Archive | Securities – NZ

Oyster fund gets AA FundSource rating

NZX Ltd-owned research & rating agency FundSource Ltd has given Oyster Property Group Ltd’s Direct Property Fund an AA rating – the first for an unlisted direct property fund in New Zealand.

Mark Schiele.

Oyster chief executive Mark Schiele said yesterday: “This puts the Oyster Direct Property Fund in the top 5% of 64 funds currently rated by the research house. We view this as solid independent confirmation of the fund’s structure & performance. It should be very helpful for investors when assessing their investment options.”

Oyster launched the unlisted PIE-structured unit trust in 2016 to hold a diversified commercial property investment portfolio, giving investors an affordable way of investing in the commercial property market.

Mr Schiele said the fund had a value of about $40 million after doubling in size in the last 18 months.

“The fund provides investors with diversified exposure to about $500 million in quality commercial property throughout New Zealand, monthly cash distributions or the ability to reinvest, and the potential for capital growth.”

The minimum investment into the fund is $10,000. Since it was launched, it’s paid investors a distribution equivalent to 7c/unit/year. The initial unit price was $1.00 and at 31 January it was $1.037.

Oyster Group
FundSource report

Attribution: Company release.

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Fletcher half-year loss $322 million

Fletcher Building Ltd posted a half-year operating loss of $322 million today, down from a $310 profit for the December 2016 half before significant items.

That outcome was on revenue up 6% to $4.889 billion. The net loss before significant items was $273 million, down from a $187 million profit.

Chief executive Ross Taylor said these results incorporated a $631 million loss of Building + Interiors (B+I) division losses.

He expected an additional $29 million of overhead & transition costs in the second half would take the full-year loss for B+I to $660 million.

Excluding B+I, operating earnings fell 13% to $309 million.

Mr Taylor said: “Outside the challenges experienced in B+I, the broader Fletcher Building business continues to perform to guidance. While it is pleasing to see an increase in sales revenues, operating earnings have decreased due to lower profits in the Construction Division, outside of B+I, as well as the Building Products Division.

“In the Infrastructure & South Pacific businesses of our Construction Division we are rolling off major projects from the 2017 financial year, and we are only in the early stages of new ones. In Building Products we have seen gross margins compress as a result of higher input costs and costs associated with increasing supply chain capacity to meet increased demand.”

The Building Products Division reported a 13% increase in gross revenues from $1.108 billion to $1.25 billion. Operating earnings declined 9% from $129 million to $118 million. This was driven by additional costs incurred in various businesses to alleviate capacity constraints, increased energy costs, one-off redundancy costs in Fletcher Insulation Australia and a fire at Humes’ Penrose site.

“Earnings in the International Division are largely flat, while Distribution & Residential continue to post strong growth.”

The Distribution Division increased gross revenues by 7% to $1.757 billion and operating earnings by 6% to $89 million.

The Residential & Land Development Division increased gross revenues by 45%, from $163 million to $236 million. Operating earnings increased 57% to $47 million.

Mr Taylor reiterated the company’s expectation full-year operating earnings excluding B+I would be between $680-720 million.

As announced on 14 February, no interim dividend will be paid.

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Augusta to open Airways building syndicate at weekend

Augusta Capital Ltd has registered a product disclosure statement for its $22.75 million investment offer in a new single-asset fund to acquire & redevelop the Airways Corp Ltd premises in Christchurch.

Augusta expects the offer to open on Saturday and close on Friday 23 March. Settlement is expected to occur on Thursday 29 March.

Augusta will underwrite $15 million of the $22.75 million of equity, and a third party will underwrite the balance.

The building will house part of Airways’ new air traffic management platform. Airways is committing to a 25-year lease term on the new building & 2 of the existing buildings (effective from practical completion, which is expected to occur in mid-2019), and a 9-year lease term on the remaining building (starting at a date elected by Airways between 12 & 18 months after practical completion).

Augusta’s guarantee of the development agreement obligations will be released once the required equity & debt for the new fund are raised.

Attribution: Company release.

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Goodman launches $100 million bond issue

The Goodman Property Trust launched a $100 million bond issue on Monday ($75 million + $25 million in oversubscriptions).

The 5.5-year fixed-rate senior secured bonds (Goodman+Bonds) will mature on 1 September 2023.

Goodman expects they will have an investment grade issue credit rating of BBB+ from Standard & Poor’s. The trust’s current corporate credit rating is BBB.

The indicative issue margin range is 1.20-1.30%/year, subject to a minimum interest rate of 4.00%/year. The issue margin & interest rate will be set following a bookbuild process on Friday. The offer will close on Friday and the bonds will be issued on Thursday 1 March.

Attribution: Trust release.

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Pacific Property Fund buys Tauriko warehouse

Property Managers Group’s diversified fund, Pacific Property Fund Ltd (Pacific Property), has acquired a large industrial warehouse in Tauriko, Tauranga, for $9.25 million, taking the number of properties the company owns to 10 and total assets to $123.2 million.

The property at 8 Paerangi Place is a newly built 5085m² space leased to NZ Specialty Kiwifruit Products Ltd, which develops kiwifruit products for export to Asia. That lease term is 15 years and takes the Pacific Property portfolio’s weighted average lease term to 8.0 years.

Property Managers Group chief executive Scott McKenzie said that, with 9 other properties in the portfolio, including the Kelston Mall in West Auckland bought in December, Pacific Property was able to leverage its scale to acquire the Tauriko warehouse without the need to raise additional capital.

Attribution: Company release.

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Tourism Holdings uses Thor joint venture to expand

Tourism Holdings Ltd has entered into an agreement to establish a 50:50 joint venture with US recreational vehicle (RV) manufacturer Thor Industries Inc.

The joint venture, TH2connect LLC, has entered into an agreement to buy 100% of US-based travel planning & travel data company Roadtrippers Inc, including Roadtrippers’ interest in the Roadtrippers Australasia business, the 50:50 joint venture between Tourism Holdings & Roadtrippers.

Tourism Holdings will also contribute its Mighway business & the Cosmos rental & recreational vehicle industry platform to the joint venture, plus about $3 million cash. Thor will contribute about $US47 million. The transactions are all expected to close around the end of February.

Tourism Holdings, the world’s largest renter of motorhomes & campervans, said Thor was the world’s largest recreational vehicle manufacturer by volume.

Tourism Holdings chair Rob Campbell said today: “At the annual meetings in 2016 & 2017 we outlined our need to grow a global platform that would assist us in broadening our reach within the wider RV ecosystem. We have progressed down this path well; however, we now have a partner & set of assets that will turn our ‘start’ into a compelling, winning global business.”

He said the TH2 joint venture would be focused on enhancing the enjoyment & safety of RV enthusiasts by digitally connecting this fast-growing international marketplace: “This innovative & comprehensive platform will improve every aspect of RV ownership, with capabilities that include trip planning & booking, remote systems monitoring, roadside assistance and peer-to-peer RV & campsite rental. The system will also streamline an owner’s record keeping and enable dealers & manufacturers to provide such support as triggered service notifications & online vehicle manuals.”

Attribution: Company release.

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Hallenstein Glasson lifts sales 19%, projects 63% profit rise

Clothing retailer Hallenstein Glasson Holdings Ltd said today total group sales for the 6-month period ended 1 February were up 19.4% on a year ago, from $122.9 million to $146.8 million.

Group chief executive Mark Goddard said gross margin was up 3.5 percentage points, achieved through strong sales performance, improved buying strategy and reduced promotional activity & discounting.

The company is projecting first-half group profit after tax to be in the range of $14.75-15.25 million, an increase of about 63% over the prior year ($9.2 million).

The company will release its full first-half earnings statement on 30 March.

Attribution: Company release.

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Botany Town Centre set for upgrade

AMP Capital Investors Ltd plans a $78 million development & expansion project at Botany Town Centre, one of Auckland’s largest regional shopping centres, for owners PSPIB/CPPIB Waiheke Inc.

The development, announced yesterday, will include the introduction of international & national retailers, an additional mix of specialty retailers, a comprehensive refurbishment of ‘Garden Lane’, a refresh of the fresh food precinct adjoining the New World supermarket and an expansion of alfresco dining.

Portfolio manager Nick Cobham said the existing entertainment precinct, which includes Hoyts, would be refurbished, over 1000 powered recliner cinema seats upgraded, and the Lux premium cinema experience updated.

The development is being undertaken by AMP Capital Shopping Centres, AMP Capital’s specialist retail division, on behalf the owning partnership. Naylor Love Ltd has been appointed as the main contractor for the project.

The expansion follows the Auckland Council unitary plan’s designation of Botany Town

Centre as a metropolitan-zoned hub. Several special housing areas & future residential growth areas surround the centre.

The town centre opened in 2001 with 50,900m² of new retail space, backing on to the existing Pak N’ Save and Warehouse. The expansion will take the gross lettable area over 62,700m², with over 200 retailers. The development is targeted for completion in May 2019.

AMP Capital Investors (NZ) Ltd developed Botany, but sold it in 2014, as part of a $1 billion-plus portfolio of 18 properties held in the AMP Capital Property Portfolio, to Canada’s Public Sector Pension Investment Board. The Canada Pension Plan Investment Board (CPPIB) acquired a 50% interest last year in what was by then a $1.2 billion New Zealand property portfolio. That transaction was given regulatory approval by the Overseas Investment Office on 7 December 2017.

Earlier stories:
14 December 2016: Second Canadian pension fund buys into AMP property portfolio
11 July 2014: AMP Property sells $1 billion portfolio, NZ Super Fund looks for new investments

Attribution: Company release.

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Another $486 million of losses for Fletcher Building, and Norris resigns

Fletcher Building Ltd added $486 million today to the projected losses by its Building + Interiors division for this financial year, and company chair Sir Ralph Norris said he would resign.

Image above: Sir Ralph Norris at the results announcement in August 2017.

The extra losses will take the B+I provisions for the full year to $660 million.

The company said in its release to the NZX this morning it expected earnings before interest & tax (ebit) for the rest of the group to remain in the range of $680-720 million.

Aside from the increased loss, the notable point today was that Fletcher Building would stop bidding for new vertical construction projects.

Key points in today’s release:

  • B+I business refocused solely on delivery of remaining projects – bidding for all vertical construction in New Zealand to cease
  • Waiver received from commercial banking syndicate following breach of covenants
  • No interim dividend payment for this financial year
  • Sir Ralph Norris announced he would step down “no later than the 2018 annual shareholders meeting” (usually held in November).

Fletcher Building chief executive Ross Taylor said the new provisioning was informed by a review of 16 B+I projects, accounting for about 90% of the construction backlog, and incorporating external input from independent construction experts & accountancy firm KPMG.

“The provisions we have announced today are informed by a considerable amount of further project analysis and, while we continue to target agreed completion dates across the portfolio, we have factored in significant cost & timeline contingencies.

“Our absolute focus is finishing our remaining B+I projects within these provisions and to a high quality for our customers. To achieve this, we are refocusing the entire B+I business on project delivery only, and ceasing all bidding on vertical construction projects in New Zealand. This will allow us to direct all resources in B+I to the completion of the current book.

“While our broader construction businesses continue to benefit from favourable market conditions & strong growth, the B+I market sector remains characterised by high contract risk & low margins. Unless these dynamics change we will no longer work in this sector.”

Mr Taylor said the projected B+I ebit loss had resulted in a breach of Fletcher Building’s financial covenants given to its commercial banking syndicate & US private placement noteholders. However,he said: “The strength of the broader business & the phasing of the cash impact of the B+I provisions means the company remains well capitalised & solvent.

“We have strong & predictable cashflows across the Fletcher Building group. While the B+I provisions are large, they are phased over a number of years and do not impact our ability to trade with our customers or suppliers or pay our bills.”

In line with the company’s dividend policy the Board has determined that it will not be declaring an HY18 dividend.

“Our discussions with the banks have been constructive. We have received a waiver from our commercial banking syndicate for the breach of covenants and they have confirmed the availability of continued funding while we renegotiate terms. We have also commenced discussions with our USPP noteholders to obtain a similar waiver for the covenant breach. We are targeting to successfully complete renegotiations with all lenders by the end of March.”

3 core drivers

Commenting on the reasons for the additional provisions, Mr Taylor said: “There are many nuances by project, but 3 core drivers.

“Following further project reviews, we have taken a more pragmatic view on programme delivery & resulting cost contingencies. While we will pursue our contract entitlements vigorously, we have also taken a less optimistic view on client claims & variations. And lastly, since October we have seen further material price escalation across trade finishing costs, which have now been incorporated into cost forecasts.”

Norris wants transition, not instant change

Company chair Sir Ralph Norris issued a separate statement on his decision to resign:

“The Fletcher Building board understands the disappointment of our shareholders regarding the latest provisioning in the Building + Interiors (B+I) business.

“As chairman of Fletcher Building, our shareholders place significant faith in me to act in their best interests. This has always been my priority. I also know shareholders expect accountability from the board for all aspects of the company’s performance.

“In this context, I wish to announce that I will stand down as chairman. To allow an orderly transition of the board, this will occur no later than the 2018 annual shareholders’ meeting.

“I said at our last annual shareholders meeting in October that I felt a sense of obligation to see the business through these challenging circumstances and to complete the CEO transition & board refresh I had commenced.

“We have appointed a new CEO, Ross Taylor, who is now ably leading the business, and 3 new directors and a new chairman will be appointed in the coming months.

“I remain committed to providing leadership continuity during this time, and will continue to support my fellow directors & management in setting a new strategic direction for the company.

“Fletcher Building remains a great & solid business. I have every confidence it will weather this storm, and once again deliver our shareholders the value they expect & deserve.”


I normally flag company-supplied question & answer pieces because they’re normally obsequious. This list of questions & answers goes against the norm and is helpful.

Q: Which 16 projects were reviewed?
A: The Justice & Emergency Services Precinct (Christchurch) and the NZ International Convention Centre (NZICC, for SkyCity Entertainment Group Ltd in Auckland) projects continue to be the main contributors to the losses. In addition to these 2 projects, the company reviewed Commercial Bay, Auckland East Prison, Auckland Airport, Christchurch Airport Hotel, Wellington Airport carpark, and a remaining group of smaller projects.

Q: Which projects did KPMG review?
A: In the latest review, KPMG focused solely on B+I projects, including the 2 previously reviewed – NZICC & Commercial Bay – as well as the Christchurch Airport Hotel, Auckland East Prison & Auckland Airport projects.

Q: Does this mean Commercial Bay is now lossmaking?
A: We continue to target a profitable completion of this project. However, given it has a long way to go, we have provisioned for contingencies.

Q: Are the timelines for NZICC or Commercial Bay impacted by this announcement?
A: We continue to target the completion dates we have agreed with our customers, but we have provisioned for significant cost & timeline contingencies.

Q: When will the Justice Precinct complete?
A: The project is 99% complete and the client is occupying the building. We expect practical completion to be awarded at the end of February.

Q: Does the end of bidding on vertical construction projects mean the Fletcher Construction Co will close?
A: No. The Fletcher Construction Co includes 4 businesses – B+I, Infrastructure, Higgins & South Pacific. The only business impacted by this announcement is B+I.

Q: Will Fletcher Building ever consider bidding on a vertical construction project in the future?
A: We have made the decision to refocus B+I solely on project completion, to ensure our resources are completely focused on this task. While the B+I market sector remains characterised by high contract risk & low margins we will no longer participate. If these market dynamics change in the future we would reconsider our position.

Q: Does this change impact residential construction or infrastructure?
A: No. Our Residential Division will continue to operate as it does today. Likewise, our Infrastructure business will continue to complete existing projects and bid for new ones. The infrastructure sector benefits from more appropriate margins, better contract conditions and alliance models that reduce risk. As our B+I projects complete we will redeploy key talent to these growth opportunities.

Q: How is Fletcher Building’s debt structured?
A: Funding facilities are: capital notes ($622 million), US Private Placement ($1.13 billion), a commercial banking syndicate ($1.27 billion) and other loans ($103 million).

Q: Which of these debt structures has Fletcher Building breached covenants on?
A: USPP & the commercial banking syndicate.

Q: Which specific metrics have been breached?
A: Senior net debt:ebitda, ebit:senior interest, ebit:total interest & guaranteeing group ebitda.

Q: What happens if you do not agree new terms with your lenders by 31 March 2018?
A: In consideration of the waiver, we have agreed to negotiate changes to our agreements with our lenders by 31 March. If we do not agree new terms by 31 March, we would then be in breach of the terms of our waiver. This would be an event of default with our commercial banking syndicate. However, the banks have moved quickly to grant us the waiver and we expect discussions to continue to be constructive.

Q: Which banks are included in the commercial banking syndicate?
A: ANZ Bank NZ Ltd, The Bank of Tokyo-Mitsubishi UFJ Ltd, Bank of NZ, Commonwealth Bank of Australia, Citibank NA, The Hong Kong & Shanghai Banking Corp Ltd, Westpac NZ Ltd, Bank of China and China Construction Bank.

Fletcher Building chief executive Ross Taylor will host a teleconference call for investors & analysts at 1pm today to provide more detail on this announcement.

Fletcher Building presentation 14 February 2018
Fletcher Building trading update 14 February 2018

Earlier stories:
12 February 2018: Fletcher Building gets 2 more days to unveil further losses
8 February 2018: Fletcher Building warns of worse to come

Attribution: Company release.

  • This story is running, should be completed in the next half hour.
  • 9.38am: complete.
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PFI reports strong year

Property For Industry Ltd came out ahead on its preferred funds from operations measures of performance in 2017, a year when it internalised management, paid no tax and generally lifted returns.


  • Significant acquisition activity: $84.3 million of property acquired, improving portfolio metrics and providing significant medium to long-term development potential
  • Transition of the Penrose portfolio: approximately $14 million of shareholder value created equating to a property level internal rate of return of about 26%
  • Strong balance sheet: $70 million rights offer, $100 million of senior secured fixed rate 7-year bonds, gearing of 30.8%
  • Dividend policy change & increased dividend for the 2018 financial year: guidance of full-year cash dividends of about 7.55c/share, about 95-100% of adjusted funds from operations
  • Governance & management changes: David Thomson, a senior partner & member of the board of management at law firm Buddle Findlay, appointed to the board today as an independent director, internalisation of management on 30 June 2017

Chair Peter Masfen noted: “PFI’s 2017 financial results reflect strong leasing outcomes with nearly 97,000m² leased during the year. A series of important strategic initiatives have also been completed during the year, with the internalisation of management, portfolio acquisition, rights offer & bond offer all contributing to a very successful year.”


  • Including the impact of the internalisation payment, net of tax, PFI recorded a profit after tax for the year of $51.7 million, or 11.25c/share, and net tangible assets of 163.2c/share
  • Excluding the impact of the internalisation payment, net of tax, PFI recorded profit after tax for the year of $82.6 million, or 17.96c/share (down 34.5%) and NTA of 169.4c/share (up 5.4%)
  • Distributable profit for the year up 6.6% to 8.08c/share
  • Fourth quarter cash dividend of 2.15c/share, total cash dividends for the year of 7.45c/share, an increase of 0.1c/share
  • $43.6 million, or 3.7%, increase in the value of the property portfolio from independent valuations
  • 63% of contract rent varied, leased or reviewed during the year
    Year-end portfolio occupancy at 99.9%, 2018 expiries of 7.4%

Cost savings as a result of the internalisation in the second half of 2017 are estimated at $2.7 million before interest & tax, equating to an increase in distributable profit of 0.59c/share. After allowing for interest & tax, the increase is $1.4 million, or 0.3c/share, a contribution of 7.1% to the increase in distributable profit in the second half of 2017. This contribution is ahead of the 6% estimated by Northington Partners in its independent appraisal report.

Financial performance:

Operating revenues for the year increased by $2.4 million, or 3.4%, to $73.5 million, as increases due to positive leasing activity ($1.9 million), acquisitions ($1.7 million) & completed developments ($800,000) were partially offset by decreases due to increased intra-period vacancy ($1.2 million) & disposals ($800,000). The transition of the portfolio of 5 Penrose properties from former tenant Sistema to new tenants contributed about $800,000 to the increase in vacancy.

The company cut operating expenses by $2 million, or 7.3%, to $25.9 million. The internalisation of management in June cut costs by $4.3 million, partially offset by a $1.6 million increase in administrative expenses incurred from July-December in lieu of management fees. Non-recoverable property costs also increased by $700,000 due to the higher levels of vacancy, and costs incurred due to PFI’s recent asbestos testing programme.

Given these changes, the ratio of operating expenses to operating revenues was reduced from 39.3% to 35.3%.

In May 2017, a binding ruling from Inland Revenue confirmed that the proportion of the payment relating to the termination of the PFI management contract was deductible for income tax purposes. As a result, PFI recorded no current tax expense in 2017. The company will carry current-year tax losses of $2 million forward and expects to use them fully in 2018.

Excluding the impact of the internalisation payment, PFI’s effective current tax rate (the ratio of current taxation to operating earnings) increased to 21.0% (19.8% in 2016), largely due to the timing of deductible capital expenditure.

Non-operating income & expenses, which, for the most part, comprised the $42.9 million gross charge for termination of the management agreement, offset by a $43.6 million fair value gain on investment properties, totalled income of $1.9 million, as compared to income of $88.9 million in 2016.

After allowing for these non-operating income & expenses and deferred tax, the company made a $51.7 million profit after tax, or 11.25c/share. Excluding the impact of the internalisation payment, net of tax, the company recorded profit after tax of $82.6 million or 17.96c/share, down 34.5%.

PFI recorded distributable profit of 8.08c/share (7.58c/share), up 0.5c/share, or 6.6%.

The PFI board resolved today to pay a fourth quarter final cash dividend of 2.15c/share. As the company paid no tax paid in 2017, the dividend will have no imputation credits attached and a supplementary dividend won’t be paid to non-resident shareholders. The fourth quarter final dividend will take cash dividends for the year to 7.45c/share, up 0.1c/share. The dividend payout ratio was 96% (97%).

PFI also reported funds from operations (FFO) earnings of 8.57c/share (7.99c/share) and adjusted funds from operations (AFFO) earnings of 7.49c/share (6.95c/share), resulting in an FFO dividend payout ratio of 87% (92%) and an AFFO payout ratio of 99% (106%).

Change in dividend policy:

The PFI board resolved today to change the company’s dividend policy. It was based on distributable profit, but from this financial year will be based on FFO & AFFO: “Put simply, the new policy means dividend payments will reflect cashflow from sustainable rental activity alone.”

The PFI board believed the new policy was in line with best practice in this area and was expected to have a minimal impact on the quantum of dividends paid.

Balance sheet:

PFI’s net tangible assets/share (NTA) increased by 2.5c/share, or 1.6%, from 160.7c/share at the end of 2016 to 163.2c/share at December 2017.

After rebasing for additional shares on issue (-14.9c/share) and allowing for the rights offer & dividend reinvestment scheme (+13.9c/share), the change in NTA/share was driven by the increase in the fair value of investment properties (+8.7c/share), retained earnings (+0.8c/share) and a gain on the disposal of PFI’s property at 65 Hugo Johnston Drive in Penrose (+0.4c/share). Offsetting this were reductions in NTA as a result of the decrease in fair value of derivative financial instruments (-0.2c/share) and the net internalisation payment (-6.2c/share).

Excluding the impact of the internalisation payment, net of tax, PFI’s net tangible assets/share would have increased by 8.7c/share, or 5.4%, over the year to 169.4c/share.

The company ended the year with gearing of 30.8%, well within its self-imposed gearing limit of 40% & bank covenants of 50%. The interest cover ratio of 3.7 times was also well within bank covenants of 2.0 times.

NZX announcement
NZX presentation

Attribution: Company release.

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