Capital Props in govt camp

By Suzanne Green

Friday 20th August 2004

Wellington-based listed Capital Properties has confirmed its place as the leading provider of office buildings to government departments following the recent deal to build the new Defence headquarters.

Other property managers will view the 18-year lease jealously. It is understood to be one of the largest at 18,300sq m, and one of the longest, with rights of renewal for two further six-year terms.

The New Zealand Defence Force, Ministry of Defence and the Security Intelligence Service (NBR, April 30,04) will lease the planned seven-level building to be built on the corner of Mulgrave and Aitkin sts, Thorndon.

The net rent for the office space and 60 basement carparks was $5.5 million or a little more than $300/sq m. The development cost of $58.5 million would be funded by bank debt at 7.3% and the initial yield on the development cost was forecast to be 9.4%.

Designed by Wellington architectural firm Craig Craig Moller, the building will have 2400sq m floor plates and four internal columns, giving natural light and flexible space.

Mainzeal Property & Construction is due to begin the construction contract this month, with completion expected in September 2006.

It is the first new building Capital Properties, which obtains more than half its revenue from mostly Wellington-based government tenants, has undertaken since listing in 1998.

Executive project director John Worden said the Defence Department would move from its Stout St building (owned by Capital Properties), which may be refurbished or sold to a developer for conversion to a hotel or apartments.

Meanwhile, the Capital Properties share price has been trading at around 98c, well above the asset backing of 94c a share.

The stock has attracted some speculative popularity in recent months. Broking analysts have revised earnings' estimates upward slightly, valuing the shares at 97c each.

But given the strong recent rally in the share price, the analyst downgraded his recommendation from "accumulate" to "hold."

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