Precinct Properties' profit boosted by Fletcher Construction damages payments
Thursday, 20 February 2020
Precinct Properties, one of the country's largest property owners, has doubled its profit to $54.3 million for the half year, driven in large part by liquidated damages from Fletcher Construction for delays in the completion of the $700m Commercial Bay development in Auckland.
Precinct said in releasing its result for the six months to December 31, 2019 that it had received $52m in liquidated damages and had recognised $26.7m of that in the half year period with $23.3m credited against the Commercial Bay development cost. Another $2m was recognised in the previous financial year to June 2019.
'Precinct and FCC are enjoying a good working relationship focused on delivery of Commercial Bay to a high quality standard and there are no outstanding commercial disputes/claims,' Precinct chief executive Scott Pritchard said.
The higher after tax profit of $54.3m was a 120 per cent increase on the $24.6m after tax profit in the six months to December 31, 2018 and was also due to higher operating income in the first half of the financial year and movements in financial instruments.
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* Precinct says its Commercial Bay contract protects it from Fletcher delays
The Covid-19 coronavirus was holding up the fit-out of three to four retailers, mainly fashion shops, leasing space at Commercial Bay, a huge office, retail and hospitality development on Auckland's waterfront, due to the delay in delivery of fit-out materials, like joinery and tiles.
Pritchard said either the materials were on a ship stuck at a port or in factories in China that were not manufacturing. Precinct was trying to help the retailers find other suppliers but it was a challenge to find the products needed for the existing fit-out plans and specifications.
There was an obligation in the lease contract to open but Pritchard said Precinct was taking a pragmatic approach and wanted to support the retailers at this challenging time.
Asked if the retailers would face penalties for not opening, Pritchard said 'No, they won't.'
By and large Precinct was insulated from the impacts of the Covid-19 coronavirus and could source from other places if needed. Commercial Bay was almost finished and stage one of the Bowen Campus development had been completed. All the base build materials for stage 2 of the Wynyard Quarter development were here .
But if the coronavirus carried on for a number of months its developments would have to source fit-out materials from other locations, 'but it is not an urgent or critical issue for us at the moment.'
Commercial Bay's retail centre was expected to open in late March fully leased but might open without the three to four retailers, Pritchard said.
The office space at Commercial Bay in the new PwC tower was 92 per cent leased with the remaining vacancy being one full floor and two part floors. The tower was expected to open in April.
'Achieving significant leasing and solid rental growth across our assets has delivered another strong result for Precinct in the first half of the 2020 financial year,' Pritchard said.
'Both our portfolio and balance sheet are in a great position. The high occupancy levels achieved across Precinct's portfolio reflects the strong demand for city centre office space in the markets we are invested in, Auckland and Wellington'.
'We continue to enhance the portfolio through the successful completion of our development projects,' he said.
'The upcoming completion and opening of our most significant development project, Commercial Bay, is a key focus for the business. We commenced this transformational project in 2016 and we are truly looking forward to welcoming clients into the building and Aucklanders into the retail and hospitality space' Pritchard said.
Precinct also announced it had bought the Dunbar Sloane building at 30 Waring Taylor Street in Wellington for its co-working company Generator. The five-level character building would be fully redeveloped and seismically strengthened to 100 per cent of the New Building Standard.
It would be Generator's first site in Wellington and open in mid-2021. It would offer co-working space, private offices and a meeting and event suite. The total cost of acquisition, redevelopment and fit-out would be $25m. Generator offers 13,600 square metres of space in four locations in Auckland.
Precinct, which invests and develops in the central city areas of Auckland and Wellington in predominantly premium and A-grade office buildings, had maintained 99 per cent occupancy at its properties with a weighted average lease term of 8.8 years.
The construction of a new 244-room hotel at One Queen Street was on schedule to start mid-2020 after the completion of Commercial Bay, the company said.
The $298 million development at what is now HSBC House will comprise a luxury hotel with premium office accommodation above and a variety of food and beverage including a roof-top bar.
The hotel will be branded InterContinental Auckland and will be managed and operated by InterContinental Hotels Group (IHG).
Precinct said the building of its 10 Madden Street building in Auckland's Wynyard Quarter was advanced with the 8290sqm building set to open later this year with the office space fully leased.
It has further plans to develop another 19,000sqm of space in the Wynyard Quarter.
In Wellington it had completed the redevelopment of the Charles Fergusson building and Defence House in the Bowen Campus and was now planning the development of 21,400sqm of office space in two new buildings there. Negotiations were advanced with several occupiers to pre-commit to space there.