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PFI doubles 2018 profit on valuation gains, underlying earnings fall short

Monday 18th February 2019

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Property For Industry more than doubled its calendar 2018 profit as its 94-property portfolio was revalued higher. However, a slightly lower occupancy rate and rising property costs dented underlying earnings, which missed expectations. 

Net profit for the property investment and management company rose to $110.7 million in calendar 2018, from $51.7 million a year earlier, boosted by $66.4 million valuation gain on its property portfolio. The year-earlier period was also weighed down by a $42.9 million cost of internalising the company's management contract. 

Adjusted funds from operations, which are used to set the dividend, were $37.2 million in the year, up from $37.1 million in 2017. That missed estimates by Forsyth Barr and First NZ Capital analysts, which had predicted earnings of $41.3 million and $41.8 million respectively. Net rental income rose 8.4 percent to $79.1 million. 

The company said a lower occupancy rate and increased property costs weighed on rental income, while increased capital spending and the purchase of two new properties lifted its interest costs 5.6 percent to $18.8 million. 

PFI brought its management in-house in 2017, which stripped out a $2.9 million management fee. Administration costs of $4.7 million in 2018 rose by a smaller amount, up $1.8 million. 

The board declared a fourth-quarter dividend of 2.1 cents per share, payable on March 31. That takes the annual return to 7.55 cents, up from 7.45 cents in 2017. 

PFI forecasts annual dividends totalling 7.6 cents for 2019, which should be in line with a dividend policy of paying 95-100 percent of adjusted funds from operations. 

"In 2019, PFI’s results will be influenced by working through the incentives from recent deals completed, and the leasing to be completed, at Carlaw Park," chief executive Simon Woodhams said in a statement. 

Carlaw Park represents 34 percent of PFI's vacancy and 2019 expiries, and is a priority for the company, he said. 

The company had 148 tenants across its portfolio as at Dec. 31, with an occupancy rate of 99.3 percent. That compares to 148 tenants at a rate of 99.9 percent at the end of 2017.

Its net lettable area has grown to 780,092 square metres from 756,455 sqm, while its weighted average lease term was extended to 5.39 years from 5.33 years. 

The portfolio was valued at $1.32 billion as at Dec. 31, including the revaluation gain, $41.5 million of capital investment, and the addition of two new properties. 

Woodhams said the company will start replacing non-industrial assets with industrial properties in sought-after areas, through new acquisitions, and making maximum use of existing sites. 

The shares last traded at $1.93, and have gained 17 percent over the past 12 months. 


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