Pre-lease FCF turned to -NZ$2.9m as capex outran operating cash

Pre-lease free cash flow swung to -NZ$2.9m from +NZ$1.5m, an unprecedented low against Annolyse's historical baseline of NZ$7.5m to NZ$19.6m and a five-year average of NZ$12.4m. Operating cash flow itself rose 14.2% to NZ$67.4m, but capital additions on investment properties lifted 22.5% to NZ$70.3m — 58.2% of revenue.

Revenue grew 3.3% to NZ$120.8m, profit before tax rose 1.7% to NZ$140.4m and net profit after tax rose 1.4% to NZ$127.7m. Gross borrowings rose NZ$99.5m to NZ$855.5m, lifting portfolio gearing to 37.2% from 35.7% — still inside the 30-40% target band but at the upper end. Total assets reached NZ$2.3b, NZ$162.0m above the five-year average, and NTA per share rose to NZ$1.60 from NZ$1.53.

Henderson Place and Lambton Quay sales add balance-sheet context, with NZ$139m disclosed value, but borrowings and gearing are the direct leverage evidence.

Operating cash flow's 14.2% rise was genuine progress, but the simultaneous 22.5% step-up in capex took capital additions to 58.2% of revenue and drove pre-lease free cash flow below zero. This matters because the development programme is currently being funded by debt rather than by cash earnings, and the FCF outcome sits outside the company's recent historical range.

Leverage is rising into a tighter band. Gross borrowings rose 13.2% and gearing moved from the middle of the target band toward its upper edge. The 30-40% target is intact, but headroom to the ceiling has narrowed during a year when development spend accelerated. The trajectory matters more than the level: if FY27 capex stays elevated, the next leg of the band will be tested without disposal support.

Earnings momentum lagged revenue. PBT growth of 1.7% and NPAT growth of 1.4% trailed the 3.3% revenue lift, and ROE drifted to 9.1% from 9.6%. The PBT margin of 116.3% sits within the supplied historical range (mean 107.9%), which confirms revaluation contribution remains within the normal pattern for the portfolio rather than flattering this year's result.

The full-year dividend of 6.65cps matched FY25 and was in line with prior guidance.

The release flags a policy shift toward a 80-95% FFO-based payout, but the supplied material does not quantify what that translates to in dividend cents for FY27. No forward-work backlog or FY27 capex guidance is provided in the available context. This matters because the durability of FY26's NZ$70.3m capex run-rate cannot be tested against future operating cash flow, and the read on whether the FCF deficit is a one-year peak or a new baseline is unresolved.

Operating cash flow up 14.2% with debtor days at 9.0 — within Annolyse's historical baseline — points to clean underlying rental collection and cost control. NPAT growth, though modest, is not flattered by tax: the effective tax rate at 9.0% is in line with prior at 8.9%.

The negative-quality read sits below operating cash flow. Pre-lease FCF at -NZ$2.9m is the weakest in the supplied baseline and is structurally driven by development capex, not by working capital or one-offs. The 6.65cps dividend is comfortably covered by NPAT (44.9% payout, similar to FY25's 44.8%) but is not covered by pre-lease free cash flow this year, which means the distribution is being funded by a combination of operating cash flow and balance-sheet capacity rather than by cash earnings after capex. The PBT margin above 100% also reminds that statutory NPAT for a property issuer in a development cycle is not a pure cash-earnings read.

This briefing cannot assess occupancy, weighted average lease term, rent reversion, or the cap-rate assumptions embedded in the FY26 portfolio revaluation.