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Precinct Properties boosts full-year earnings on acquisitions, higher rental income

Tuesday 20th August 2013

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Precinct Properties New Zealand, formerly known as AMP NZ Office, boosted full-year net operating income 14 percent as new buildings and higher occupancy levels increased rents.

Operating profit, which excludes some non-cash items and is used as the basis of dividend policy, increased to $58.3 million in the 12 months ended June 30, from $51.3 million a year earlier, the Auckland-based company said in a statement. Gross rental income rose 16 percent to $147.7 million.

Precinct has been securing new properties for its portfolio where it expects to be able to add value. It paid $50.4 million for Wellington's Bowen Campus in 2012, and in the past financial year spent $90 million to buy the Downtown Shopping Centre and a further $103 million on the adjoining HSBC House, on Auckland's central city waterfront.

"The previous three years were a time of steady consolidation and growth but over the last 12 months Precinct has moved to executive its strategy and achieve a new level of growth," chief executive Scott Pritchard said in the statement. "As the company advances this strategy, it will now look to recycle out of non-core assets with the proceeds matched to development opportunities."

Shares in Precinct rose 1.5 percent to $1.035, taking their gain this year to 3 percent.

Net operating income of 5.85 cents per share before performance fees is a touch ahead of the company's forecast for 5.8 cents a share, and ahead of 2012's 5.14 cents a share. Precinct forecast 2014 earnings of about 6.2 cents per share before fees.

The company will pay a fourth quarter dividend of 1.28 cents a share, taking its 2013 full-year dividend to 5.12 cents, up from 5.04 cents in 2012. Precinct forecast a 2014 dividend of 5.4 cents a share, consistent with its 90 percent payout ratio, and an increase on 2013's 87.5 percent ratio.

"Following strategic acquisitions, Precinct is well positioned for future growth in earnings," the company said.

Precinct expects market rental growth in Auckland to increase as vacancies fall while in Wellington the company expects moderate rental growth as clients focus on seismic performance.

The two Auckland acquisitions, along with its ANZ Centre redevelopment, increased bank borrowings 74 percent to $603 million. Interest expense rose 34 percent to $28.2 million, reflecting the Bowen and Downtown Shopping Centre purchases.

Precinct's gearing ratio rose to 37.3 percent from 27 percent a year earlier although still within its banking covenant of 50 percent. The company's gearing levels are not expected to increase materially from here, it said.

The company's occupancy level rose to a four-year high of 97 percent, from 94 percent a year earlier while its weighted average lease term increased to 5.7 years from 5.5 years six months earlier.

Net income more than doubled to $157.5 million from $45.1 million as the company benefited from a $46 million revaluation gain on better rentals.

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