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Property For Industry annual profit more than halves on management contract buy-out

Monday 12th February 2018

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Property For Industry annual profit more than halved as the listed industrial property investor bore the cost of buying out its management contract and reaped a smaller fair value gain on investment properties. 

Net profit dropped to $51.7 million or 11.25 cents per share, in calendar 2017 from $123.4 million or 27.4 cents, the Auckland-based company said in a statement. That included $42.9 million of costs for terminating its management contract and taking the function in-house. In 2016 the fair value gain on investment properties was double the $43.6 million it was in the year to December. The value of the portfolio lifted 3.7 percent to $1.2 billion across 92 properties in 2017. As at Dec. 31, 2016, PFI owned 83 properties. 

"PFI's 2017 financial results reflect strong leasing outcomes with nearly 97,000 square metres leased during the year," chair Peter Masfen said. "A series of important strategic initiatives have also been completed during the year, with the internalisation of management, portfolio acquisition, rights offer and bond offer all contributing to a very successful year."

The industrial property investor's shareholders agreed to bring the management contract inhouse at a special meeting in June at a price independent adviser Northington Partners viewed as below its value, allowing for cheaper management fees and higher dividends. 

The company's distributable profit rose 6.6 percent to 8.08 cents per share, in line with guidance it gave in December. The company will pay a fourth-quarter final cash dividend of 2.15 cents per share. The record date is Feb. 26 and the payment date is March 7. The fourth quarter dividend brings cash dividends to the year to 7.45 cents per share, an increase of 0.1 cents over the prior year, it said. 

Funds from operations rose 9.4 percent to $39.4 million. Operating revenue rose 3.4 percent to $73.5 million while operating expenses fell 7.3 percent to $25.9 million with lower management fees partially offset by higher administrative costs. 

PFI also said it will be changing the company's dividend policy.  Previously, the dividend policy was based on distributable profit. It will now be based on funds from operations or FFO and adjusted funds from operations or AFFO. "Simply put, the new policy means that dividend payments will reflect cashflow from sustainable rental activity alone," it said.

The new policy is in line with best practice and is expected to have a "minimal impact on the quantum of dividends paid," it said. 

Looking ahead, PFI expects to pay full-year cash dividends of approximately 7.55 cents per share in the current financial year, up 0.1 cents on the prior year, as higher earnings are forecast due to the management internalisation. That represents a full year distributable profit guidance of 8.1-to-8.3 cents per share, it said.

PFI's year-end portfolio occupancy stood at 99.9 percent and 7.4 percent of contract rent is due to expire in 2018. 

The stock was unchanged at $1.64 and has risen 2.3 percent over the past year. 


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