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Precinct Property 1H profit drops 55%, monitoring Fletcher Building's Commercial Bay work

Wednesday 28th February 2018

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Precinct Properties New Zealand, the listed commercial property investor, said first-half profit dropped on property revaluations and shifts in the interest rate swap curve, and it is monitoring Fletcher Building closely in its Commercial Bay development in Auckland.

The Auckland-based commercial property investor said net profit dropped 55 percent to $17.7 million in the six months ended Dec. 31, while net operating income, which excludes non-cash items such as unrealised movements in the value of investment properties, dipped 1.5 percent to $38.2 million. Gross rental income rose 2.1 percent to $65.7 million.

Precinct said a 65 percent valuation write down at its property on Brandon Street in Wellington, movement in financial instruments and a higher current tax expense this period contributed to the drop in net profit. It also said the completion of stage one of its Wynyard Quarter development, higher occupancy levels and improved rental growth saw net property income lift 3.7 percent to $47.6 million in the first half.

The company said it expects full-year operating earnings of about 6.3 cents per share before performance fees, and maintained dividend guidance at 5.8 cents per share. In 2017 it delivered full-year operating earnings of 6.17 cents per share. 

Precinct said the embattled Fletcher Building, its contractor in Commercial Bay, has given a completion date for the retail centre of December but Precinct's independent advice is that is "unlikely to be achieved". Fletcher's completion date for the office tower in Commercial Bay is July 2019, and its independent advice is that there is risk to that, dependent on the rate of façade installation, which it is monitoring closely.

"Precinct notes that these reviews are independent of the contractor and have been sought by Precinct so that we can inform lessees of likely occupation dates," the company said. "Precinct remains comfortable with the provisions of its construction contract and the provisions which protect Precinct from losses due to contractor delay. Precinct continues to forecast a profit on cost of over $200 million and a yield on cost of 7.5 percent."

Precinct declared a 1.45 cents per share interim dividend, payable on March 23 with a March 12 record date.

The Brandon Street property was written down by $14.7 million in the first half, now valued at $7 million, due to earthquake damage. Precinct said it has tested the market to see if it can sell the building, but the most likely option is for it to strengthen the property itself. Previously, it has said the building could be fully redeveloped as an office building, transformed into student accommodation or apartments, or become an office/apartment hybrid.

The company also said that 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, compared to a $15.3 million gain for the same period last year.

The company said construction work on its Bowen Campus development remains on programme and on budget. In the Bowen State building, the New Zealand Defence Force extended its lease to 18 years and the lease to the Crown for the top four floors also became unconditional during the period.

The shares rose 0.4 percent to $1.265 in early trading, and have gained 4.1 percent in the past year. 


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