Archive | Precinct Properties

Precinct working on ANZ Centre deal, has conditional Wellington sale

Precinct Properties NZ Ltd says it’s working with one party on the sale of a 50% interest in the 39-storey ANZ Centre in Auckland and has an agreement to sell the quake-damaged former Deloitte House in Wellington (pictured) at a huge markdown.

Precinct chief executive Scott Pritchard said yesterday: “The half-share interest in the ANZ Centre has received very strong interest and we look forward to forming a long-term relationship with the preferred bidder.

“With several options for 10 Brandon St having been assessed to date, we believe the sale of this asset represents the best option for Precinct. Progressing these asset sales will enable Precinct to focus on and recycle capital into its future development opportunities.”

The company sought expressions of interest this year in a 50% interest in the ANZ Centre on Albert St in Auckland. The campaign has closed, and Mr Pritchard said pricing indications were at a premium to the June 2017 valuation of $324 million.

Precinct spent $76 million refurbishing the whole of the ANZ Centre after the bank committed to a new long-term lease in 2011. The building has a net lettable area of 33,520 m² and a weighted average lease term of 8.6 years.

Mr Pritchard said there’d been strong interest in the opportunity to take a 50% interest in the building. “Precinct has agreed to a period of exclusivity for one party to complete due diligence and enter into a binding sale & purchase agreement. At this stage there is no binding agreement for the sale & purchase of the property.”

Changing fortunes on Brandon St

Precinct took the former Deloitte House at 10 Brandon St, Wellington, out of its investment portfolio last year, when its value had already plummeted, and called it a development property. Then the company abandoned the idea of fixing it up itself and looked for a buyer.

It’s found one at $10.2 million, conditional on ground lessor approvals, and the sale is due to settle in August.

Deloitte House was valued at $62 million in 2008 but had dropped to $49.3 million, with a carrying value of $45 million, in 2015.

Following the November 2016 Kaikoura earthquake, the building needed to be remediated & seismically improved, and the valuation (and carrying value) dropped in 2017 from $49 million to $26.1 million, and the some more.

In Precinct’s report in March on the December 2017 half-year, the company said it had written the valuation down from $20.2 million in June to just $7 million in December.

The building had 14 storeys when it was constructed in 1983 and had 2½ new floors added during a retrofit in 2005-06. It also now has 34 basement parking spaces & ground-floor retail, and a total lettable area of 12,972m².

Attribution: Company release.

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Ex-BNZ & State Tower takes on third name

The former BNZ Tower in Wellington, more recently known as the State Insurance Tower, will become the Aon Centre on Sunday.

Its construction for the Bank of NZ began in 1973, but a demarcation dispute over who should weld its structural steel not only stopped work on this tower but tilted highrise developers heavily in favour of structural concrete.

A second construction contract was needed to complete it, in 1984. The BNZ moved its head office to Auckland in 1998 and State Insurance took on naming rights.

Insurance brokerage Aon has been a tenant since 2013.

Precinct Properties NZ Ltd owns & manages the building, which fronts Lambton & Customhouse Quays as well as Willis St. It has 22 office floors, 3 parking levels, underground & ground level retail arcades and a foodcourt.

Attribution: Precinct release.

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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 bond issue fully subscribed

The margin for Precinct Properties NZ Ltd’s new $100 million of bonds has been set at 1.50%/year over the 7-year swap rate, and the interest rate has been set at 4.42%/year.

Precinct offered $75 million of secured unsubordinated fixed-rate bonds plus $25 million in oversubscriptions, which were all taken up.

All the bonds have been allocated to intermediaries for distribution to their clients. No public pool is available. The bonds will be issued on 27 November.

Earlier story:
13 November 2017: Precinct launches bond issue

Attribution: Company release.

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Precinct launches bond issue

Precinct Properties NZ Ltd launched its $100 million bond issue today – up to $75 million of secured unsubordinated fixed-rate 7-year bonds, with the ability to accept $25 million more – to institutional & New Zealand retail investors. There’s no public pool.

The indicative margin range above the 7-year swap rate is 1.5-1.6%/year, subject to a minimum interest rate of 4.4%/year. The margin & interest rate will be set on Friday 17 November following a bookbuild process.

Link: Indicative terms sheet

Earlier story:
10 November 2017: Precinct expects to open bond offer next week

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 expects to open bond offer next week

Precinct Properties NZ Ltd expects to release full details next week of an offer of secured unsubordinated fixed-rate 7-year bonds to institutional & New Zealand retail investors.

The NZX-listed company has appointed ANZ Bank NZ Ltd as arranger and ANZ, together with First NZ Capital Securities Ltd & Forsyth Barr Ltd, as joint lead managers. Precinct has also appointed Hobson Wealth Partners Ltd as the co-manager.
Attribution: Company release.

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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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