DNZ FY14 Interim Results

DNZ FY14 Interim Results

DNZ FY14 Interim Results 13/11/2013

DNZ Delivers 52% Lift in Net Profit after Income Tax
Portfolio Occupancy 99.4%
Cash Dividend of 2.25 cents per share Declared for the Quarter

 
DNZ Property Fund Limited (DNZ) is pleased to announce another positive performance for the six months ended 30 September 2013 with a 52% lift in net profit after income tax on the prior period to $18.4m.

DNZ Chairman, Tim Storey, said “DNZ continues to produce outstanding financial results for our shareholders through prudent capital management, maintaining a high portfolio occupancy level, reducing lease expiry risk and advancing DNZ’s acquisition strategy in the Auckland region.”

During the period, DNZ undertook two separate capital raising initiatives that raised $69.8m of equity. This new equity has been utilised to partially fund the Silverdale Centre and Westgate Zone 5 Land acquisitions in Auckland and provide capacity for any future acquisitions.

Patrick O’Reilly, Acting Chief Executive of DNZ, said “Operationally, management has again performed strongly in reducing DNZ’s lease expiry risk and maintaining DNZ’s high portfolio occupancy rate, which remains one of the highest in the industry at 99.4% (as at 30 September 2013). DNZ’s portfolio re-weighting strategy is also evident in these results with the acquisitions of the Silverdale Centre and the Westgate Zone 5 Land. The two development projects at the O’Rorke Road site in Penrose, Auckland, round off a very productive six months, with the AA Insurance facility completed, and construction on the Hydraulink Fluid Connectors office warehouse scheduled for completion later this month.”

Financial Highlights;

For the period ended 30 September 2013 (prior period 30 September 2012 figures in brackets)

  • Net rental income of $28.2m ($26.9m) up 5%
  • Operating profit before other income/(expenses) and income tax of $17.6m ($15.4m) up 14%
  • Net profit after income tax of $18.4m ($12.1m) up 52%
  • Distributable profit1 before income tax of $17.5m ($15.2m) up 15%
  • Distributable profit after income tax of $13.8m or 4.97 cents per share ($12.7m or 5.15 cents per share)
  • Loan to value ratio (LVR) 35.0% (36.9% as at 31 March 2013)
  • Successful Capital Raise
    • $60m Private Placement at $1.68 per share
    • $9.815m Share Purchase Plan at $1.645 per share
    • 9.0 cents per share cash dividend guidance for FY14 reconfirmed
    • 2.25 cents per share cash dividend for the second quarter (0.590 cents per share imputation credits) approved

Portfolio Highlights:

For the period ended 30 September 2013 (31 March 2013 figures in brackets)

  • Occupancy level maintained at 99.4% (99.6%)
  • Weighted average lease term (WALT) extended to 5.6 years (5.2 years)
  • 102 lease transactions completed over 187,837m²
  • No major FY14 lease expiries remain – 2.02% of the portfolio contract rental²
  • FY15 lease expiries at 10.75% of the portfolio contract rental
  • O’Rorke Road, Penrose, Auckland, developments progressing well:
    • AA Insurance facility completed
    • Hydraulink facility scheduled for completion in November 2013
  • Re-weighting of the portfolio through Auckland Region acquisitions:
    • The Silverdale Centre for $78.0m
    • Westgate Zone 5 Land for $25.0m
    • Independent valuations undertaken on 11 existing properties and the Westgate Zone 5 Land, resulted in a net increase of $5.3m
    • Net Tangible Asset backing (NTA) increased to $1.66 ($1.62)

Financial Performance

DNZ has delivered another solid operating performance for the six months to 30 September 2013.

Net rental income was $28.2m, $1.3m ahead of 30 September 2012. Distributable profit after income tax was $13.8m or 4.97 cents per share ($12.7m or 5.15 cents per share for September 2012).

The NTA increased during the period to $1.66 at 30 September 2013 ($1.62 as at 31 March 2013).

Capital Management

DNZ has maintained a strong balance sheet position over the six month period through a series of prudent capital management initiatives including:

  • Successful $69.815m capital raise
  • $1.6m equity raised under the DRP for the FY14 Q1 dividend – 23.7% participation
  • The use of free cash flows to fund on-going capital works programme
  • $20m forward starting swap entered into during the period
  • Extension of Bank Facility amount and term – post balance date

DNZ’s LVR calculated under its banking facility was 35.0% as at 30 September 2013 (36.9% as at 31 March 2013) with 70% of drawn debt effectively subject to a fixed rate of interest through DNZ’s hedging policy. This LVR sits comfortably below DNZ’s banking covenant limit of 50%. DNZ’s weighted average cost of debt (including margins & line fees) was 5.65% as at 30 September 2013.

Extension of Bank Facility – Post Balance date
Effective 31 October 2013, DNZ refinanced its bank facility with the Company’s banking partners, ANZ Bank New Zealand Limited, Commonwealth Bank of Australia, Bank of New Zealand, and new DNZ banking syndicate member, Westpac New Zealand Limited.

As part of this process, the total facility was increased from $300m to $400m, split into two equal tranches of $200m fixed for terms of three and five years, which expire in October 2016 and October 2018 respectively.

Portfolio Valuation

Independent valuations were undertaken for 11 existing properties and the Westgate Zone 5 Land, resulting in a net increase of $5.3m as at 30 September 2013, for a total portfolio value of $770.6m.

Lease Transactions

DNZ completed 102 lease transactions during the six month period to 30 September 2013 which included:

  • 56 rent reviews over 140,259m² for a total annual rental of $21.5m
  • 27 lease renewals over 27,143m² for a total annual rental of $3.6m
  • 19 new lettings completed over 20,435m2 for a total annual rental of $4.0m

The key components of rental income growth in the portfolio were lease renewals and rental reviews. DNZ has a target of 25-35% of the portfolio’s rental reviews being fixed or having a stepped increase at a review date, or being linked to an increase in inflation based on movements in the Consumer Price Index.

Acquisitions and Development Projects

 

Albany Office Development
Development planning is underway for a new 3,700m2 office building, to sit between the office buildings at 33 and 51 Corinthian Drive, which are both owned by DNZ and occupied by ASB and Westpac respectively.

AA Insurance Limited
The new AA Insurance Limited 1,400m2 warehouse and office facility at O’Rorke Road in Penrose, Auckland, has been completed and the nine year lease with AA Insurance has commenced.

Hydraulink Fluid Connectors Limited
The new integrated facility at Penrose for Hydraulink Fluid Connectors features 770m2 of office, a 120m2 showroom, 67 car parks, a fully sprinklered 2,000m2 high stud warehouse, a 500m2 canopy and an extensive yard area for container set-down and outside product storage. The 12 year lease has two yearly rent reviews to market, with Hydraulink having expansion rights over 1,000m2 of adjacent land for six years. The project is scheduled for completion in November 2013.

Mr O’Reilly said “The new design build project for AA Insurance adds another quality building and tenant to DNZ’s portfolio. The Hydraulink Fluid Connectors office and distribution centre, which is currently being built on an adjoining part of the site, is scheduled for completion this month, and this will leave just 1.0 hectare of land available for development on this 5.2 hectare site owned by DNZ.”

Silverdale Centre
On 31 May 2013, DNZ purchased the Silverdale Centre in Silverdale, Auckland, for $78m. The Silverdale Centre’s retail mix is 36 predominantly established national chains, anchored by The Warehouse and a Countdown supermarket, with a strong convenience element.

This is an excellent investment in a retail centre in one of New Zealand’s fastest growing residential catchments and aligns well with DNZ’s investment strategy.

Westgate Zone 5 Land
In July 2013, DNZ purchased 6.23 hectares of development land comprising Zone 5 of the proposed Westgate Town Centre development in Auckland for $25m.
This development land has an existing resource consent to build an enclosed shopping centre of approximately 26,000m² net (34,000m2 gross), as part of the proposed Westgate Town Centre.

The proposed Westgate Town Centre is a planned 56 hectare mixed use development located adjacent to the North Western Motorway and the newly completed upper Harbour Motorway.

Within the Town Centre, Auckland Council is investing in new infrastructure, including a new library, community rooms, a bus interchange, parks, walkways, a town square and main street. In addition, there are planned offices, restaurants, bulk retail and specialty retail, entertainment and accommodation facilities; all to be alongside the enclosed shopping centre proposed to be built on the Zone 5 land.

Since acquiring the land, DNZ has undertaken further work to complete developed architectural design and pre-leasing. Subject to final approvals, it is now anticipated that construction will start in the new year and the Centre is expected to be completed prior to October 2015.

Commercial terms are well advanced with the anchors and specialty pre-leasing is progressing well. Enabling earthworks are expected to commence in January 2014, with construction (subject to final Board approval), to start in April 2014. The total development cost of the project is now expected to be approximately $130m (excluding land), with the development to be completed over the following 18 months in accordance with DNZ’s expected development timeline. On completion the anticipated market yield on valuation and estimated yield on cost is around 7.0% and 7.5%3 respectively. The project can be funded within DNZ’s current bank facility.

Mr Storey said “The Board expects to be able to provide greater detail on the Westgate development early next year. We do not anticipate the Company’s proposed Westgate development, which we believe is being undertaken at the right time in the economic cycle, will reduce dividends for FY14 & FY15 below the current level of 9.0 cents per share.”

Second Quarter Dividend FY14

The Board of DNZ has today approved a second quarter cash dividend of 2.25 cents per share. This dividend will carry imputation credits of 0.590 cents per share.
The record date for this dividend is 29 November 2013, with payment to shareholders to be made on 13 December 2013.

The dividend re-investment plan will remain in place for the FY14 second quarter dividend. A discount for the price of shares issued under the DRP has been set at 1% on the 5 day weighted average trading price of the shares, commencing on 2 December 2013, being the first trading day after the record date.

Eligible shareholders are reminded that any DRP participation or variation forms need to be received by DNZ’s registrar, Computershare Investor Services Limited, by 5:00 pm on the record date of 29 November 2013.

Summary

Mr Storey concluded by saying “Looking forward, the Board confirms dividend guidance of 9.0 cents per share for the financial year ending 31 March 2014. Next month Chief Executive, Peter Alexander, will join the Company. He is joining DNZ at an important time for the business, and we are looking forward to utilising his skills to continue to drive DNZ forward and grow one of New Zealand’s leading listed property companies.”

“The primary focus of the management team continues to be maintaining occupancy levels and rental income streams, whilst progressing the Company’s development projects. DNZ is well placed, with high occupancy rates and long-term contracted rental income streams, which provide a solid base to continue the Company’s strong performance.”

Notes

1 Distributable profit is a non-GAAP financial measure adopted by DNZ to assist DNZ and investors in assessing DNZ’s profit available for distribution. It is defined as a net profit/(loss) before income tax adjusted for non-recurring and/or non-cash items and current tax. Further information, including the calculation of Distributable profit and the adjustments to net profit before income tax, is set out in note 8 to the interim consolidated financial statements for the six months ended 30 September 2013.

2 Contract rental is the amount of rent payable by each tenant, plus other amounts payable to DNZ under the terms of the relevant lease, annualised for the relevant financial year on the basis of the occupancy level for each lease as at 30 September 2013, assuming no default by any tenant.

3 Assumes completion at forecast cost and fully leased at forecast rentals.
 


 
Attachments provided to NZX:
1. NZX Appendix 1 DNZ FY14 Interim Financial Statements
2. NZX Appendix 7
3. DNZ FY14 Interim Results Presentation

Downloads:



For Further Information Please Contact:
Tim Storey, Chairman, DNZ Property Fund Limited
Mobile: 021 633 089 – Email: tim.storey@dnzproperty.com

Patrick O’Reilly, Acting Chief Executive, DNZ Property Fund Limited
DDI: 09 913 1065 – Mobile: 021 415 645 – Email: patrick.oreilly@dnzproperty.com

Jennifer Whooley, Chief Financial Officer, DNZ Property Fund Limited
DDI: 09 913 1150 – Mobile: 021 536 406 – Email: jennifer.whooley@dnzproperty.com

DNZ Property Fund Overview
DNZ Property Fund Limited owns one of New Zealand’s largest diversified investment property portfolios with $770.6 million (as at 30 September 2013) of commercial office, retail and industrial properties located in the main urban areas throughout New Zealand. As at 30 September 2013, DNZ Property Fund owned 47 properties with 293 tenants, a weighted average lease term of 5.6 years and an occupancy rate of 99.4% over a net lettable area of 365,912m².

DNZ Property Fund Limited is a Portfolio Investment Entity in which investors hold shares and is managed by its own internal management team. DNZ also holds management rights to Diversified NZ Property Fund Limited, a $117.4 million (as at 30 September 2013) commercial property portfolio.

DNZ’s top 10 tenants as at 30 September 2013: Bunnings, Progressive Enterprises (Countdown), NZ Government, Foodstuffs (PAK’nSAVE & New World), ASB, Fletcher Building, The Warehouse, Westpac, Meridian Energy and Lion. These 10 tenants represent 52% of the Company’s total contract rental.

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