Housing New Zealand Investor Update May 2018 Matthew Needham CFO Matthew.needham@hnzc.co.nz Sam Direen Treasury Manager Sam.direen@hnzc.co.nz
Disclaimer This presentation has been prepared by Housing New Zealand Limited (HNZ). This presentation does not constitute or form part of, and should not be construed as, an offer to sell or issue or the solicitation of an offer to buy or acquire any securities (Securities) of HNZ or any of its subsidiaries or affiliates in any jurisdiction or an inducement to enter into investment activity. The information in this presentation is in summary form and must be considered in conjunction with and subject to publicly available information of HNZ. It is of a general nature and does not constitute financial product advice, investment advice or any recommendation by HNZ or any other person to subscribe for, or purchase, any Securities. Nothing in this presentation constitutes legal, financial, tax or other advice. The information in this presentation does not take into account the particular investment objectives, financial situation, taxation position or needs of any person. You should not rely on this presentation in relation to any investment assessment. You should conduct your own research on HNZ and analysis of its financial condition, assets and liabilities, financial position and performance, profits and losses, prospects and business affairs of HNZ, and the contents of this presentation. This presentation contains certain forward-looking statements with respect to HNZ. All of these forward-looking statements are based on estimates, projections and assumptions made by HNZ about circumstances and events that have not yet occurred. Although HNZ believes these estimates, projections and assumptions to be reasonable, they are inherently uncertain. Therefore, reliance should not be placed upon these estimates or forward-looking statements and they should not be regarded as a representation or warranty by HNZ, the directors of HNZ or any other person that those forward-looking statements will be achieved or that the assumptions underlying the forwarding-looking statements will in fact be correct. It is likely that actual results will vary from those contemplated by these forward-looking statements and such variations may be material. The information in this document is given in good faith and has been obtained from sources believed to be reliable and accurate at the date of preparation, but its accuracy, correctness and completeness cannot be guaranteed. HNZ makes no representation or warranty as to the accuracy or completeness of the information in this presentation and does not undertake to update it. HNZ has not prepared or registered an investment statement, prospectus, product disclosure statement or other regulated offer document in relation to any offer of Securities. No action has been taken or is proposed to be taken by HNZ to register any Securities under the laws of any jurisdiction (including New Zealand) for which such registration is required or otherwise to enable the Notes to be offered to the public or under a regulated offer. This presentation may not be distributed or published in or from any jurisdiction except under circumstances that will result in compliance with all applicable laws of any such jurisdiction. None of the Arrangers, Joint Lead Managers nor any of their respective directors, officers, employees and agents: (a) accept any responsibility or liability whatsoever for any loss arising from this presentation or its contents or otherwise arising in connection with the offer of Securities; (b) authorised or caused the issue of, or made any statement in, any part of this presentation; and (c) make any representation, recommendation or warranty, express or implied regarding the origin, validity, accuracy, adequacy, reasonableness or completeness of, or any errors or omissions in, any information, statement or opinion contained in this presentation and accept no liability (except to the extent such liability is found by a court to arise under the Financial Markets Conduct Act 2013 or cannot be disclaimed as a matter of law). A credit rating is not a recommendation to buy, sell or hold any Securities and may be subject to suspension, change or withdrawal at any time by the assigning rating agency. By attending this presentation or otherwise accessing this document, you agree to be bound by the terms and restrictions set out above. No person may offer or sell Notes, or distribute or publish any offering material or advertisement in relation to any offer of Notes, to any person in New Zealand other than to wholesale investors within the meaning of clause 3(2)(a), (c) or (d) of Schedule 1 to the FMCA. 2
CONTENTS 1. Overview 2. Build programme 3. Financing approach 4. Financial overview 3
4 1. Overview
OUR VISION: BUILDING LIVES AND COMMUNITIES BY HOUSING NEW ZEALANDERS New Zealand s largest residential landlord We own or manage approximately 63,000 properties More than 180,000 people who live in our houses Value of our assets $26 billion Over 98% occupancy rates More than 8,000 new families housed last year 5
LEGAL STRUCTURE HNZC is a Statutory Corporation set up under the Housing Corporation Act (1974) and a Crown Agency under the Crown Entities Act (2004) Total HNZL Assets $25 billion (97% of Group assets) Total HNZL Debt $1.5 billion (79% Group debt) Manages Crown land at Hobsonville Master plans large-scale developments in Auckland 6
WHAT WE ARE BUILDING New Zealand s largest residential builder 1,524 new and replacement properties delivered nationally last year Target 1,460 new properties delivered this year Target 2,507 new properties delivered in 18/19 7,000 new homes in the next three years 7
8 2. Build programme
OUR PLAN Working to ensure we have the right kind of homes, in the right places, to meet demand New and renewed houses across the country 75% of our stock across New Zealand needs to be renewed over the next 20 years The Government has signalled the need for more public housing Auckland Free-up land in Auckland The new Auckland Unitary Plan frees-up HNZ land for 30,000 homes High occupancy rates => additional public housing capacity required to release land for affordable and market homes 9
AUCKLAND - OVERVIEW New Zealand s largest and fastest growing city 1.6 million people (34% of NZ s population) 28,200 state houses (44% of total stock) 9th least affordable housing globally (Demographia, 2018) 24,300 houses (state, affordable, market) built by 2026 10
AUCKLAND HOUSING PROGRAMME Utilises land capacity in Auckland to accelerate the supply of housing The Auckland Housing Programme (AHP) HNZ s overarching initiative in Auckland to renew stock and increase housing supply using land capacity Has government approval, and has been in planning since 2016 # houses (gross) Phase 1 (2016/17 to 2020) Phase 2 (2020/21 to 2026/27) Total (P1 & P2) Additional new and renewed state houses 4,305 7,200 11,505 New affordable/market houses 2,383 10,446 12,829 Total houses 6,688 17,646 24,334 $million Total gross capital investment 2,231 Less sales of land / land and buildings (625) Less budgeted capacity to invest in Auckland (530) Net investment required 1,076 11
BUSINESS STRATEGY Details of new Government s housing strategy will inform overall financing requirements Auckland $1.1b financing required in Phase One of Auckland Housing Programme to create capacity and free-up land for affordable and market homes All of New Zealand Details around the additional build are currently being finalised through the Government s Budget discussions Once finalised, HNZ will be coming to market with a long-term financial strategy 12
KIWIBUILD KiwiBuild programme is a separate Government initiative Government initiative to build 100,000 affordable houses across New Zealand over 10 years Aimed at first home buyers Details, including financing approach, currently being finalised by Government HNZ will contribute to affordable housing developments as part of KiwiBuild 100,000 2018 10 years Affordable houses 13
INDUSTRY SHAPING Use scale to deliver new housing at lower cost Innovative construction methods Offsite manufacturing Use of cross-laminated timber Leveraging the build programme to lower costs Scaled-up procurement practices Supplier panels Standardised designs to speed up consent process 14
3. Financing approach 15
FINANCING SUMMARY All debt currently sourced from the Crown HNZC group debt totalling $1,953m currently sourced exclusively from the Crown HNZL (issuer) $1,545m HNZC (parent) $408m Crown debt is refinanced upon maturity Borrowing Protocol Approved additional debt can be sourced from avenues other than the Crown Approved by Minister of Finance, Minister for Housing and Urban Development As agreed between HNZC Board and Ministers 16
CREDIT RATINGS - OVERVIEW HNZC is essentially an arm of the Government S&P Global Ratings, Dec-17 S&P Global Ratings assessment of HNZL and HNZC AA+ (stable) long-term local currency credit ratings Ratings equalised with the New Zealand sovereign Benefit from an almost certain likelihood of receiving government support in the event of financial distress aa stand-alone credit profiles No explicit government guarantee AA+ Issuer credit rating 17
CREDIT RATINGS OVERVIEW HNZ is the only issuer assessed to have an almost certain level of support from the New Zealand government 18 * GRE = Government-related entity
DEBT MATURITY PROFILE Debt refinanced with the Crown via annual appropriation HNZ s Crown debt 19
DEBT CAPITAL MARKET FINANCING Commercial paper issuance underway, notes to follow in due course Commercial paper programme Fortnightly tenders of $25m (3-month paper) since Feb-18 $500m programme limit Medium term note programme Established for use following 17 May 2018 Budget Notes offered will be: unsecured and unsubordinated subject to negative pledge provisions repo eligible offered to domestic and offshore (in certain jurisdictions) institutional investors Approved Issuer Levy paid by HNZL 20
TREASURY POLICIES Conservative treasury policies Liquidity policies Maintain committed bank standby facility No more than 25% of term debt maturing in any one year Cash required four months prior to need Maintain rolling 36 month forecasts Other policies and procedures Maintain current strong credit rating Controls around taking on new debt Reinvest net surpluses into housing 21
4. Financial overview 22
KEY FINANCIAL STATISTICS (HNZC GROUP) Strong, stable and consistent financial performance Financial Performance Financial Position Year ended ($m) June 2017 June 2016 Year ended ($m) June 2017 June 2016 Revenue 1,318 1,284 Expenses 864 774 EBITDA 454 510 Depreciation and amortization 246 231 EBIT 208 279 Interest expense 87 93 Tax 16 44 Gains/(losses) (40) (8) Net profit after tax 65 134 Cash Flow Total assets 25,907 23,400 Total liabilities 4,309 4,233 Total equity 21,598 19,167 Total debt 1,953 1,859 Credit Metrics Year ended ($m) June 2017 June 2016 Year ended ($m) June 2017 June 2016 Operating cash flow 284 321 Investing cash flow (346) (280) Financing cash flow 89 (27) Liabilities / Assets 16.6% 18.1% Debt / (Debt + Equity) 8.3% 8.8% Total Debt / EBITDA 4.3 3.6 EBITDA / Interest expense 5.2 5.5 23
FINANCIAL PERFORMANCE 85 percent of rental income received from the Crown Revenue Year ended June 2017 $m % total Rental revenue income-related rent subsidy (IRRS) 758 58% Rental revenue tenants receiving IRRS 338 26% Crown appropriation revenue 88 7% Other 134 10% Total 1,318 100% Expenses Year ended June 2017 $m % total Repairs and maintenance 315 26% Depreciation on rental properties 224 19% Rates on properties 113 9% Personnel 104 9% Interest expenses 87 7% Grants 77 6% Third-party rental leases 59 5% Water rates 33 3% Depreciation and amortization on infrastructure assets 22 2% Other expenses 163 14% Total 1,197 100% 24
KEY CREDIT SUMMARY Strong and stable credit AA+ credit rating equalised with the Crown Critical to the delivery of the Government s public housing programme Largest residential property owner in New Zealand 85 percent of rental income received from the Crown Conservative treasury policies 25
OTHER INFORMATION Wholesale investor information https://hnzc.co.nz/about-us/ wholesale-investor-information Credit ratings, borrowing programmes, publications, additional information Direct contacts Matthew Needham CFO Matthew.needham@hnzc.co.nz Sam Direen Treasury Manager Sam.direen@hnzc.co.nz 26
QUESTIONS AND ANSWERS A chance for a discussion OUR VISION Building lives and communities by housing New Zealanders 27