One Property Stock Navigating Macro-Economic Challenges

As the market players are aware, the outbreak of COVID-19 pandemic has impacted several sectors and industries. The airline industry and tourism industry witnessed significant impacts. There have been announcements with regards to stimulus packages so that the economies can revive. Since now the economic activities are gaining momentum, the equity markets have largely recovered and some stocks have generated decent returns. This stock has managed to generate ~14.10% in the span of past 6 months. This company is possessing decent outlook and has reaffirmed the dividend guidance for FY 2021.

Precinct Properties New Zealand Limited (NZX: PCT)

Summary:

  • In FY20, the company witnessed rental revenue growth of 11.9% on the YoY basis.
  • The company has reaffirmed dividend guidance of 6.50cps for FY21.
  • PCT’s portfolio benefited from the high occupancy as well as long WALT and the overall portfolio occupancy was maintained at 98 percent on a WALT of 8.0 years.

Precinct Properties New Zealand Limited is the largest owner as well as developer of premium inner-city business space in Auckland and Wellington. As at 30 June 2020, the company’s portfolio totalled $3.0 billion. The company’s net asset value (or NAV) per share at balance date stood at $1.45.

Precinct Properties Reported Decent Operating Results

For the 12 months ended 30 June 2020, the company reported net property income of $97.2 million, up by 2.1% Y-o-Y. After adjusting for developments and transactions, like for like income growth was 0.8% higher on Y-o-Y basis. Adjusted funds from operations (AFFO) increased by 11.8% Y-o-Y to $82.7 million or 6.29cps. This shows the successful execution of long-term strategy combined with the stable as well as secure income the portfolio generates with the help of high-quality clients as well as asset base. The company received majority of the rent during the alert level 3 and alert level 4 period.

During the year, the company outperformed the benchmark New Zealand listed property sector return of -7.7%. It recorded a negative shareholder total return of 5.0% for the year ended June 30, 2020.

Financial Information (Source: Company Reports)

Strong Capital Position of the Company

In the first half of FY20, the company settled the $162.8 million United States Private Placement (USPP) issue. This was the 2nd successful USPP issue the company has undertaken since 2014 to deliver further funding diversity. As on 30th June 2020, approximately half of the company’s committed debt comes from non-bank sources.

In the month of February 2020, the company refinanced $150 million bank debt facility which was due to expire in the month of November 2020. The new 5-year facility has increased the tenor of the existing facilities, reducing the refinancing risk, and improves the company’s weighted average term to expiry which is 3.9 years as at June 30, 2020 as compared to 4.4 years as at June 2019. The company remains within the borrowing covenants with total debt facilities of ~$1.2 billion as at June 30, 2020.

Key Capital Management Metrics (Source: Company’s Report)

Strong Portfolio Delivered Safety Against Pandemic

The company was able to restrict the negative impact of COVID-19 on the business. This shows the high quality of assets and the clients it attracts as well as retains within the portfolio. The company’s earnings security is underpinned by the stable and secure income that portfolio generates.

The company has high-quality client base, like corporate investment grade occupiers, leading legal as well as professional services firms, and Government entities. The Government provides ~30% of Precinct’s office revenue, thus, offering high level of income certainty. The company’s investment portfolio metrics consist high occupancy level of 98 percent as well as the weighted average lease term (or WALT) of 8.0 years at June 30, 2020.

Office Revenue by Industry (Source: Company Reports)

A Quick Look at Recent Update

As per the recent release, PCT will be committing to 44 Bowen Street, the second office building of Bowen Campus Stage Two development in Wellington. The company stated that project would be undertaken on pre-committed basis with leasing to KPMG secured throughout 2 floors or 25% of the office space on 15-year term. As per the release issued by the company, 44 Bowen Street would be occupying western portion of the site on land formerly occupied by Charles Fergusson Annex building that was demolished during redevelopment of Bowen Campus Stage 1.

The company has also declared a first-quarter dividend of 1.625 cents per share plus imputation credits of 0.003223 cents per share. Notably, the offshore investors would be receiving an additional supplementary dividend of 0.001463 cps to offset the non-resident withholding tax. However, the record date is November 26, 2020 and payment date is December 10, 2020.

Outlook

Despite the high level of ambiguity within the New Zealand economy, the company remains confident that the strategy, supported by high occupancy levels, a long weighted average lease term as well as high-quality clients, would continue to deliver returns for the shareholders. The company has reaffirmed the dividend guidance of 6.50cps for FY21, implying an increase of 3.2% over the FY 2020 period.

On November 20, 2020, the stock of PCT ended the trading session at NZ$1.780 per share, which reflects a rise of 0.85% on an intraday basis. 

 

 

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