Resilient Interim Result, Dividend Guidance Reinstated

RESILIENT INTERIM RESULT, DIVIDEND GUIDANCE REINSTATED The PFI management team will present the results via live webcast from 10am NZT on 4 September 2020. To view and listen to the webcast, please visit https://edge.media-server.com/mmc/p/pjszu67e. There has been a large increase in teleconference bookings because of the COVID-19 pandemic. Therefore, anyone wishing to participate in the webcast (for example, to ask a question) must pre-register for the conference call at http://apac.directeventreg.com/registration/event/2466573. Upon registering, participants will be provided with participant dial-in numbers, a passcode, and a unique registrant ID. In the 10 minutes prior to the call start time, you will need to use the conference access information provided in the email received at the point of registering, in addition to opening the webcast (using the details above). Highlights - Resilient interim result: interim profit after tax of $15.6 million, Funds From Operations (FFO)(1) earnings up 6.5% from the prior interim period to 4.78 cents per share, Adjusted Funds From Operations (AFFO) earnings down 7.8% from the prior interim period to 3.79 cents per share, H1 2020 cash dividends of 3.60 cents per share - Strong balance sheet: net tangible assets largely unchanged at 204.8 cents per share, additional bank facility secured, almost $130 million of available liquidity, gearing of 28.7% - Portfolio metrics maintained: weighted average lease term of 5.28 years, occupancy of 99.0%, just 1.9% of contract rent is due to expire in the second half of 2020 - Dividend guidance reinstated: resilient results, a strong balance sheet, continued high levels of collection in July and August, resulting in the reinstatement of dividend guidance of 7.65 to 7.70 cents per share Property for Industry Limited (PFI, the Company) today announced resilient results for the six months ended 30 June 2020. "The first half of 2020 will be remembered for the global onset of the COVID-19 pandemic. Whilst the course of the pandemic continues to unfold, and its full impact will take many years to materialise, PFI has delivered a resilient interim result, maintaining a strong balance sheet and portfolio metrics, and continuing to pay dividends in line with the prior year." says PFI Chief Executive Officer Simon Woodhams. Resilient interim result Profit after tax for the interim period totalled $15.6 million (3.14 cents per share), down from $46.4 million (9.30 cents per share) in the prior interim period. A $7.8 million fair value loss on investment properties, as compared to a $23.4 million fair value gain in the prior interim period, was the main contributor to this reduction in profit. FFO earnings of 4.78 cents per share were 0.29 cents per share or 6.5% ahead of the prior interim period and 0.20 cents per share or 4.4% ahead of H2 2019. AFFO earnings of 3.79 cents per share were down 0.32 cents per share or 7.8% when compared to the prior interim period but were up 0.11 cents per share or 3.0% when compared to H2 2019. Simon Woodhams continues: "As previously announced, it is our current intention to continue to pay dividends on a quarterly basis to the extent that the Company is in a financial position to do so. The second quarter dividend is based on the Company's interim performance, and during this period, FFO and AFFO earnings were materially in line with the prior interim period and the second half of 2019. That being the case, the PFI Board resolved to pay a second quarter cash dividend of 1.8000 cents per share, in line with the dividend paid for the same period in the prior year." The dividend will have imputation credits of 0.4906 cents per share attached and a supplementary dividend of 0.2226 cents per share will be paid to non-resident shareholders. The record date for the dividend is 11 September 2020, and the payment date is 22 September 2020. As was the case with the first quarter dividend, the dividend reinvestment scheme (DRS) will operate with a discount of 2%. The last date for receipt of an application for participation in the DRS is one business day after the record date, being 14 September 2020. If you have previously completed an application to participate in the DRS, you do not need to do anything further. You will receive shares instead of cash, in accordance with your application. If you wish to change your previous participation, you will need to complete a new application. Further details can be found in the DRS Offer Document, which is available on PFI's website: https://www.propertyforindustry.co.nz/investor-centre/dividend-information/di vidend-reinvestment/. The second quarter dividend will take cash dividends for the first six months of 2020 to 3.60 cents per share, in line with the prior period, resulting in an FFO dividend pay-out ratio of 80% (H1 2019: 85%) and an AFFO dividend pay-out ratio of 101% (H1 2019: 93%, refer Appendix 3). Given the level of volatility in AFFO adjustments, PFI remains mindful of the AFFO dividend pay-out ratio over a longer time horizon than any one period when setting dividends, with the average AFFO dividend pay-out ratio being 101.1% since PFI began disclosing AFFO(2) in 2016 (refer Appendix 4). Strong balance sheet Net tangible assets (NTA) per share at the end of the interim period of 204.8 cents per share was largely unchanged since the beginning of the year. In response to the risks associated with the COVID-19 pandemic, in March 2020 PFI secured a new $50 million liquidity facility from the Commonwealth Bank of Australia, New Zealand Branch (CBA). The new 18-month facility is in addition to the bonds and syndicated bank facility PFI already had in place. PFI Chief Finance and Operating Officer, Craig Peirce, notes: "Securing this additional liquidity gives the Company almost $130 million of undrawn facilities, which allows us to meet our capital commitments regardless of the progress of our divestment programme." The weighted average term to expiry of PFI's bonds and bank facilities stands at 3.4 years as at the end of the interim period, and the Company ended the half year with gearing(3) of 28.7% and an interest cover ratio(4) of 4.1 times. Craig Peirce concludes: "High levels of liquidity from a diverse range of sources, ultra-low interest rates and headroom to covenant levels provide PFI with a strong funding position. And whilst the bank loan market remains supportive of PFI, subject to market conditions, we are considering options such as another bond issue, to further extend and diversify the Company's borrowings." Portfolio metrics maintained (See table in attached PDF) Full valuations of 14 properties were completed during the interim period, and an independent desktop review was completed on the remainder of the portfolio. As a result of portfolio and valuation activity, a total write down of $7.8 million or 0.5% was recorded, and PFI's passing yield is now 5.74% (5.84% at the end of 2019). An independent market rental assessment of the entire portfolio was completed as part of the valuation process, this assessment estimates that PFI's portfolio is ~3.5% under-rented. Nearly 31,000 square metres, representing around 5% of PFI's existing portfolio by rent, was leased during the interim period to 11 new and existing tenants for an average increase in term of 6.4 years. Lease renewals accounted for more than 81% of the contract rent secured. Across these leasing transactions, low levels of incentives and capital expenditure were required to attract and retain tenants, with average leasing costs of less than half a month per year of term. Leasing demand for PFI's properties remains robust, with transactions totalling more than $5.1 million either secured, or in advanced stages of negotiation, since the end of the interim period. Vacancy is still at historically low levels: CBRE report in their August 2020 Market Flash that Auckland Prime industrial vacancy is just 1.2%, with Secondary industrial vacancy at 1.5%. Notwithstanding these low levels of vacancy, market levels of incentive have begun to trend up, as landlords - including PFI - focus on securing strong tenant covenants, guarantees and long lease terms to ensure the security of cash flows. Rent reviews were completed on 53 leases during the interim period, resulting in an average annual uplift of ~4.1% on ~$22.5 million of contract rent. 5 market rent reviews on $1.2 million of contract rent delivered an annualised increase of 7.1% over an average review period of 2.4 years, and these reviews were settled at an average of approximately 2.6% above December 2019 market rental assessments. At the end of the interim period, the Company's portfolio was 99.0% occupied and just 1.9% of contract rent is due to expire in the second half of 2020. When combined with rent reviews, around 44% of PFI's portfolio is subject to some form of lease event during the second half of 2020. Dividend guidance reinstated Simon Woodhams, notes: "When we released the 2019 annual result, we advised that we expected to pay a total cash dividend for the 2020 year of 7.65 to 7.70 cents per share. This guidance was withdrawn on 15 April, due to the considerable uncertainty in relation to the operating environment at that time, and the potential impact of that environment on the Company's earnings and dividends. However, during the first half of 2020, FFO and AFFO earnings were materially in line with the prior interim period and the second half of 2019, despite a change in the mix of factors contributing to this result, namely, a decrease in rental income, offset by savings in interest and tax. In addition, high levels of collection have continued, with more than 95% of July and August's rent and opex collected." PFI Chief Finance and Operating Officer, Craig Peirce, continues: "Given that mix of factors, and based on the current outlook, we are pleased to advise that we once again expect to pay a total cash dividend for the 2020 year of 7.65 to 7.70 cents per share, and that we expect that this level of full year cash dividends will approximate 80% to 90% of FFO earnings and 95% to 100% of AFFO earnings, in line with the Company's dividend policy. This guidance is subject to there being no material adverse changes in conditions or unforeseen events, including no material tenant failures or further material COVID-19 restrictions." Closing Simon Woodhams concludes: "PFI has delivered a resilient interim result despite a period of significant volatility and uncertainty. These results not only reflect our ownership of the right industrial properties, in the right locations, filled with quality tenants, managed by an experienced and dedicated team, they also reflect our conservative gearing and dividend pay-out ratios. Looking forward, strong demand for industrial space due to increased e-commerce volumes and businesses looking to create more localised and resilient supply chains are trends that are anticipated to benefit PFI's long-held strategy of owning, developing and acquiring quality industrial properties in sought-after areas. Despite the current challenging times, we believe PFI is well placed to respond to these latest challenges, and indeed any opportunities that may arise from them." ENDS ABOUT PFI & CONTACT PFI is an NZX listed property vehicle specialising in industrial property. PFI's nationwide portfolio of 93 properties is leased to 140 tenants. For further information please contact: SIMON WOODHAMS Chief Executive Officer --- Phone: +64 21 749 770 Email: woodhams@propertyforindustry.co.nz --- CRAIG PEIRCE Chief Finance and Operating Officer --- Phone: +64 21 248 6301 Email: peirce@propertyforindustry.co.nz --- Property for Industry Limited Shed 24, Prince's Wharf, 147 Quay Street, Auckland 1010 PO Box 1147, Shortland Street, Auckland 1140 --- www.propertyforindustry.co.nz Attachments NZX Form - Results Announcement NZX Form - Distribution Notice Interim Results Presentation Interim Financial Statements Interim Shareholder Newsletter Appendices Appendix 1 - FFO and AFFO Calculations (See table in attached PDF) Appendix 2 - FFO and AFFO Compared to H1 2020 and H2 2019 (See table in attached PDF) Appendix 3 - FFO and AFFO Dividend Pay-out Ratios (See table in attached PDF) Appendix 4 - AFFO Pay-out Ratios (2016 - 2020 H1) (See table in attached PDF) Notes (1) Funds From Operations (FFO) and Adjusted Funds From Operations (AFFO) are non-GAAP financial information and are common property investor metrics, which have been calculated in accordance with the guidelines issued by the Property Council of Australia. Please refer to Appendix 1 for more detail as to how these measures were calculated. (2) AFFO has been disclosed since the financial year ended 31 December 2016. (3) That is, total borrowings as a percentage of the most recent independent valuation of the property portfolio. Covenant: 50%. (4) That is, the ratio of interest expense and bank fees to operating earnings excluding interest expense and bank fees. Covenant: 2 times. End CA:00359225 For:PFI Type:HALFYR Time:2020-09-04 08:31:05