Archive | Precinct Properties

Precinct sets notes interest rate

Precinct Properties NZ Ltd allocated $125 million of 4-year convertible notes today at 4.8%/year, the minimum interest rate under the offer. It has another $25 million of notes available under its priority offer.

Today’s allocation included the maximum $25 million of oversubscriptions.

Minimum application amounts are $5000 under the general offer, which closes on Friday 22 September, and $1000 under the priority offer, to eligible NZ-resident Precinct retail shareholders, closing on Tuesday 19 September.

Today’s bookbuild setting the interest rate was for participants in the general offer.

Link: Precinct notes product disclosure statement

Earlier story:
27 August 2017: Precinct launches 4-year convertible notes

Attribution: Company release.

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Precinct launches 4-year convertible notes

Precinct Properties NZ Ltd expects to open its $150 million 4-year subordinated convertible notes offer on Tuesday 5 September. The company lodged its product disclosure statement on Friday.

The notes will be convertible into ordinary shares at the lesser of $1.40/share or a 2% discount to the market price. Conversion date is 27 September 2021.

Precinct said on Friday it would make a priority offer of up to $25 million of notes to eligible New Zealand-resident retail Precinct shareholders, closing on Tuesday 19 September, and a $100 million general offer, with the ability to accept $25 million of oversubscriptions, to NZ-resident investors & certain overseas institutional investors, closing on Friday 22 September. There is no public pool.

Any notes not taken up under the priority offer can be reallocated to the general offer.

Precinct will retain the right to pay a cash amount to noteholders at the end of the term rather than converting the notes into shares. In this case, noteholders would be paid an amount equal to the market price of all the shares that would have otherwise been issued on conversion, so they receive an equivalent value to those shares and will similarly benefit from any appreciation of the share price above $1.40.

The indicative margin range above the 4-year swap rate for the notes is 2.25-2.45%/year, subject to a minimum interest rate of 4.8%/year. The margin & interest rate will be set on Monday 4 September following a bookbuild process and will be announced shortly after.

Under certain circumstances, interest payments can be suspended and the notes can be converted early.

Link: Precinct notes product disclosure statement

Attribution: Company release.

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Precinct lifts profit, plans notes issue

Precinct Properties NZ Ltd lifted its net profit after tax by 17.3% in the June year to $162.1 million ($138.2 million in 2016).

The commercial property investor now has a large development portfolio at Commercial Bay on the former Downtown shopping centre site in downtown Auckland, the Wynyard Quarter and, in Wellington, Bowen Campus, and it’s expecting to make a $150 million notes issue this month as the first stage in diversifying its funding.

Chief executive Scott Pritchard said yesterday: “A strong revaluation gain, reduced interest & tax charges and an unrealised gain on financial derivatives have all contributed to the increase. Net operating income (distributable earnings), which adjusts for a number of non-cash items, has increased from $72.8 million to $74.7 million. On a cents/share basis, this was in line with guidance and up 2.7% to 6.17c/share (2016, 6.01c/share).”

Net property income reduced to $90.4 million ($104.5 million). Adjusting for developments & seismic repair costs, like-for-like net property income rose by 0.7%, with Auckland increasing by 1% and Wellington flat.
Precinct’s portfolio value increased to $2.04 billion ($1.70 billion) due to the valuation gain & the large development spend.

Result highlights:

  • Net profit after tax up 17.3% to $162.1 million ($138.2 million)
  • Net operating income up 2.6% to $74.7 million ($72.8 million
  • Property portfolio revaluation gain of $77.5 million ($81.2 million)
  • NTA/share up 6% to $1.24 ($1.17)
  • Full-year dividend up 3.7% to 5.6c/share (5.4c/share), representing a 90.8% payout ratio
  • Earnings guidance for the 2018 financial year, net operating income of about 6.3c/share, and dividend expected to rise 3.6% to 5.8c/share.

Advancing developments:

  • Wynyard Quarter stage 1 in Auckland has been completed and Bowen Campus in Wellington is well underway, both projects recording a revaluation uplift
  • The as-if-complete value of Commercial Bay in downtown Auckland increased by $88 million to $941 million
  • 46% of Commercial Bay retail space committed
  • Post-balance date, the Government advised that it intended to lease the remaining office space at Bowen Campus, taking the office pre-commitment to 100%.

Strengthened portfolio:

  • Occupancy increased to 100% (June 2016, 98%)
  • An extended weighted average lease term across the portfolio of 8.7 years, including developments
  • 56 leasing transactions on 37,500m² of space secured
  • The portfolio is under-rented by 4.7% (June 2016: 3.6% under-rented)
  • Advanced strategic focus on high levels of client service with the acquisition of a 50% interest in co-working space operator Generator.

Sustainable growth:

  • Reflecting development progress, gearing increased to 25.1% (30 June 2016, 14.4%)
  • Precinct is also considering issuing a subordinated convertible note
  • Post-issue, committed gearing is expected to reduce, supporting growth through a flexible funding option.

The convertible note issue

Precinct is considering making an offer of up to $150 million of 4-year fixed-rate, subordinated convertible notes to institutional & New Zealand retail investors. The offer is expected to consist of a priority offer to eligible New Zealand-resident retail shareholders, and a general offer.

Mr Pritchard said: “Precinct has pre-funded its extensive existing development pipeline, including Commercial Bay. However it is considering issuing the notes to provide the company flexibility to pursue prudently other projects, should they arise.”

The conversion price to convert the notes into Precinct ordinary shares will be set at the lesser of:

  • a fixed price/share (conversion price cap), and
  • a 2% discount to the 20-day volume-weighted average price (market price).

Precinct may elect instead to pay a cash amount to noteholders at the end of the term rather than converting the notes into shares. In this case, noteholders would be paid an amount equal to the market price (as described above) of all the shares that would have otherwise been issued on conversion of their notes, so they receive an equivalent value to those shares and similarly benefit from the 2% discount & share price appreciation above the maximum conversion price.

The company expects to release full details of the offer this month. Mr Pritchard added: “Post-issue, we expect to further diversify our funding sources and reduce our leverage, providing Precinct with the capacity to consider future opportunities.”

Link: Precinct 2017 annual report

Attribution: Company release.

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Precinct gets 4.5% revaluation gain with more expected

Precinct Properties NZ Ltd said on Friday its $89 million valuation gain in the year to June had lifted the portfolio value over the $2 billion mark.

The 2017 valuation gain was up 4.5% on the $81 million last year.

The valuations were carried out by independent valuers, are subject to final audit, finalisation of year end book values and will be confirmed in the financial results for the year ending 30 June 2017, to be announced 17 August.

Chief executive Scott Pritchard said that, excluding Deloitte House in Wellington, the overall portfolio valuations were up 5.3% on forecast book values.

The Auckland portfolio gained 6.8%, Wellington 1.5%. Mr Pritchard said those increases were mainly attributable to continued compression in capitalisation rates, together with market rental growth. Deloitte House’s valuation declined by $14 million, with further work completed on remediating & seismically improving the building following the November 2016 Kaikoura earthquake.

“Precinct’s active development pipeline has contributed strongly to the value uplift. Commercial Bay (Auckland) & Bowen Campus (Wellington) ‘on completion’ values have increased by around $94 million to $1.176 billion.

“This was mainly due to an increase in the value on completion of Commercial Bay of $88 million to $941 million. Forecast net profit from both developments combined has increased to be around $250 million, of which about $160 million as at 30 June 2017 has yet to be recognised.”

Attribution: Company release.

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Precinct lifts profit and advances office strategy

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).

Development progress

Wynyard Quarter:

  • 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:

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.

Portfolio-wide:

  • 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.”

Looking through again, November 2016: This view shows the nose of a cruise ship poking through between 2 Precinct buildings, the HSBC tower at 1 Queen St and Zurich House at 21 Queen St. In the foreground, works have started for the rail tunnels into Britomart from Aotea Station & Albert St, and for the Commercial Bay redevelopment.

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.”

Interim results                                                                                         

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).

Link:
Precinct 2017 interim report

Related stories:
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.

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Precinct buys into co-workspace specialist Generator

Precinct Properties NZ Ltd has conditionally acquired a 50% interest in the Generator business, which operates 3000m² of co-working space at 3 areas in Britomart, notably in the revitalised buildings on its Customs St East frontage (pictured above).

Ryan Wilson.

Generator chief executive Ryan Wilson, who co-founded it in 2010, describes it as “a workspace revolution for a new breed of ‘black collar’ workers – a stimulating space that combines leading edge technology with the latest design. Simply put, the coolest office in the world available & affordable for small, creative & entrepreneurial businesses.”

And Precinct chief executive Scott Pritchard said yesterday: “Generator is well aligned with Precinct’s strategy of being a city centre specialist. It has a strong management team and offers the opportunity to expand the market in which Precinct operates and to enhance the amenity & service levels that Precinct can offer its clients.”

Generator’s ‘curated’ community encompasses 107 member companies, including award-winning local startups & beachhead offices for global operators. Mr Wilson said it had grown strongly & consistently over its first 6 years, and the partnership with Precinct came at a perfect time to escalate that growth to a new level.

“Precinct is a serious operator in the property business in New Zealand, and this partnership gives Generator a solid foundation for its own expansion plans and the rollout of an exciting schedule of programmes & services that will support our business ecosystem.”

He said its success had been achieved through the provision of specialised, professional & a highly curated co-working membership experience: “We place a great deal of emphasis on ensuring that members have a discreet, modern, relaxed & comfortable environment in which to work (and socialise), but we also believe there is an equal need to ensure our members can present a more formal & highly professional face to the market when the situation demands.

“This extends both to the range of office environments & the facilities offered. Initiatives in the pipeline include rapid development of GENHUB, our digital community & information platform that allows members to interact with Generator’s services and discover collaboration opportunities, a new in-house investment programme, member incentive scheme & international scholarship programme.

“We are always mindful that we exist because our members choose to be with us, which means we are constantly on the lookout for innovative ways to help our member businesses grow & succeed.”

Earlier story:
15 June 2016: Generator expands again

Attribution: Company release.

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DLA Piper signs for Commercial Bay

Global law firm DLA Piper will move its Auckland office from 205 Queen St to new premises in the PwC Tower at Commercial Bay as of June 2019 as part of plans to redesign the traditional legal workspace.

Listed property investor Precinct Properties NZ Ltd has started development of the 39-floor Commercial Bay tower on the former Downtown Shopping Centre site at the corner of Customs St West & Albert St, and accountancy firm PricewaterhouseCoopers has taken naming rights. PWC has had naming rights on the tower across Albert St & fronting Quay St, also owned by Precinct, since it opened in 2003.

DLA Piper has committed to lease 2 floors in the Commercial Bay tower and said it would create a state-of-the-art, open-plan workplace environment.

DLA Piper’s global co-chief executive, Simon Levine, said yesterday: “Our vision for this new office is to create a modern, flexible workplace using the latest technology to promote collaboration and, most importantly, be a great place to work for our people & our clients. We are investing in this new office design model across the world, for example in Brisbane, Sydney & Manchester.  Our new address in Auckland supports our vision to be the leading global business law firm by combining local expertise & global presence at central business locations.”

DLA Piper’s New Zealand country managing partner, Martin Wiseman, added:  “We are proud to be part of this city-defining project. It’s unlike anything Auckland has seen before. Our new office in the PwC Tower will be a flagship location in Australasia, where visitors locally & from around the world are welcome and do business.”

He said the new design would include high quality spaces for clients, supported by state-of-the-art infrastructure services: “This means our new office will have even more impressive spaces in which to entertain our clients, network with them at events and to deliver quality training. Our environment will be open plan and junior lawyers will have more opportunities to see how experienced practitioners work. This will be an inspiring place to work.

“It is important to us that our clients have the best possible experience when they are working with us. It will give our Auckland office access to a pivotal location, modern working environments, great public transport access and a vibrant lifestyle to help attract & retain talent.”

He said DLA Piper saw many positive outcomes when it moved to 480 Queen St in Brisbane’s cbd, and Auckland would benefit from those learnings.

DLA Piper’s Brisbane office managing partner, Samantha O’Brien, said: “The move involved a change management exercise, and nearly 12 months on we feel the new space fosters more opportunities for collaboration & togetherness. The flexibility & efficiencies of space, and the new technology have impressed everyone – we couldn’t imagine going back to how it was before.”

Attribution: Company release.

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Precinct’s QE Square purchase unconditional

Precinct Properties NZ Ltd said yesterday its purchase of the 1892m² of Queen Elizabeth Square on Lower Queen St has gone unconditional.

The purchase price is $27.2 million, with settlement in early 2018.

Precinct & the council entered into a sale agreement in February 2015 conditional on the land being rezoned.

Precinct chief executive Scott Pritchard said yesterday the conditions to the agreement to acquire the land from Auckland Council had been satisfied. Precinct will incorporate the land into its Commercial Bay retail development, due to open in late 2018, restoring the retail edge to Lower Queen St, where the square had a 50m street frontage.

Mr Pritchard said the development would contribute to the reinvigoration of Auckland’s retail heart.

The company has demolished the former Downtown shopping centre to make way for a 39-storey office tower on the Customs St East-Lower Albert St corner and linked retail through to Queen St, with an internal lane down to Quay St.

Earthworks on the site include preparation for 2 rail tunnels taking the city rail link in & out of Britomart, up Albert St and round to the Mt Eden station. The tunnels will cross the Commercial Bay site and Precinct will also build its parking floors in the same construction programme.

Earlier stories:
20 January 2016: Propbd on Q W20Jan16 – QE Square rezoning approved, Tamaki campus rezoning approved, Furniture City sold, SkyCity guidance up
14 December 2015: Precinct all set to transform Downtown

Attribution: Company release.

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Revaluation handy, but Precinct performance goes far beyond that

Precinct Properties NZ Ltd attributed its profit lift for the June year to revaluation gains, but the company’s performance goes far beyond that fortuitous statistic.

Revaluations were $16.4 million higher than last year, and the company’s bottom line rose by $15.8 million, a 12.9% increase, but Precinct’s construction programme will reshape 2 key commercial areas of Auckland, while it’s just negotiated new Crown leases in Wellington, a major success for both commercial landlords & the Government in rationalising office use in the capital on more efficient rent structures.

Demolition of the Downtown Shopping Centre is underway in preparation for the development of Commercial Bay, which will have a new PricewaterhouseCoopers office tower on the Customs St West-Lower Albert St corner and retail through to Lower Queen St.

That project coincides with the start of works for the city rail link tunnels, which will run under Commercial Bay en route from Britomart round to Albert St.

In the Wynyard Quarter, Precinct has new construction under way for the Innovation Precinct and is also transforming the old Mason Bros industrial building into new office premises.

To do all this, Precinct has secured a new 5-year $860 million facility yet held its gearing down to 14.4%.

Highlights:

  • Net profit after tax, up 12.9% to $138.2 million ($122.4 million in 2015)
  • Net operating income, up 6.6% to $72.8 million ($68.3 million)
  • Property portfolio revaluation gain, $81.2 million ($64.8 million)
  • Net tangible assets/share, up 5.4% to $1.165 ($1.105)
  • Full year dividend, 5.4c/share (5.40c/share), representing a 90% payout ratio
  • Earnings guidance for 2017, 6.2c/share, with the 2017 dividend expected to rise 3.7% to 5.6c/share.

Securing the growth strategy

Precinct began $1 billion of developments in the year to June, with an estimated return on cost of 18%. Highlights of that programme:

  • Secured earnings growth through leasing success, with all office developments now 74% pre-leased on a weighted average lease term of 13.1 years
  • Law firm MinterEllisonRuddWatts announced as tenant at Commercial Bay, moving from the top of Shortland St to the new PwC Tower, taking pre-leasing to 60% by income
  • International fashion retailer H&M secured for the cbd flagship store at Commercial Bay
  • Commitment by the Crown to 68,000m² on a weighted average lease term of 14.6 years at Bowen Campus, Pastoral House, Mayfair House & 3 The Terrace, as well as an extension to the existing lease at 1 The Terrace
  • Achieved 86% pre-leasing at Wynyard stage 1, with Mason Brothers building restoration on track for completion in 4 months and the Innovation Building on track for completion in mid-2017.

Reducing funding risks:

  • Secured a new 5-year $860 million facility, extending the weighted average debt maturity profile to 5.1 years at 30 June 2016 (4.6 years in 2015) and ensuring no refinancing risk during peak development period.

Precinct is in a strong financial position with gearing of 14.4% and sufficient funding capacity to deliver its committed developments.

Strengthened portfolio

  • Weighted average lease term across the portfolio extended to 6.3 years (5.0 years), increasing to 8.2 years when current developments included
  • Record activity levels as 135,000m² leased
  • The portfolio is under-rented by 3.6% (last year 1.8%), Auckland by 6.6% but Wellington at market.

Chief executive Scott Pritchard said yesterday 2 post-balance date signings outshone a brilliant year:  “The operational & financial results for the year, as well as the commitments to Commercial Bay & Wynyard Quarter stage 1, were significant highlights. However, the post-balance date commitment by the Crown to 68,000m² of Wellington office space was arguably the key achievement as it will transform the quality of our Wellington government portfolio.”

Then, yesterday, he announced MinterEllisonRuddWatts’ commitment to the new PwC Tower and said leasing at other Auckland buildings remained strong:

  • HSBC Bank extended its lease in 1 Queen St and committed to relocate in 2019 to 188 Quay St, taking naming rights over the building when PwC moves from there across the road to Commercial Bay
  • Real estate agency Colliers International has also committed to relocate to 188 Quay St, which largely removes the vacancy risk from PwC’s relocation to Commercial Bay.

“Including the Government leasing, our team have leased an impressive 135,000m² of office space in the year, which is equivalent to over 4 PwC Towers. Following this success, leasing risk has substantially reduced, enabling us to have greater confidence in our ability to deliver our long-term strategy & earnings growth.

“We ended the year in a strong position. Our buildings were 98% occupied (98% in 2015) with an overall weighted average lease term of 6.3 years (5.0 years), extending out to 8.2 years when the 3 developments are included.”

Links:
Precinct annual report
Result presentation

Attribution: Company release.

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Precinct & Crown settle Wellington lease deal on 68,000m²

Precinct Properties NZ Ltd has secured long-term Crown leases in 4 Wellington buildings and an extension in another.

The company said on Monday it was a successful conclusion to negotiations on the Government’s Wellington accommodation project, resulting in long-term leases at Bowen Campus (pictured), Pastoral House, Mayfair House & 3 The Terrace, and the extension to the existing lease at 1 The Terrace.

As a result of the commitment, Precinct will develop Bowen Campus and undertake significant refurbishment at the remaining assets. The commitment secures 68,000m² of office space leased on a weighted average lease term of 14.6 years.

The Crown will get premium quality assets at below-market rentals levels after agreeing a 5% “bulk offer discount”.

Across all the buildings, Precinct will invest a total $213 million. Total project cost (including ingoing asset value based on 30 June 2015 valuations) has been put at $380 million. Precinct chief executive Scott Pritchard said the buildings would generate a blended yield on cost of 7.0% on completion.

The Crown has committed to 15-year leases at Bowen Campus, Pastoral House & Mayfair House, with varying start dates. At 3 The Terrace, the lease term is 12 years. All leases have a structured lease review profile.

Mr Pritchard said the commitment by the Crown concluded a comprehensive & rigorous process which had required the Crown to relocate a number of Government agencies. “Importantly for Precinct, the outcome will lift the weighted average lease term of the Wellington portfolio by 6 years to 9.5 years as at 30 June 2016. Precinct’s portfolio weighted average lease term improves by 3 years to 7.4 years.

“This is the largest leasing transaction ever undertaken by Precinct, and potentially in the New Zealand office market, and represents the successful conclusion of 3 years of complex negotiations.

“We are confident that the very substantial investment we are making will result in significant benefits for Precinct & the Crown through repurposing existing Crown-occupied buildings to deliver modern, highly efficient & cost-effective public sector workspace. The long-term leases represent some half a billion dollars in income over the lease terms and provide material earnings security for Precinct, while significantly strengthening our portfolio quality in line with our long-term strategy.”

Redevelopment of the Bowen Campus will increase the existing area, excluding the annex building, from 26,100m² to 38,400m². This increase in floor area is primarily due to an expansion of the Bowen State building from 14,100m² to 23,000m², as well as additional floor area gained from a new facade installed at Charles Ferguson Tower and additional retail amenity.

Precinct agreed a fixed-price lump-sum contract on Monday with LT McGuinness Ltd to complete the Bowen Campus works.

The Crown has committed to 32,400m² of office space (87% office precommitment) at Bowen Campus and has an option to take the remaining 3 floors at Bowen State, representing about 4700m². Precinct retains development potential over the 4000m² balance of the Bowen Campus site, which could support up to 25,000m² more office development.

Mr Pritchard said the Bowen Campus project was expected to have a total cost of $203 million and to generate a yield on cost of 7.5% when fully leased.

Works at Bowen Campus will start in November at the expiry of the existing lease to the Ministry of Social Development. The project is expected to reach practical completion in early 2019.

Mr Pritchard said: “Bowen Campus has been an outstanding investment for the Precinct portfolio. Purchased in June 2012 for $50.4 million, by the time works commence in November Precinct would have received $27 million in income (12%/year). Now the business will create 2 premium grade assets immediately adjacent to Parliament, underpinned by long-term leases to the Crown, with further development potential.”

Pastoral House will be vacated next March for works to take place over a 12-month period, including the complete refurbishment of all base building plant & equipment and major upgrades of all interior aspects of the building. Seismic strengthening works will raise Pastoral House’s 67% new building standard rating to 80%.

Upgrades of Mayfair House & 3 The Terrace will be undertaken in 2018 once existing tenants have vacated the buildings. Neither building requires seismic strengthening. The forecast total incremental spend for Pastoral House, Mayfair House & 3 The Terrace is $55 million.

The Crown has committed to lease 100% of the available space of all 3 buildings on completion of the works. The current lease for 1 The Terrace (tower portion comprising 7400m²) will be extended through to mid-2019, and this remains under consideration by the Crown for long-term lease.

Mr Pritchard said Precinct would fund the projects through existing bank facilities, taking committed gearing to about 39%.

Earlier story:
18 June 2015: 4 Precinct properties enter next phase of Government procurement process

Attribution: Company release.

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