Precinct Investment Partnership acquisition puts Precinct Properties' debt headroom in focus

FFO from the investment portfolio fell to $69.2m from $72.7m, taking FFO per stapled security to 3.18cps from 3.47cps. NTA per share declined to $1.18 from $1.25. Revenue grew 0.7% to $135.4m, the weakest reading in Annolyse's three-period baseline (mean 7.8%, range 0.0–13.7%). Statutory NPAT fell 68.5% to $2.9m, distorted by tax: the current effective tax rate of -61.1% sits below the supplied historical range, while the prior comparable carried 518.2%. The cleaner PBT line rose 181.8% to $1.8m off a near-zero base. Operating cash flow weakened 15.4% to $47.9m. Total assets expanded 4.9% to $3.9b, above the supplied historical range (mean $3.7b). The interim dividend held flat at 1.6875cps; FY26 FFO guidance of 7.30–7.50cps was reaffirmed.

Precinct Investment Partnership acquisition adds balance-sheet context, with NZ$900m acquisition price, but borrowings and gearing are the direct leverage evidence.

FFO per stapled security fell to 3.18cps from 3.47cps and NTA per share retreated to $1.18 from $1.25, even though total equity rose 10.4% to $2.2b. Release commentary points to an in-period capital raise initially applied to bank debt repayment. The asset base has grown but per-share earnings power and book backing have weakened, which matters because FFO per share underpins the dividend.

Cash generation softer while capex stepped up. Operating cash flow fell 15.4% to $47.9m while capex rose 13% to $95.3m, equivalent to 70.4% of revenue versus 62.7% prior. Pre-lease free cash flow widened to -$47.4m, leaving the interim dividend uncovered by free cash flow at -60.7% coverage. The dividend is funded by cash earnings and balance-sheet capacity, not by free cash flow.

Working capital reversal explains part of the OCF gap. Trade debtors jumped to $9.8m from $0.6m, lifting receivable days to 13.2 from 0.8. The prior comparable benefited from an unusually low receivable position; this period's $9.2m absorption is a material share of the operating cash decline.

HY26 delivered 3.18cps, implying a second-half FFO requirement of 4.12–4.32cps, a step-up of 30–36% on the first half. The supplied second-half shape shows FY25 was unusually first-half-weighted on NPAT (HY25 was 83.6% of FY25 NPAT), so a sharper second-half lift on FFO is not automatic from the historical pattern. Against the upper end of guidance, the 6.75cps dividend implies a payout of roughly 90%, which leaves little headroom if FFO disappoints.

The current effective tax rate of -61.1% sits below the supplied historical range while the prior comparable carried 518.2%, so PBT growth of 181.8% off a $1.8m base is the cleaner statutory read. Neither is a strong proxy for operating economics in a property book dominated by revaluation movements; FFO is the durable metric and it weakened on a per-share basis.

Pre-lease free cash flow of -$47.4m sits within the supplied historical range (mean -$58.0m), so cash absorption is not abnormal for the portfolio's development phase. The harder read is that the dividend is being maintained while capex intensity rose to 70.4% of revenue and per-share NTA fell, indicating the asset-base growth came partly through equity issuance rather than retained portfolio value. Gross borrowings eased modestly to $1.5b and net debt sits at $1.5b, so leverage direction is incrementally strengthening even as per-share metrics softened.

This briefing cannot assess portfolio occupancy, weighted average lease term, cap-rate assumptions, or debt headroom and covenant metrics, none of which are supplied in the canonical fields.