Precinct Properties New Zealand Investor day September 2016
Agenda Introduction, market overview 2.00pm Scott Pritchard Operations, portfolio strategy and leasing backfill 2.15pm George Crawford Commercial Bay 2.30pm David Johnson Bowen Campus and Wynyard Quarter Stage 1 2.45pm Andrew Buckingham 3.00pm Questions 3.15pm Refreshments Wynyard Quarter Stage 1 site tour 3.45pm Alain McKinney and Andrew Buckingham PRECINCT INVESTOR DAY Page 2
Section 1 Introduction and market overview
Today we’re focussed on ■ Our strategy – portfolio transformation ■ Resourcing ■ Supply constraints – Auckland – Construction cost – Land cost ■ Leasing ■ Capital management / dividend policy ■ Project updates PRECINCT INVESTOR DAY Page 4
Portfolio transformation Targeted portfolio transformation Anticipated geographic mix 2015 2022+ Auckland - Age 27 years 11 years CBD Core Wellington Quality A-Grade Premium Auckland - Maintenance Capex Allowance 0.60%-0.80% p.a. 0.40% p.a. Waterfront Retail % to Government (by value) 21% 15% % CBD retail (by value) 10% 17% Auckland - Assets at Wynyard Quarter 16% Wynyard Quarter WALT 5.0 years +6.0 years 11% Auckland - Waterfront Weighting to Wellington corporate assets, on completion of developments 76% Weighting to Premium assets, on completion of developments $ 396 million Expected value on completion of Commercial Bay Retail PRECINCT INVESTOR DAY Page 5
Development resourcing Senior Development Manager – Retail CB Senior Development Project Director – CB Manager – Retail CB Development Manager - CB Retail Lease Administrator Property and Facilities Management Senior Development Development Manager - GM Development Manager - Wynyard Wynyard Executive Team Administrator Development Analyst Development Manager – Senior Development Manager – Govt RFP Govt RFP PRECINCT INVESTOR DAY Page 6
Development pipeline 7.5% $968m Blended yield on cost Total project cost 18% 80% Blended return on cost Weighting to Auckland Strong occupier covenant (of leased space) Key development metrics Total Development NLA 109,827 m² 7% Total Office NLA 89,542 m² 32% Office leased to date 66,131 m² % of office leased 74% WALT committed to date 13.1 years 61% Value on Completion $1,140 m Weighting to Auckland 80% Financial and legal services Government Other PRECINCT INVESTOR DAY Page 7
Waterfront Drift Over 400,000sqm of new commercial office development valued at over $3 billion. PRECINCT INVESTOR DAY Page 8
Construction constraints ■ Publically funded infrastructure projects committed equivalent to $6-7 billion ■ Privately funded commercial projects equivalent to $3 billion over the next 5 years PRECINCT INVESTOR DAY Page 9
CBD development sites PRECINCT INVESTOR DAY Page 10
CBD development 46-58 Albert Street (For sale) $68,000,000 (Market Value) sites 4,258sqm / 51,000sqm (12:1) $16,000psm Required Average Net Face Rent $830psm 28 Shortland Street 5-15 Albert Street $26,000,000 (April 2014) $60,000,000 (Under Contract) 2,010sqm / 26,000sqm (13:1) 3,158sqm / 41,000sqm (13:1) $13,000psm $19,000psm Required Average Required Average Net Face Rent Net Face Rent $770psm $820psm 10-12 Commerce Street $27,765,000 (November 2015) 1,388sqm / 36,700sqm (26:1) Assumptions $20,000psm Required Average Commercial Bay construction costs (+10%) 71-89 Customs Street East Net Face Rent $32,000,000 (August 2014) $740psm Capitalisation rate of 6.125% 1,667sqm / 35,000sqm (21:1) $19,000psm Return on Cost of 17.5% Required Average Adopted MFAR or Consented FAR Net Face Rent $760psm PRECINCT INVESTOR DAY Page 11
Pre 2007 Post 2015 Private NZME site 2007-2015 Developer Residential 2015+ example Secured leasing profile 80,000sqm 70,000sqm 60,000sqm 50,000sqm 40,000sqm 30,000sqm 20,000sqm 10,000sqm 0sqm Pre 2007 2007-2015 Post 2015 Fringe Occupier Traditional CBD Occupier PRECINCT INVESTOR DAY Page 12
Wynyard Quarter Residential / Hotel Commercial Marine Industry Other / Open space PRECINCT INVESTOR DAY Page 13
Vacancy and supply Forecast vacancy (CBRE, June 2016) Supply Pipeline 2016-2020+ (sqm) 7.0% 50,000 Pre-commitment Vacant Requires Pre-commitment Prime PCT View 2016 2017 2018-2019 2020+ 6.0% 40,000 15 year average 5.0% 30,000 4.0% 20,000 3.0% 10,000 2.0% 1.0% 0 0.0% 2016 2017 2018 2019 2020 Potential pre-commitment expiry profile (sqm) Forecast rent and cost growth (CBRE/RLB/PCT) 40,000 6.00% Prime Rent Non Residential Build Cost Economic Rent 35,000 30,000 4.00% 25,000 20,000 2.00% 15,000 10,000 0.00% 5,000 0 -2.00% 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2016 2017 2018 2019 PRECINCT INVESTOR DAY Page 14
Section 2 Operations, portfolio strategy and leasing backfill
Working age population (WAP) ■ Auckland to account for 94% of Change in working age population Change in working age population NZ’s WAP growth over next 30 - 50,000 100,000 150,000 200,000 250,000 years (Stats NZ) 1996-2006 Grown – Recent net migration in by 35% 2006-2013 excess of these forecasts 2013-2023 ■ Between 1996 & 2013 CBD office 2023-2033 workers increased by 19,000 Change in CBD office workers Change in CBD office workers – Forecast to grow by 20,000 - 2,000 4,000 6,000 8,000 10,000 12,000 14,000 over next 20 years Grown 1996-2006 by 37% ■ Net new office demand of 2006-2013 around 250,000m 2 2013-2023 20,000 2023-2033 ■ According to CBD historical Change in CBD Stock (CORE & VIADUCT) Auckland net absorption has Change in CBD Stock (CORE & VIADUCT) averaged 20,000m 2 50,000 m² 100,000 m² 150,000 m² 200,000 m² 250,000 m² ■ Trend of centralisation has the Grown 1996-2006 by 38% potential to add further workers 2006-2013 2013-2023 New demand 250,000m 2 2023-2033 Note: Change in office stock assumes 16m2 for every 1 new PRECINCT INVESTOR DAY Page 16 office worker
CBD office growth forecast PRECINCT INVESTOR DAY Page 17
Portfolio strategy and initiatives Portfolio Initiatives ■ Implement concierge strategy delivering enhanced service across the portfolio ■ Focus on portfolio car park strategy ■ Digital opportunities emerging Wellington ■ Government portfolio substantially de-risked – Bowen State residual and 1 The Terrace available 2019/2020 – Well suited to government needs ■ Corporate portfolio focus on occupancy – Corporate demand stable – Pockets of demand from IT and government sectors – Market rents adjusting ahead of new supply PRECINCT INVESTOR DAY Page 18
Portfolio strategy and initiatives Auckland ■ Deliver client focused solutions which reposition portfolio occupancy and drive sustainable rental growth – Proactive approach to new leasing and forward expiries – Engagement well ahead of expiry – Decisions and engagement increasingly design led – Opportunity drivers – Occupiers focused on accommodating their growth – Limited competing supply – Solutions increasingly complex PRECINCT INVESTOR DAY Page 19
Backfill leasing Leased ■ Key focus with 14,900sqm of Commercial Bay pre- Backfill remaining commitment coming from within the portfolio Advanced discussions ■ 3 years before backfill space is available ■ Complexity of client moves ■ Considering future options for 1 Queen Street PRECINCT INVESTOR DAY Page 20
Dividend policy review Preferred FFO pay out ratio ■ Dividend policy established in 2011 – 90% net operating income ■ Since 2011 PCT has averaged; – FFO payout ratio of 84% retaining over $50 million – AFFO payout ratio of c.100% ■ Policy reviewed and retained in June 16 – Global investors prefer FFO payout ratio of around 80% UBS investor survey) – Sustainable dividend given 2016: Forecast 2020 quality shift and age of portfolio 2014: Status Quo PCT strategy portfolio based on 2020 portfolio committed projects – Matches operating cashflows Average asset age 28 years 11 years Maintenance Capex 0.6% - 0.80% 0.30% - 0.40% Asset quality A-Grade Premium PRECINCT INVESTOR DAY Page 21
New Zealand context ■ NZ disclosure varied and not Payout ratio to funds from operations considered best practice 120% FFO ■ New Zealand out of step with investor 100% preference Australia and North America 80% ■ Global investors see FFO yield 60% as a key valuation metric PCT KPG GMT ARG PFI VHP ■ Precinct internal view: Payout ratio to net operating profit – Sector (ex VHP &PCT) FFO 120% PCT payout ratio is c.95% dividend policy 100% – Means sector AFFO 80% average of +115% 60% PCT KPG GMT ARG PFI VHP Payout ratio to net operating profit and funds from operations are Precinct’s internal estimates based on company disclosures and may differ from actual PRECINCT INVESTOR DAY Page 22
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