Precinct Properties still backs Fletcher as Commercial Bay development pushed out

Thursday 16th August 2018

Precinct Properties New Zealand says the Commercial Bay project in downtown Auckland will be completed a little later than scheduled but is still backing contractor Fletcher Construction to complete the $1 billion development.

The listed commercial property investor has already signalled that its Commercial Bay project might be delayed as Fletcher Building's construction unit - like many building companies - faces escalating costs largely due to capacity constraints.

Precinct chief executive Scott Pritchard said there had been "considerable engagement" with Fletcher and revised the completion programme after getting advice the original deadlines were unlikely to be met.

The Commercial Bay retail centre and new PwC office tower are now slated for completion in September 2019 and December 2019 respectively. In February, Precinct said the office tower had been due for completion in July 2019 while Commercial Bay retail was due to be completed in December this year, although it had independent advice that both might be delayed.

"While any delay in a project is disappointing, we believe that Fletchers are maintaining a very high standard of quality during a very challenging period within the construction industry," he said.

Pritchard said Precinct remains confident with the provisions of its construction contract, which protect it from losses due to contractor delay.

While many building firms are under strain, Fletcher Building was the highest profile when it booked almost $1 billion of losses over two years from its Buildings + Interiors division as fixed-cost agreements meant it couldn't pass on the rapid increase in wages and building product prices. More recently, Ebert Construction has called in receivers and the government will change its own procurement processes to make sure its own penny-pinching doesn't strain the wider sector.

Precinct will proceed with a $298 million redevelopment at One Queen St and fully integrate that into the Commercial Bay retail precinct, it said. LT McGuinness has been hired as the main contractor. One Queen St is 75 percent pre-committed and expected to generate a stabilised yield on cost of 7 percent and a profit on cost of 15 percent.

Both announcements were made as Precinct reported net profit rose to $254.9 million for the 12 months to June 30 versus $162.1 million in the prior year. The Auckland-based company said a "significant" portfolio revaluation gain of $208.7 million bolstered net profit. Including development properties, Precinct's portfolio is worth $2.5 billion.

Net operating income, which excludes non-cash items such as unrealised movements in the value of investment properties, increased to $76.6 million, or 6.32 cents per share, from $74.7 million, or 6.17 cents in the prior year. Net property income lifted 5.4 percent to $95.3 million.

The company will lift its full-year dividend to 5.8 cents per share from 5.6 cents in the prior year. The record date is Sept. 14 with payment to be made Sept. 28.

Precinct remains upbeat about the future, describing the long-term outlook for Auckland's commercial market as "strong." More than three-quarters of its portfolio is in the country's biggest city.

The company expects 2019 full-year earnings per share to rise to 6.6 cents before performance fees, allowing a dividend of 6 cents per share.

The shares were recently unchanged at $1.39 and have gained 2.2 percent so far this year.

(BusinessDesk)

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