Archive | Commercial Bay

Precinct secures tenants for Wynyard & 1 Queen St

Precinct Properties NZ Ltd has secured the Media Design School as a tenant in its 10 Madden St development in the Wynyard Quarter, and law firm Bell Gully in the refurbished 1 Queen St, which will be incorporated into the Commercial Bay precinct.

The Media Design School will occupy 4760m² in 10 Madden St on a 15-year lease term. As announced in November, Precinct committed to stage 2 in the Wynyard Quarter on an uncommitted basis. Chief executive Scott Pritchard said yesterday the Media Design School lease took leasing commitment to 60% of the project’s office area.

He added: “The addition of the Media Design School to our Innovation Precinct is significant and demonstrates the momentum that’s underway to create a vital new creative community. We believe Wynyard Quarter will be on a par with leading international innovation precincts and, having secured one of the world’s leading design & digital tertiary institutions, is a huge advance.”

The building, scheduled for completion at the end of 2020, will have a total net lettable area of 8290m². Mr Pritchard said that, once fully leased, the project should generate a yield on cost in excess of 7.0%.

At 1 Queen St, Mr Pritchard said Bell Gully had committed unconditionally to about 3800m² of office space. The law firm has been a tenant of the Vero Centre on Shortland St for 18 years.

Mr Pritchard said the 1 Queen St project was 76% precommitted following the previously announced commitment by InterContinental Hotels Group to 11 levels of the building: “We are delighted to have secured leading law firm Bell Gully at 1 Queen St, 3 years ahead of practical completion. Securing this commitment from outside our existing portfolio is a great result and illustrates the quality of the Commercial Bay precinct.”

Attribution: Precinct release.

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Law firm says it’s leaving Vero Centre, not saying exactly when

Law firm Bell Gully has told its Auckland landlord, Kiwi Property Group Ltd, it will vacate its premises in the Vero Centre on Shortland St between the 2023-25 financial years.

Separately, Precinct Properties NZ Ltd said Bell Gully would move to its 1 Queen St office tower, which is to be refurbished over the next 3 years. It will have a hotel on the lower 11 floors, offices above, and now has 76% precommitment.

Bell Gully hasn’t determined exactly when it will leave. The firm has been a Vero Centre tenant since the building opened 18 years ago. It currently occupies 5912m² on 5 floors.

Kiwi Property chief executive Clive Mackenzie said: “We wish Bell Gully every success in their onward journey. While we are disappointed to see the firm leave, the advance notice by Bell Gully provides us with sufficient time to begin discussions with prospective tenants.”

The Vero Centre is 94% occupied, with a weighted average lease term of 7.0 years. Kiwi Property’s whole office portfolio has 98% occupancy and a portfolio weighted average lease term of 10.0 years.

Attribution: Kiwi Property & Precinct Properties releases.

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A milestone for the city rail link project, and a start on the next major section

The 2-year task of reinstating Albert St began last week while, over at Britomart, excavation for the city rail link tunnel can now proceed at full speed.

Image above: Work underway on the tunnel at the intersection of Albert & Customs St West.

The first is an obvious milestone in the development of the rail tunnel under Auckland’s downtown business area because, for most of the time the project has been underway, pedestrians have been able to peer down.

Britomart is far more complicated, requiring the railway station building – the city’s former chief post office – to be jacked up to enable excavation for the tunnel that will cross under Lower Queen St, under the Commercial Bay tower under construction on the former Downtown shopping centre site, around under Albert St & up to Karangahape Rd and on to Mt Eden station.

The Albert St tunnel project in September 2017 (my photo above) and (below) in September 2018.

The Government-Auckland Council company in charge of the rail project, City Rail Link Ltd, in its latest newsletter out last Thursday, counts some major steps forward:

  • Albert St reinstatement starts
  • Excavation under the Albert/Customs St intersection paves the way for construction of the tunnel box sections that will eventually link the Albert St trench to the rail tunnels being built under the neighbouring Commercial Bay development
  • The Britomart load transfer is complete and tunnel excavation can proceed.

City Rail Link chief executive Sean Sweeney said backfilling of the trench which runs directly beneath Albert St will eventuate in the roadway being reinstated & returned to road users by late 2020.

Backfilling with 50,000m³ of materials – a mixture of crushed concrete, crushed rock, sand & flowable fill – will take until mid-2019 to complete.

The work is being completed by Connectus – the McConnell Dowell Constructors Ltd & Downer EDI Ltd joint venture delivering the city rail link C2 contract.

Under the Customs/Albert St intersection, excavations have reached the halfway mark in preparation for building a key section of rail link tunnel box.

The twin underground tunnels being built under Albert St will connect at that point with those that have been built under the adjacent Commercial Bay development site.

Excavation is also continuing with the installation of supports for the trench walls and the removal of an old stormwater pump chamber. Construction of the tunnel structure under the intersection is expected to start this year, with a full connection being made to Commercial Bay by mid-2019.

On the C1 contract in Queen St, Downer & Soletanche Bachy JV completed the weight transfer of the 106-year-old category 1-listed ex-post office heritage building onto a series of underpinning frames, which will protect it from damage while rail link infrastructure is built underneath.

The City Rail Link website is full of images & more detail on the project.

2 time-lapse videos on the link’s website show a 6-month sequence of the city rail link tunnel box being built underneath Albert St. One camera faces south, and the other faces northern Albert St (downhill).

Links:
Albert St milestone
Video: Latest look inside the Albert St trenches
Britomart tunnel excavation is go

Attribution: Company release.

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Precinct Properties presents a long list of positives from development & in financial structure

Major commercial property owner – and nowadays developer – Precinct Properties NZ Ltd lifted its net profit after tax for the year to June by 57.2% to $254.9 million.

The NZX-listed company’s biggest project at the moment is the $1 billion Commercial Bay development, redeveloping the Downtown Shopping Centre site at the foot of Auckland’s central business district. It’s also developing Bowen Campus in Wellington and has completed developments in Auckland’s Wynyard Quarter.

Image above: The trio of buildings at the centre of Precinct Properties’ strong performance – the existing PwC Tower at right, the new PwC Tower under construction and the existing HSBC House at 1 Queen St, to be redeveloped into a hotel with office above.

Chief executive Scott Pritchard said yesterday Fletcher Building Ltd had provided revised completion dates at Commercial Bay of September 2019 for the retail & December 2019 for the new PwC Tower (across Albert St from the building currently called PwC Tower).

Precinct also announced its plans for 1 Queen St, sitting on the Quay St frontage of the redevelopment, to include a 244-room luxury hotel operated by the InterContinental Hotels Group (IHG) – see separate story.

9% revaluation gain

Mr Pritchard said the quality of Precinct’s portfolio had resulted in a $208.7 million (9%) portfolio revaluation gain to $2.5 billion.

Precinct Properties is the largest city centre real estate owner in New Zealand, and Mr Pritchard said it was committed to its long-term strategy as a city centre specialist.

“The last financial year has delivered another strong result for our business. As we move forward with our strategy, we progressed a number of initiatives and achieved key milestones during the year.

“We have continued to take an active management approach with our investment portfolio & our development pipeline, leveraging Precinct’s market position.”

“The long-term outlook for the Auckland market remains strong, with solid demand drivers for city centre real estate across the office, retail, hotel & residential markets.”

Mr Pritchard said the Wynyard Quarter & Bowen Campus also contributed to this growth, with works progressing well over the last 12 months.

The Precinct Properties precinct: From the ANZ Centre up Albert St, down to the waterfront via Commercial Bay where Precinct is developing the new PwC Tower across the street from the existing PwC Tower, and yesterday announced the redevelopment of 1 Queen St (at right) to contain a hotel with offices on the upper levels.  Other Precinct buildings in this precinct are Zurich House and the AMP Centre.

Commercial Bay update:

Precinct’s reinforced its vision & long-term commitment to the rejuvenation of the central city with the announcement of the $298 million development at 1 Queen St (currently HSBC House), which will include the hotel in the lower half of the building.

Commercial Bay, looking out between the Cloud & Princes Wharf.

This development has been designed to integrate seamlessly with Commercial Bay. Its upper floors will also be remodelled to contain high quality office space & unique food & beverage options, including a rooftop bar.

Commercial Bay & its retail wrap’s Customs St frontage yesterday.

Mr Pritchard said phase one of the Commercial Bay retail remained on schedule, with international powerhouse H&M opening its flagship 3800m² store fronting Customs St in a fortnight, on Thursday 30 August. Passersby have been able to watch H&M’s creation in the new lowrise building beside the 21 Queen St offices of Zurich House, as windows have started to be placed at lower levels of the 39-storey Commercial Bay tower at the corner of Customs & Albert Sts.

“This marks a significant milestone for the transformational development which is reinvigorating the heart of the central city,” Mr Prithcard said. “The superb 4-storey retail offering promises to be the country’s premier H&M destination.

“Phase 2 of the Commercial Bay retail & the new PwC Tower have revised estimated completion dates, following the confirmation of a completion programme from main contractor Fletcher Building Ltd.

The revised completion dates are September 2019 for the Commercial Bay retail & December 2019 the new PwC Tower.

“The programme provided by Fletcher Building has been independently reviewed by Precinct’s expert programmer, RCP, who confirm the revised dates are achievable, subject to the main contractor’s performance.

“Precinct remains confident with the provisions of its construction contract, which protect the business from losses due to contractor delay.

“While any delay in a project is disappointing, we believe Fletchers are maintaining a very high standard of quality during a very challenging period within the construction industry.”

Commercial Bay’s entrance on to Quay St.

The new timeframes also affect prospective tenants: “Precinct continues to work closely with retailers at Commercial Bay to communicate the revised occupation dates. For those occupiers coming into the new PwC office tower, all have lease terms which extend beyond the revised completion dates of the office tower.”

Mr Pritchard said Commercial Bay continued to achieve a good level of leasing enquiry. Precinct had secured retail commitments to 76% and office commitments to 78%: “The $1 billion Commercial Bay waterfront development & lifestyle district is destined to become Auckland’s newest shopping, dining & social hub, offering a vast range of food & beverage outlets.”

Links:
Precinct Properties
Precinct Properties annual report
Commercial Bay

Related stories today:
Precinct Properties presents a long list of positives from development & in financial structure
Precinct Properties valuations & profit up, debt low
The 1 Queen St redevelopment

Attribution: Company release.

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Precinct Properties valuations & profit up, debt low

Precinct Properties NZ Ltd increased its net profit after tax by 57.2% to $254.9 million (2017: $162.1 million) in the year to June. The quality of Precinct’s portfolio including its active development pipeline has resulted in a portfolio revaluation gain of $208.7 million, or 9.0%.

Image above: The trio of buildings at the centre of Precinct Properties’ strong performance – the existing PwC Tower at right, the new PwC Tower under construction and the existing HSBC House at 1 Queen St, to be redeveloped into a hotel with office above.

Net operating income (distributable earnings), which adjusts for a number of non-cash items, has increased by 2.5% to $76.6 million ($74.7 million). This equates to 6.32c/share, in line with guidance (2017: 6.17c/share).

Revenue growth of 3.6% was primarily due to the completion of Wynyard Quarter stage 1, which was partially offset by foregone income related to development activity and 10 Brandon St, Wellington. After allowing for these transactions & activity, on a like-for-like basis gross rental income was 3.7% higher. This growth has driven an uplift in NPI by 5.4% to $95.3 million ($90.4 million).

As at 30 June 2018, Precinct’s portfolio value increased to around $2.5 billion following the strong revaluation gain. Precinct’s net tangible assets/share were up 12.9% to $1.40 (2017: $1.24).

Chief executive Scott Pritchard said yesterday: “The last financial year has delivered another strong result for our business. As we moved forward with our strategy, we progressed a number of initiatives and achieved key milestones during the year. We have continued to take an active management approach with both our investment portfolio and our development pipeline, leveraging Precinct’s market position.”

Focusing on a number of capital management initiatives during the year has resulted in $250 million of capital raised through the completion of a convertible notes offer & bond issue. Precinct also sold a 50% interest in the ANZ Centre in Auckland and sold 10 Brandon St in Wellington. These assets totalled $191 million of capital recycled.

“At year end our investment portfolio has continued to benefit from strong occupier markets. Achieving a high overall portfolio occupancy of 99% at year end and weighted average lease term of 8.7 years demonstrates this. Our Auckland portfolio has performed particularly, well with occupancy sitting at 100%, reflecting demand for premium inner-city office space. In Wellington, we have also reduced vacancy.

“In both Auckland & Wellington, we have successfully leased major expiries well ahead of vacancy. At the AMP Centre in Auckland, the QBE expiry has been fully leased at a premium of 17% to previous rentals. At Aon Centre in Wellington, 3 floors have been leased on the former IAG tenancy, with 2 remaining floors becoming available in early 2019.”

Mr Pritchard said the Auckland hotel market was experiencing unprecedented levels of growth in demand, which is forecast to persist through further growth in tourism numbers until at least 2025: “While a number of new hotel projects have been announced in the last 24 months, the increase in supply is expected to still fall short of demand over the short term and reach equilibrium over the medium to long term. This is expected to underpin robust room and occupancy rates.”

Commercial Bay

Commercial Bay remains on track to deliver a yield on cost of 7.5% and an increased profit on cost of 41% (June 17: 31%) or $283 million. Based on current project metrics, there remains a further $100 million of unrecognised development profit expected to materialise on completion.

Bowen Campus

In Wellington, construction works have continued to progress well over the last 12 months. We have now completed the facade installation at Charles Fergusson Tower with on floor works continuing. All works are targeted for completion late December 2018.

At Bowen State Building we have completed the majority of the structural works for the building including the north and south shear walls. The façade is now 90% complete for the building, installed from Level 1 to 10. On floor works are also underway to all levels.

Occupation of Bowen State Building by New Zealand Defence Force is expected in Q3 2019.

Financial highlights:

  • Net profit after tax increased by 57.2% to $254.9 million ($162.1 million)
  • Net property income, up 5.4% to $95.3 million ($90.4 million)
  • Net operating income, up 2.5% to $76.6 million ($74.7 million)
  • Full-year dividend, up 3.6% to 5.8c/share (5.6c/share), representing a 100% payout ratio (under AFFO – adjusted funds from operations)
  • Property revaluation gain of $208.7 million – 9% ($77.5 million)
  • Net tangible assets/share, up 12.9% to $1.40 ($1.24)
  • Earnings guidance for the June 2019 financial year, net operating income of about 6.60c/share, dividend expected to increase by 3.4% to 6c/share

Capital management:

  • $191 million of asset sales, providing capacity for new projects
  • $250 million of non-bank funding secured
  • Post-balance date refinancing of $760 million bank debt facility
  • Strong financial position, gearing of 25.0% (25.1%); pro forma gearing reduced to 19.4% at balance date following asset sales

Commercial Bay:

  • Advancing retail commitments to 76% (46% at June 2017) and office commitments to 78% (2017: 66%)
  • Yield on cost unchanged at 7.5%, with an increased profit on cost following the revaluation of 41% (June 2017: 31%), or $283 million
  • Phase 1 of the retail remains on schedule, with H&M opening its flagship 3800m² store on Thursday 30 August
  • A revised completion programme has recently been provided.

Bowen Campus:

  • Charles Fergusson Tower on track for completion in December & occupation by Ministry of Primary Industries
  • Bowen State Building to be occupied by NZ Defence Force, with lease starting April 2019
  • Yield on cost of 7.0%+, with an increased profit to 18%.

Future development opportunities:

  • Design has advanced for Wynyard Quarter development stages 2, 3 & 4; Precinct anticipates the second stage of the development will start in the next 6 months
  • Building design & marketing underway for precommitment leasing for the remaining development land at Bowen Campus.

Investment portfolio:

  • Auckland fully leased
  • Occupancy of 99% (2017: 100%) and a weighted average lease term across the portfolio maintained at 8.7 years (2017: 8.7 years)
  • 41 lease transactions completed, encompassing over 21,900m² & 598 parking spaces
  • Strong demand for space, with QBE expiring floors leased ahead of vacancy and 3 floors of IAG expiry leased at Aon Centre, Wellington
  • Strong like-for-like income growth of 3.0% – Auckland up 3.1%, Wellington up 2.9%
  • Generator occupancy of 73%, well above expectations; with 75% (9500m²) of its space launched during the year, the Generator business recorded a loss, as anticipated for this trading-up period.

Links:
Precinct Properties
Precinct Properties annual report
Commercial Bay

Related stories today:
Precinct Properties presents a long list of positives from development & in financial structure
Precinct Properties valuations & profit up, debt low
The 1 Queen St redevelopment

Attribution: Company release.

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The 1 Queen St redevelopment

Precinct Properties NZ Ltd announced the $298 million redevelopment of 1 Queen St – currently HSBC House – yesterday, to include a luxury hotel operated by the InterContinental Hotels Group (IHG), with office space above.

Images above & below: The redeveloped 1 Queen St, to contain hotel & offices, will sit alongside the Quay St frontage of the Commercial Bay development, which is dominated by a 39-storey tower now under construction.

Precinct chief executive Scott Pritchard said the premium waterfront redevelopment fronting the foot of Queen St, at the corner of Quay St, was designed to integrate seamlessly with Commercial Bay, which is being built on the former Downtown Shopping Centre site running up the rest of the first block of Queen St and facing Customs St East & Albert St, plus a small part of Quay St.

The overall project is 75% precommitted, with a management agreement entered into with IHG and a signed heads of agreement across 3700m² of the office premises. Precinct will fund the development through its existing debt facilities. On completion, the project is expected to generate a stabilised yield on cost of 7.0% and a profit on cost of 15%.

LT McGuinness will be the main contractor. Construction is scheduled to commence in the first quarter of 2020. LT McGuinness has been the contractor on Bowen Campus in Wellington & Wynyard Quarter in Auckland.

Project summary:

  • InterContinental Auckland will be a 244-room luxury hotel occupying levels 1-13 (excluding level 2)
  • Commercial office space will total 8700m², occupying levels 14-20
  • A rooftop bar & hospitality offering will feature on level 21
  • The lower levels of 1 Queen St are already being developed, to be included in the retail & hospitality offer of Commercial Bay
  • 1 Queen St will comprise a single-level basement & 22 upper levels, providing a total gross floor area of 27,500m².
  • The redevelopment will integrate with Commercial Bay from the ground level to level 2.
  • Signed heads of agreement over 3700m² of the office premises, which results in the overall project being 75% precommitted, with an expected yield on cost of 7.0% once complete
  • Entering into a 50% fixed price construction contract with LT McGuinness Ltd (the construction company owned by relatives of Mark McGuinness, head of Willis Bond Ltd, which is developing apartments in the Wynyard Quarter)
  • Construction is scheduled to start in 2020
  • The refurbishment is due for completion in 2022.

Links:
Precinct Properties
Precinct Properties annual report
Commercial Bay
LT McGuinness

Related stories today:
Precinct Properties presents a long list of positives from development & in financial structure
Precinct Properties valuations & profit up, debt low
The 1 Queen St redevelopment

Attribution: Company release.

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Rail tunnel excavation of Customs St intersection begins

Crossing the diagonal between the Old Customhouse & Quay Tower at Auckland’s downtown Customs-Albert St intersection, pedestrians can’t miss the rising Commercial Bay office tower and the barricades for tunnel construction.

But the barricades hide the excitement of the excavation involving both projects, which started this week.

Image above: The start of excavation to join the Albert St tunnel to the tunnel under Commercial Bay.

City Rail Link Ltd, the council-Government company undertaking the rail project, said in its latest newsletter this work would pave the way for construction of the rail tunnel box section linking the Albert St trench with the tunnels being built under the Commercial Bay development.

“Thanks to the concrete bridge deck constructed over the intersection about a year ago, traffic flow will be unaffected by the excavation occurring underneath. The spoil will be removed from the site using excavators & conveyors.

“Contractors will also be removing an old brick stormwater tunnel located under the intersection and replacing it with a temporary stormwater line that diverts water away from the location of the future CRL tunnels. The temporary line will be permanently diverted at a later date to connect with the Swanson St line, created during the Albert St stormwater realignment works last year.”

The rail link company expects construction of the tunnel structure to start in this area later this year, and a full connection made between the 2 construction sites by autumn 2019.

Crossing at Albert St intersections gives you an idea of the increasing depth of the tunnelling. CRL said the 6th section of tunnel wall had been poured below Albert St, meaning the first 132m of floor & 72m of the wall are complete.

The CRL website provides text, photos & drone views of the tunnelling programme.

Dr Sean Sweeney.

CRL’s new chief has Australian background in innovation

City Rail Link Ltd’s new chief executive, Sean Sweeney, a New Zealander who had been working in Australia, took up the position on Monday 2 July. His predecessor, Chris Meale, retired in March.

Dr Sweeney was educated at Wellington Polytechnic (NZCE), Auckland University (BE Honours), both in civil engineering, and Melbourne University (PhD in construction economics).

Since 2004, he’s been executive director at Major Projects Victoria, head of construction at major developer & builder Grocon Pty Ltd, managing director at Atelier Projects Pty Ltd – both companies which expound innovation – and chief executive at Ontoit Global Pty Ltd, a specialist in public-private partnerships.

Links:
City Rail Link newsletter
Watch drone footage of the Albert St trench construction works online.
Click to view

Attribution: CRL newsletter.

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Revaluation cuts Precinct bottom line

Precinct Properties NZ Ltd’s net operating income was steady in the December half, but the bottom line shrank by 55% after a reassessment of fair value on its Brandon St property in Wellington.

The company said the fall in the New Zealand interest rate swap curve during the period was the primary reason for the fair value loss in financial instruments of $6.9 million. This loss compared with a $15.3 million gain for the same period last year.

The NZX-listed company’s biggest project, Commercial Bay on the downtown block between Queen & Albert Sts in Auckland, now has 60% of its retail space committed, 66% of space in the office tower, and negotiations underway on another 15% of the tower.

While Commercial Bay’s construction continues, Precinct has put a 50% stake in the ANZ Centre, further up Albert St, on the market.

Financial summary:

  • Pretax net operating income up 3.8% to $40.9 million ($39.4 million in the December 2016 half), driven by 3.7% lift in net property income
  • Net operating income steady at $38.2 million ($38.8 million)
  • Net profit after tax down 55% to $17.7 million ($39.1 million) following fair value movement for 10 Brandon St in Wellington
  • Earnings guidance for the 2018 financial year unchanged at 6.3c/share, dividend guidance maintained at 5.8c/share
  • Gearing 23% (25.1% at 30 June 2017)

Investment portfolio:

  • Occupancy of 99% (100% at 30 June 2017) and a weighted average lease term across the portfolio of 8.8 years (8.7 years at 30 June)
  • 19 leasing transactions totalling 8170m²
  • like-for-like rental growth of 12.4% in Wellington corporate assets and 3.1% across the portfolio
  • Post-balance date, Precinct has begun a marketing campaign to divest a 50% interest in the ANZ Centre, Auckland.

Development update – Commercial Bay:

  • Project remains on budget with yield on cost maintained at 7.5%, supported by strong leasing outcomes
  • Increased leasing of retail space with commitments of 60% (30 June 2017: 46%).
  • Total tower office commitments maintained at 66%, another 15% (6000m²) under negotiation
  • Advancing the second stage of Commercial Bay with the integration & redevelopment of 1 Queen St into a mixed hotel/office use. Negotiations with a preferred hotel operator are advanced and commitment to this project is targeted for later this year.

Bowen Campus stage 2, in Wellington: Design continues and site preparation works are underway.

Link: Interim report & results presentation

Attribution: Company release.

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Precinct Properties targets future markets

Apart from confusion about whether to vote on director appointments by show of hands or by filling in paperwork, and uncertainty over what impact changes at Ports of Auckland might have, Precinct Properties NZ Ltd’s annual meeting yesterday was all forward progress.

The vote was an odd issue to get caught up in. When company chair Craig Stobo said the vote would be by hand, one shareholder asked: “Are you saying proxies don’t count?”

Shareholders Association representative Grant Diggle told Mr Stobo the association’s longstanding policy was to hold polls, for transparency, disclosure & good governance. Deputy chair Don Hulse – stepping in for Mr Stobo, who was one of 2 directors facing re-election – said the vote would proceed with a show of hands but, if shareholders demonstrated a strong desire for a poll, that would follow.

The vote was strongly in support of re-election and the poll was avoided. But, at another NZX-listed company meeting in the same building a few hours later, unitholders of the Vital Healthcare Property Trust voted by poll, the outcome was delayed, but nobody found it a problem.

Risk profile lowered, portfolio quality up

Mr Stobo said in his address to the meeting Precinct had reduced its risk profile as major developments were completed or passed construction milestones, and it was lifting portfolio quality.

Net profit after tax was up 17.3% to $162.1 million after achieving a revaluation gain of $77.5 million, and net tangible assets/share rose 6% to $1.24.

A bond offer, expected to be opened next week, will continue the company’s diversification of its funding sources. In September, Precinct raised $150 million of 4-year, fixed-rate subordinated convertible notes, reducing its gearing from 25% to 18%. Mr Stobo said both notes & bonds were capital management solutions which suited Precinct’s current strategy & opportunities: “It gives us the comfort of having the capital available to match our development commitments while ensuring that earnings are not diluted in the short term. Post-issue [of the notes], our committed gearing has reduced, supporting growth through a flexible funding option.”

Precinct reviewed its dividend policy last year, matching dividends with cashflow, as defined by adjusted funds from operations (AFFO), with the aim of producing a more transparent & sustainable dividend flow.

The company has indicated before that it expected dividends to rise as it advances its development programme. For the first quarter of the 2018 year, it’s lifted the dividend by 3.6% to 1.45c/share, and it expects to pay 5.8c for the full year (up from 5.6c), maintaining a 90% payout ratio.

100% occupancy

Chief executive Scott Pritchard presented a slide to the annual meeting to show the growth in portfolio occupancy, now 100%, and the weighted average lease term increasing to almost 9 years, then talked of how to improve performance further: “Precinct has always been a city centre specialist and we will continue to invest in high quality, strategically located office real estate. However, both the board & management believe that, to advance our position as a city centre specialist, considering a broader mix of real estate offers greater opportunity for Precinct to create value for shareholders.

“City centres around the world are enjoying a resurgence. We are taking advantage of this growth in a variety of ways. Commercial Bay is a great example, with Precinct developing a premium retail offering in the heart of the cbd. Fundamentally, we are growing in, and with, the cities we are part of.

“We have a clear strategy for creating vibrant environments with a broad retail, leisure and food & beverage offering. Our aim is to create precincts that our clients like working in, and that cbd residents, visitors & whole communities enjoy being in.”

Developing for the future

Perhaps one of the most important features of the strategy is to develop real estate for the future – a quite different view from developing property with an immediate cashflow in mind and extending it as long as you can.

“We currently have $900 million of developments which are underway and have identified a further $600 million development pipeline within our portfolio. This is a significant increase from 5 years ago, when the business had no development capability.

“…. Not only are our earnings growing, but we are also achieving a significant increase in portfolio quality. Achieving a positive result in all 3 measures [earnings, weighted average lease term as a result of development activity and the decline in the average age of the portfolio] is a great outcome and further reinforces the strength of our business.

“Our asset age has nearly halved, from 21 to 11 years. Along with an extended weighted average lease term & full occupancy, we have secured & advanced development in highly strategic locations. We have shifted more weighting to Auckland, which now accounts for 72% of our portfolio.

“Our focus on city centres, particularly Auckland, is very positive. With continued growth supported by key drivers such as net migration & tourism, we believe we are well placed to benefit from the city’s strong growth going forward.”

Commercial Bay at centre of change

Precinct’s biggest central city project is Commercial Bay, under construction between Queen, Customs, Albert & Quay Sts and above the rail tunnels into Britomart.

“Auckland is growing and this looks set to continue. And, like cities all around the world, it is seeing increasing centralisation. This slide illustrates the committed & forecast private & public investment in Auckland city. Most of the works are occurring in close proximity to Commercial Bay.

“A major focus for Precinct continues to be the extensive public regeneration which is set to occur on all streets surrounding Commercial Bay. Auckland is growing fast and billions of dollars are being invested in regional infrastructure such as the city rail link & new bus network. Of course, more recently there has been the commitment by New Zealand’s new government to a light rail system which will support Auckland city’s ongoing economic performance.

“Our research shows Auckland city centre population growth in 2016 was 17% and it is now growing 6 times faster than Auckland as a whole. With over 12,000 people moving to the city centre in the last 3 years, the population is already 15 years ahead of previous predictions of 45,000 people by 2032.”

As for Commercial Bay itself, Mr Pritchard said: “Having launched the project in 2015, we have gained an additional $88 million increase in the project’s value. Lease commitments have also increased to around 50% of the retail space and 66% of the office space. We are attracting leading corporate clients, and we are particularly pleased about the high quality of local & global retail & food brands choosing Commercial Bay. They will give Auckland a whole new retail & dining experience in the heart of the city.

“We are now forecasting a development profit for Commercial Bay of $213 million, reflecting a return on cost of 31%.

“Commercial Bay will include a range of food & beverage, including a communal dining offer designed by the legendary New York-based AvroKO, who are one of the world’s most respected names in hospitality design.

The name for this food offering is Harbour Eats, which is distinctively Kiwi, but AvroKO will bring the international flair. The 700-seat eatery will use plenty of natural greenery & foliage, making most of the open air atrium that will sit right at the waterfront location. This will be a truly world-class dining precinct.”

Wynyard Quarter

In the Wynyard Quarter, Precinct has completed stage 1 of its Innovation precinct: “The first stage of Wynyard consists of 2 buildings totalling around 13,000m² of office space. Achieving 100% occupancy upon completion of both buildings is a great result and we are delighted to see the development complete ahead of programme and consistent with budget. Precinct has achieved a development profit of 18%, or $16.2 million, on this project.

“Our involvement in this Innovation precinct shows how we are meeting different client needs in different ways, and our commitment to building strong partnerships. This is achieved through a joint venture with Panuku Development Auckland, an Auckland Council-controlled organisation, and on what is the last site left on Auckland’s waterfront.

“Our buildings here have a particular focus on sustainability & innovation. During the year, we acquired a 50% interest in Generator NZ Ltd, the co-working & shared office space provider. Quality co-working spaces are growing and are substantial businesses in cities around the world. We see the acquisition of a stake in Generator as being consistent with our strategic focus on building client relationships and increasing our service levels.

“This year Generator was also appointed by Ateed (Auckland Tourism, Events & Economic Development) to manage Grid AKL in the Innovation precinct, where it now operates almost 10,000m² of space and is leading an approach to co-working spaces we expect to see grow.”

Bowen Campus

In Wellington, Precinct’s Bowen Campus project is at the centre of a Government precinct: “As with Wynyard Quarter, we enjoyed both a revaluation uplift at Bowen and 100% leasing pre-commitment following the Crown exercising their right to lease the remaining vacant floors at the campus.

“The Kaikoura earthquake changed the fundamentals of the Wellington market, with many buildings still closed. With limited prime stock available, all research houses are predicting increased occupier demand. However, we too have been impacted following the earthquake, with Deloitte House being closed for a period and remaining largely unoccupied since it reopened in March. Investigations are continuing to be undertaken to try & identify the best solution for the property & its existing clients.”

Further opportunities 

Mr Pritchard said several more, attractive development opportunities available within its portfolio: “Our property at 1 Queen St is part of the Commercial Bay precinct and enjoys a prime waterfront location offering very good potential for further development as this whole area continues to grow.

“At Wynyard we have the option to develop 3 remaining sites covering 30,000m², and we are already in discussion with occupiers for stage 2, developing another 8000m².

“At Bowen Campus we can build a further 20,000m² of office space suitable for government & corporate occupiers.
“Each of these opportunities provides Precinct with feasible opportunities. We hope to commit to the second stage of Wynyard Quarter within the next year.”

Attribution: Annual meeting, presentation.

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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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