Release Date: August 27, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Operational performance remained strong with 98% occupancy and a weighted average lease term of 6.6 years.
- Leasing spreads of close to 16% across the office portfolio indicate strong market rent growth.
- Strengthened balance sheet through refinancing $700 million of debt and securing a $168 million green loan.
- Significant progress in the living sector, including entering the student accommodation market and advancing residential projects.
- Stabilization of property valuations in the second half of the financial year, providing optimism for future valuation support.
Negative Points
- Reported a loss for the year of $30.1 million, primarily due to a $100 million devaluation in investment properties.
- Higher interest and tax expenses resulted in flat funds from operations (FFO) and adjusted funds from operations (AFFO).
- Commercial Bay retail income fell by 4% due to higher vacancy and operating expenses.
- Economic environment impacting retail and operating businesses, particularly in the second half of the year.
- Government spending constraints in Wellington are affecting demand in the occupier market.
Q & A Highlights
Q: Just a couple of questions on PBSA. With the exclusive negotiations with a PBSA partner and how loan officer confirming and debt partner, do you expect you will start developing near? And will this partner be potentially interested in future PBSA projects as well?
A: Hi, Bianca. We expect to be designing 256 Queen Street through to the end of the year and then entering into a construction contract for commencement of construction, probably early Q2 in 2025. Regarding further interest in future developments, yes, the capital partner is interested in the strategy, and we see potential for around 20 beds in Auckland, so there could be further projects within that capital partnership.
Q: Could you give an update on how sales are progressing at the One NiMo Club and presales for some of your other residential projects?
A: It's still pretty quiet out there. Inquiry levels are starting to elevate, but it's coming off a slow base. There have been less than a handful of contracts floating around for One NiMo Club since completion. However, with the increase in inquiry levels, we expect to see more contracts, which is encouraging.
Q: Could you provide some color around what you're expecting for the weighted average cost of debt for FY 25?
A: It has stayed largely unchanged. We believe we've hit our peak in the weighted average cost of debt. Given the hedging of 85%, our full run rate will probably be around that level.
Q: Just on the FY 25 dividend, can you confirm that the commentary around confidence in the medium term suggests that the FY 25 payout will be moderate?
A: Yes, there's a chance we may slightly overpay depending on how well we perform in the next 12 months. We're seeing good performance out of the portfolio and gaining momentum in the management company.
Q: Can you give us some color on current leasing inquiries and any changes in the leasing environment in the last couple of months?
A: We're seeing less inquiry than 12 months ago, but still elevated levels due to limited opportunities for high-quality real estate. It went quiet in the second quarter, but the property and asset management team have been encouraged by the recent increase in inquiries.
Q: Have you seen government departments react to the mandate to save costs, and how do you think they will adjust their leasing footprint in Wellington?
A: We haven't seen any restriction in terms of government trying to withdraw from space they currently occupy from us. Government agencies are trying to find cost-saving targets, generally in the form of personnel. We expect government might withdraw from B and C grade real estate, but we are reasonably well protected.
Q: How are your capital partners with GIC and Empaque progressing in acquiring assets, and do you see opportunities in the current market?
A: Interest from capital partners in New Zealand has increased, partly due to more investor-friendly government settings. The office investment market is subdued, but the reduction in interest costs is increasing the level of interest.
Q: Regarding the Wynyard Quarter acquisition, are you taking any interest in operating businesses as part of the deal?
A: No, we are not taking any interest in the operating businesses, only in the real estate. We are taking a 25% interest in the real estate that runs from the dry stack through to the new sheds and the commercial development site.
Q: How does the Wynyard Quarter development account for the unique zoning requirements?
A: The commercial aspect is a mix of about half marine-related uses and half office uses. The resource consent allows for office use on those levels.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
