE 2014 Page 9 Valuation outcome ■ Revaluation of $47.5 million or 2.8% Change in property assets ■ Valuation increases equally attributable to both market capitalisation rate compression and increases in net market rentals ■ Underlying portfolio cap rate compressed from 7.5% to 7.3% Portfolio valuation movement 2013 2014 Capitalisation Rate Valuation Additions Book Value Valuation ▲ $m ▲ % 2013 2014 ▲ bps Wellington $674 m $27 m $701 m $691 m ($10.0 m) (1.4% ) 8.0% 7.9% (10 bps) Auckland $878 m $11 m $888 m $942 m $53.5 m 6.0% 7.1% 6.9% (20 bps) Sub Total $1,552 m $37 m $1,589.0 m $1,633 m $43.5 m 2.7% 7.5% 7.3% (20 bps) SAP Tower $89 m $3 m $91.5 m $96 m $4.1 m 4.5% 7.6% 7.5% (10 bps) Total $1,640 m $40 m $1,680.5 m $1,728.1 m $47.6 m 2.8% 7.5% 7.3% (20 bps) Auckland (incl SAP Tower) $966 m $14 m $979.9 m $1,038 m $57.6 m 5.9% 7.1% 6.9% (20 bps) PRECINCT ANNUAL RESULTS, 30 JUNE 2014 Page 10 Insurance ■ A saving of 26% has been achieved Comparison to prior year when compared to last year’s costs, FY14 FY13 % D Total Premium $3.7 m $5.0 m -26% and the scope of cover has not been Wellington (m²) $16 /m² $22 /m² -26% compromised. Auckland (m²) $6 /m² $8 /m² -25% – Over the previous two years Total (m²) $11 /m² $15 /m² -26% insurance premiums have reduced by one third. ■ Basis of cover: – Generally, buildings insured at full replacement cost plus allowance for demolition costs and inflation – Loss of rents cover maintained at between 2 and 4 years – Deductibles for a seismic event now consistent at $20m for Wellington and Auckland PRECINCT ANNUAL RESULTS, 30 JUNE 2014 Page 11 Earnings outlook Earnings consistent with FY15 Assumes mid year asset sales reducing gearing to mid to high 20% range 6.2 cents per share FY15 net operating income after tax, before performance fees 5.4 cents per share FY15 dividend guidance Adding value beyond FY15: ■ Portfolio repositioning through active opportunities ■ Increased weighting to Auckland ■ Higher quality assets developed PRECINCT ANNUAL RESULTS, 30 JUNE 2014 Photo - Peata Larking artwork, ANZ Centre Page 12 Section 2 Market and Portfolio Overview Portfolio activity Leasing events ■ 61 leasing transactions totalling 57,000m2 or $17 million in New Leasing Number Area contract rent Auckland 34 14,363 m² Wellington 11 8,013 m² – Secured on a 4 year WALT Sub Total 45 22,376 m² – 2.9% Premium to valuation RoR and Extensions ■ 22,000m2 of new leasing Auckland 11 7,483 m² Wellington 5 27,258 m² – 60% of new leasing was in Sub Total 16 34,741 m² Auckland Total Leasing 61 57,117 m² – 18 new clients Rent Reviews Number Area ■ WALT 5.4 years Auckland 49 43,296 m² ■ Occupancy increased to 98% Wellington 27 29,026 m² ■ 72,000m2 of settled rent reviews Total Reviews 76 72,323 m² – 18 or 35,000m2 of market reviews settled at 3.5% above valuation PRECINCT ANNUAL RESULTS, 30 JUNE 2014 Page 14 Events in review ■ Compared with previous contract Major new leasing transactions during year rent Property Client Area m² Term years – ROR and extensions were 4.1% Zurich House NZX Ltd 914 m² 7.5 years higher than passing PwC Tower ICBC 1,020 m² 8.0 years – An increase of 2.6% achieved PwC Tower Crowe Horwath 1,349 m² 9.0 years on settled rent reviews State Insurance Air NZ 1,047 m² 6.0 years ■ Major successes: AMP Centre Auckland Transport 1,527 m² 6.0 years – State Insurance Tower 98% HSBC House Auckland Transport 2,118 m² 6.0 years leased PwC Tower Todd Land 1,349 m² 4.0 years – Auckland Transport committed AMP Centre Kindercare 1,336 m² 6.0 years to 3,600m² in Downtown Precinct 80 The Terrace Medical Council 1,564 m² 9.0 years – 2,700m² of space leased to 80 The Terrace AECOM 1,175 m² 6.0 years Medical Council and AECOM in Other 8,980 m² 80 The Terrace Total Leasing 22,376 m² 6.8 years PRECINCT ANNUAL RESULTS, 30 JUNE 2014 Page 15 Portfolio metrics