8:30am, 6 Aug 2012 | HALFYR
PFI MAKES PROGRESS REPOSITIONING PORTFOLIO; MAINTAINS DIVIDEND
- Secured 11 new or varied leases, accounting for more than 14% of PFI’s contract rent;
- Only one lease expiry remaining in 2012;
- Weighted average lease term increased to 4.50 years from 4.17 years in December 2011;
- Net profit after tax rises 6.0% to $7.046 million from $6.649 million;
- Second quarter dividend held at 1.55 cents per share taking dividends for the half year to 3.1 cents per share;
- Balance sheet strong; gearing at 30.1%.
NZX listed industrial property landlord Property For Industry (PFI) has today reported steady progress in the repositioning of its portfolio by its new manager PFIM as it disclosed earnings for the six months to 30 June 2012.
Over the six month period, PFI had secured or varied 11 leases covering 14% of its contract rent and extended the weighted average lease term of the portfolio to 4.5 years from 4.17 years in December 2011. The company’s single development in Lower Hutt is also proceeding as planned.
Profit after tax for the half year rose 6.0% to $7.046 million from $6.649 million in 2011 as gains in the fair-value of financial instruments offset an increase in deferred taxation and a 5.8% fall in gross rental income to $14.716 million from $15.621 million in 2011.
Distributable profit , which adjusts for these fair value changes, deferred taxation and other items, fell 4.9% to $7.637 million from $8.033 million. PFI’s balance sheet nevertheless remains strong with gearing at 30.1%.
PFI Chairman Peter Masfen said: “PFI has made steady progress on its strategic objective to strengthen the lease profile of the portfolio and is well placed to leverage the company’s strong balance sheet into earnings-accretive industrial property investment opportunities.
The PFI Board has resolved to maintain the second quarter dividend at 1.55 cents per share, unchanged from the previous year, bringing total dividends so far this year to 3.1 cents per share.”
PFI General Manager Nick Cobham said: “The fall in gross rental income reflects sales of properties in the prior period and lower average occupancy. However, as the board’s decision to maintain the dividend shows, we are confident PFI’s financial strength combined with our strong position in the industrial property market leaves us well placed to continue to deliver for shareholders.”
Financial performance $000 $000
for the six months ended 30 June 2012 30 June 2011
Gross rental income 14,716 15,621
Interest income 3 13
Total operating revenue 14,719 15,634
Interest expense and bank fees (4,025) (4,122)
Management fees (936) (933)
Non-recoverable property costs (758) (461)
Other expenses (454) (458)
Total operating expenses (6,173) (5,974)
Total operating earnings 8,546 9,660
Losses on disposals of investment properties - (167)
Unrealised fair value change in derivative financial instruments 802 (1,228)
Profit before taxation 9,348 8,265
Current taxation (1,659) (1,627)
Deferred taxation (643) 11
Profit after taxation 7,046 6,649
Distributable profit $000 $000
for the six months ended 30 June 2012 30 June 2011
Profit after taxation 7,046 6,649
Losses on disposals of investment properties - 167
Unrealised fair value change in derivative financial instruments (802) 1,228
Deferred taxation 643 (11)
Other 750 -
Distributable profit 7,637 8,033
Distributable profit per share 3.48 3.69
Distributable profit for the six months fell to 3.48 cents per share from 3.69 cents per share.
Operating revenues for the six months were $0.915 million or 5.9% lower than the previous corresponding period, at $14.719 million, primarily due to the company’s property sales and lower portfolio occupancy.
Operating expenses were largely in line with the previous corresponding period, aside from PFI’s non-recoverable property costs, which were $0.297 million higher than the previous corresponding period due to the profit impact of the adjustment of various prepayments and other assets.
No performance fee was payable to the manager in respect of the current and previous corresponding six month period.
The effective current tax rate rose modestly to 19% from 17%, due, amongst other things, to prior period tax adjustments.
Balance sheet & capital management
PFI’s net tangible assets of 108 cents per share remained unchanged from December 2011, up one cent per share from the previous corresponding period. PFI’s $359 million portfolio was not independently valued during the six months ending 30 June 2012. The next independent valuation will be carried out as at 31 December 2012.
Gearing and interest cover at 30.1% and 3.2 times respectively remained comfortably within covenant levels of 45% and 2.0 times.
Utilisation of PFI’s $150 million syndicated facility with ANZ and ASB, which has nearly three and a half years to expiry, increased slightly to $105 million during the six months ending 30 June 2012.
The company’s current interest rate hedging was largely unchanged, with an extension to one interest rate swap resulting in a decrease in the average hedged interest rate to 6.42% from 6.64%. The average duration of the $73 million of current interest rate hedging was 2.76 years. There were no changes to the company’s forward starting interest rate hedging.
The weighted average interest rate as at 30 June 2012 on drawn borrowings was 7.62%, in line with the rate as at 30 June 2011 of 7.63% and down from the rate as at 31 December 2011 of 7.85%, principally due to slightly increased utilisation of the facility.
As at 30 June 2012 31 December 2011 30 June 2011
Number of properties 49 49 51
Number of tenants 90 89 96
Contract rent $30.2 million $30.2 million $30.6 million
Occupancy 96.1% 95.6% 97.4%
Weighted average lease term 4.50 years 4.17 years 4.08 years
PFI secured 11 new or varied leases during the first half of 2012, with 43,770 sqm of space leased for an average term of over nine and a half years. This leasing accounts for more than 14% of PFI’s contract rent, and only one lease expiry remains in the current year.
Leasing progress since the annual meeting includes the retention of PFI’s fourth largest tenant, Electrolux, at 3-5 Niall Burgess Drive in Mount Wellington, on a 10 year term.
Occupancy increased to 96.1% from 95.6% whilst the weighted average lease term increased to 4.50 years from 4.17 years over the six month period.
Rent reviews of 13%5 of PFI’s leases resulted in an average annual uplift of almost 5%, predominantly as a result of fixed or index linked review mechanisms, which are a feature of nearly half of PFI’s leases.
Development work continues on a new 800 sqm warehouse for Multispares NZ Limited at PFI’s Seaview Business Park in Lower Hutt, with practical completion on track for early 2013.
The second quarter cash dividend of 1.5500 cents per share, with imputation credits of 0.4336 cents per share, will have a record date of 20 August 2012 and a payment date of 29 August 2012.
The second quarter cash dividend is unchanged from the previous corresponding period and results in cash dividends for the six months to 30 June 2012 totalling 3.1000 cents per share, also unchanged from the previous corresponding period.
The pay-out ratio, being the ratio of cash dividends paid to distributable profit, rose to 89% from 84% in the previous corresponding period.
In accordance with the terms and conditions of PFI’s dividend reinvestment scheme, the board has decided to suspend the scheme for the August dividend. Going forward, the board will decide whether to operate or suspend the company’s dividend reinvestment scheme on a quarter-by-quarter basis.
The company’s average total shareholder return since listing stands at 8.62%.
Mr Cobham commented that industrial property continued to show signs of stability, with Auckland industrial vacancy at 4.1%, down from 4.2% in December 2011 , and that rents remained stable. The investment market continued to exhibit improvement, as low interest rates and greater availability of debt appears to be attracting more buyers into the market, leading to firming yields.
“Our strategic priorities for the year remain the same: continuing to manage the vacancy and upcoming lease expiries in the portfolio and looking to recycle capital and deploy debt capacity into accretive core industrial opportunities,” said Mr Cobham.
“PFI is confident its coverage of the industrial property market, its ability to reconfigure existing stock and to source opportunities not available to smaller less-well capitalised players put the company in a strong position to make the most of the current market conditions.”
PFI expects dividends for the year to 31 December 2012 to fall within a range of 6.5 to 6.9 cents per share, in line with the guidance given at the company’s annual meeting in May. At this level PFI would expect third and fourth quarter dividends to be lower than the dividends in the previous corresponding period. The company’s distribution policy remains unchanged.
The company’s earnings and dividends will continue to be impacted by the leasing of PFI’s vacant properties and expiring leases and a change to the company’s deductible capital expenditure profile.
Finally, as is market practice for the listed property sector, PFI has resolved to cease quarterly financial statement reporting. The company will continue to pay dividends and update shareholders on the company’s property portfolio on a quarterly basis, but financial statements will only be issued on a six-monthly basis. The next financial statements will be issued in February 2013.
For further information please contact:
DDI: +64 9 303 9656
Mob: +64 21 464 583
Email: [email protected]
PFI is New Zealand’s only listed company specialising in industrial property. PFI’s portfolio of 49 industrial properties in Auckland, Wellington and Christchurch, is leased to 90 tenants.You must be a member to download Join - it is free and easy
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