NZX-listed property investor Precinct Properties NZ Ltd – now in development mode as it builds & enhances its own sites – lifted net profit after tax by 12.4% in the December half-year.
It reported quick progress from 3 development precincts – Commercial Bay in downtown Auckland, the nearby Wynyard Quarter and, in Wellington, a start on Bowen Campus.
The company announced the leasing of 2700m² on 2 floors in the new PWC Tower at Commercial Bay to law firm DLA Piper, which wants to create new-style workspaces there.
Precinct added to that vibe by announcing it had taken a 50% interest in Generator, which operates 3000m² of co-working space at 3 sites at Britomart.
Image above, October 2016: Looking through Commercial Bay, Precinct Properties’ redevelopment of the Downtown Shopping Centre site (the remains of the building at right, now demolished and with earthworks started for the rail tunnels into Britomart Station); the view from the current PWC Tower across Commercial Bay to the old central post office at Britomart, through the station and on to EY & Westpac’s offices.
Half-year performance summary:
- Net profit after tax increased by 12.4% to $39.1 million ($34.8 million in 2015)
- Net operating income increased by 8.7% to $38.8 million (35.7 million)
- Half-year dividend of 2.8c/share (2.7c/share), representing a 3.7% year-on-year increase
- Earnings & dividend guidance for the 2017 financial year unchanged at 6.2c/share for earnings and 5.6c/share for dividen
- Strong financial position with loan:value ratio 20.1% (14.4% at 30 June 2016).
- Stage 1 100% leased, 8 months ahead of completion. The $35.9 million Mason Brothers building was the first project to be completed in December and represents a major milestone for the business.
Commercial Bay is the name Precinct has given to the former Downtown Shopping Centre site that ran from Lower Queen St across to Albert St, and the length of that block on Customs St West through to Quay St on the city waterfront.
It also now incorporates the former Queen Elizabeth Square that sat between 2 Precinct-owned buildings along Lower Queen St, HSBC House fronting Quay St and Zurich House on Customs St.
Earthworks are underway for the 39-floor tower on the corner of Customs St West & Albert St and for the city rail link tunnels that will run into Britomart beneath the commercial structures, and accountancy firm PricewaterhouseCoopers has taken naming rights on the tower. PWC has had naming rights on the tower across Albert St & fronting Quay St, also owned by Precinct, since it opened in 2003.
Excavation, retaining & piling are expected to be largely complete by the middle of 2017.
- Global law firm DLA Piper has committed to 2 floors in the new PwC Tower, taking preleasing by income at the new tower to 64% (from 52% at December 2015) on a weight average lease term of 13.3 years. This commitment takes the amount of space secured outside the portfolio to 8000m² or about a third of committed leases
- The agreement to acquire Queen Elizabeth Square on Lower Queen St from Auckland Council became unconditional in December and all resource consents were obtained.
- Preleasing across all of Precinct’s office developments is now 77%
99% portfolio occupancy and strong weighted lease term
- Leasing over the period has been strong, particularly in Wellington, with overall occupancy rising to 99% (98% at 30 June 2016)
- Weighted average lease term across the portfolio is 5.9 years (6.3 years at 30 June 2016), increasing to 8.1 years after including developments
- Following the Kaikoura earthquake, a $12 million devaluation has been booked at Deloitte House in Wellington, based on provisional repair estimates.
Enhancing the strategy
Precinct chief executive Scott Pritchard said the increase in net profit was mainly attributable to lower interest & tax expense and a fair value gain in financial instruments. Net operating income, which adjusts for a number of non-cash items, increased 8.7% ($3.1 million) to $38.8 million ($35.7 million at December 2015) or 3.2c/share.
But the performance goes well beyond immediate income: “We achieved a number of milestones across our business and have significantly advanced our long-term strategy.
“We committed to & commenced works at Bowen Campus in Wellington, progressed works at Commercial Bay, including the demolition of the old shopping centre, enjoyed leasing success at Commercial Bay and completed the Mason Brothers building at Wynyard Quarter stage 1.
“The completion of the Mason Brothers building is a major milestone for the business as it is the first project to be completed and sees Precinct begin to transform its portfolio.”
At Commercial Bay, DLA Piper’s commitment to 2700m² was a signing from outside Precinct’s existing portfolio, which Mr Pritchard said illustrated the attraction of this cbd waterfront precinct.
The agreement to acquire Queen Elizabeth Square from Auckland Council became unconditional in December. The land is now formally incorporated into the Commercial Bay retail development due to open in late 2018: “This provides certainty to allow the retail leasing programme to advance responding to significant interest from retailers.”
Mr Pritchard said the conditional acquisition of a 50% interest in Generator aligned well with Precinct’s values & its strategy of being a city centre specialist: “It has a strong management team and offers the opportunity to enhance the amenity & service levels that Precinct can offer its clients. It will also enable Precinct to expand its traditional client base with smaller businesses, helping to grow occupancy & demand.”
Net property income reduced to $45.9 million ($53.7 million). M Pritchard said: “After adjusting for recent asset sales & foregone income associated with our development projects, like-for-like income was $0.7 million lower than the comparative period. This reduction was a result of the 14 November Kaikoura earthquake. After allowing for the rental abatement at Deloitte House and earthquake-related costs, like-for-like income was slightly higher than the comparative period.
“Precinct’s Wellington portfolio performed very well during the earthquake, with all but Deloitte House being assessed by engineers & reopened within 48 hours.
“Precinct’s structural engineers, Holmes Consulting, were instructed to undertake a detailed structural investigation of Deloitte House, which concluded relatively minor structural damage had occurred. Notwithstanding this, further detailed assessments have identified that the seismic strength of the building is lower than previous assessments.”
Mr Pritchard said an internal review of the 30 June 2016 property valuations indicated no material value movement in the period for all the assets, apart from Deloitte House. The provisional estimated cost associated with remediating the damage and making seismic improvements resulted in the independent valuation of Deloitte House falling by $12.1 million to $33.4 million ($45 million at June 2016).
The value of net tangible assets/share at interim balance date was unchanged from June at $1.17 (June 2016: $1.17).
17 February 2017: Precinct buys into co-workspace specialist Generator
DLA Piper signs for Commercial Bay
21 December 2016: Precinct’s QE Square purchase unconditional
Attribution: Company release.