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Precinct boosts earnings, withholds $34m from Fletcher

Friday 16th August 2019

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Precinct Properties has now withheld $34 million from Fletcher Construction for delays on Auckland’s Commercial Bay project, and says the high-end development is on track for its two-2020 opening dates. 

The listed commercial developer and landlord updated the market today as it reported a 3.7 percent boost in operating earnings, having focused on higher-quality assets in city centres. 

Net operating income in the 12 months ended 30 June 2019 rose to $79.4 million from $76.7 million, or 6.37 cents per share. Precinct is forecasting 6.80 cents per share for financial year 2020. 

Net profit after tax tumbled by 25.4 percent to $190.1 million, but the company said this is because last year it booked a big boost from property revaluations. In financial year 2018 net profit rose 57.2 percent to $254.9 million. 

“The strategy is working well and we see more opportunity as the supply-demand dynamics support those who have capital,” said chief executive Scott Pritchard. 

Precinct announced a full-year dividend of 6 cents per share, a 3.4 percent increase. The company said it will change its policy to paying out 100 percent of adjusted funds from operations as dividends. 

For the next financial year it will pay a dividend of 6.30 cents per share, a 5 percent increase in dividends to shareholders. 

Pritchard said in a call to analysts he was “very confident” Commercial Bay would be full before opening, which he confirmed was still on track for March 2020 for shops and April 2020 for offices in the new PwC tower. 

While $15.4 million in liquidated damages had been withheld from main contractor Fletcher Construction as at December last year, this had ballooned to $34 million. The company explained most of the claim would be treated as revenue on the balance sheet. 

The leasing of retail space was now 95 percent complete while office commitments stood at 82 percent, the company said. 

Pritchard said the last two months of retail leasing in the complex had been busy and he was expecting to announce further international retailers in the coming months. 

The two top floors at the office tower were still available following non-performance by international tenant Golden Tower. 

“There’s not a lot of opportunity to get onto the top of a tower like this and we already had a couple of phone calls and awareness it might be a great space,” Pritchard added.

The total project cost remains in the range of $690-$700 million and the yield on cost is expected to be between 7.4-7.5 percent. 

During the analysts call, Pritchard indicated that while its yield on cost aspirations for new developments remains at 7 percent, escalating construction costs meant that for future projects that might be lowered. 

“If we had a fantastic opportunity for an occupier in the mid to high sixes that might still be a sensible project, we just wanted to indicate the bottom end may come in a little lower,” he said. 

Precinct continues to focus on Auckland and Wellington, viewing the supercity as New Zealand’s high growth city and noting this year there were 7,800 more workers in Auckland’s CBD and 4,700 of these were office workers. 

The shares were unchanged at $1.83 have risen 24 percent so far this year. 


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