Precinct Properties slashes value of Commercial Bay

Thursday, 13 August 2020

Precinct Properties development properties like the $1 billion Commercial Bay office and retail development, which opened recently, has had its value cut as a result of Covid-19 impacts on trade and property.

Big inner-city office landlord Precinct Properties has posted a $30.2 million profit, six times smaller than last year’s after a slash to the value of its development properties.

The company’s $30m net profit after tax for the year to June 30, 2020 is way down on last year’s $190.2m after $66.3m was sliced from the value of its development properties while the previous year its profit was boosted by property revaluations of $161.7m

“The impacts of Covid-19 on valuations contributed to total comprehensive income after tax reducing to $35.1m, offsetting a strong operating result,” Precinct chief executive Scott Pritchard said. “This result compared with $190.4m in the previous period.”

Precinct Properties chief executive Scott Pritchard said the high quality of its buildings and tenants gave the company confidence in its development strategy.

The difference was mainly attributable to a strong 2019 financial year revaluation (of $161.7m) and a devaluation for this period of certain development assets within the portfolio, he said.

*Skyscraper PwC Tower opens in Auckland after eight years of planning and construction

*Businesses struggling at new Commercial Bay shopping precinct

*Precinct Properties’ profit boosted by Fletcher Construction damages payments

Precinct opened the $1 billion Commercial Bay office and retail development in mid June in downtown Auckland and has other property developments underway in Auckland and Wellington.

The properties most marked down in value were Commercial Bay and HSBC House in Auckland. Precinct had valued Commercial Bay on its books at $1.085b and has dropped that by just over $80m while it has also marked down the value of HSBC House by $28.4m to $102m.

The Commercial Bay office tower opened 97 per cent leased and the first two months of retail trading in the development had “significantly outperformed” expectations, Precinct said, with visitor numbers estimated at more than two million.

Some of its properties have risen in value, and notably in Wellington the total value of its investment properties has jumped to $747.7m from $705.7m.

“With the recent completion of Bowen Campus and Commercial Bay, both on a fully leased basis, the Precinct business is now well-placed with a portfolio of new, high quality assets occupied by a mix of Government, and investment grade office occupiers coupled with some of the best global and local retailers,” Pritchard said.

“While work from home has been the topic of much debate, our own attendance records demonstrate that the vast majority of our occupiers are back in the office highlighting that the office remains key to the success of any business.”

Precinct had 161 clients occupying space ranging from 200 square metres to 22,000 sqm. Most believed that they would offer a more agile work environment but would largely retain their current premises footprint.

Four occupiers had indicated they wanted to sublease about 6100sqm with one wanting to exit the CBD, two in sectors hard hit by border restrictions and one with more staff working from home.

“2020 has undoubtedly presented a number of unexpected challenges at both a local and global level as a result of the Covid-19 pandemic. Locally, economic conditions and demand drivers for city centre real estate are slowly becoming more apparent, however on August 12, 2020 Auckland returned to alert level 3 and the rest of New Zealand was placed in alert level 2 for three days.

The 38-level PwC Tower, at the heart of the Commercial Bay retail, office and hospitality development on Auckland's waterfront is 97 per cent leased.

“Uncertainty remains and the full effects of Covid-19 are still evolving,” he said.

“However, Precinct’s well-located buildings, quality client base, high occupancy and long weighted average lease term gives us confidence that our strategy will continue to deliver in these more challenging times.”

Precinct received 91 per cent of its rent during lockdown levels 3 and 4 while also being able to support occupiers who needed assistance.

Overall occupancy of its buildings was 98 per cent compared to 99 per cent at the end of the June 2019 year. Precinct’s portfolio totalled $3b at June 30, 2020, compared with $2.8b the year before.

Net property income for the period increased 2.1 percent to $97.2m. After adjusting for developments, transactions and Covid abatements, like for like income growth was 3.2 percent higher than the previous year.

Its co-working business Generator recorded gross operating revenue of $18.6m with a contribution to net operating income of $1.8m for the year.

Generator was impacted during the last quarter of the financial year by the Covid shutdown, primarily due to the lack of demand for events space. With occupiers increasingly valuing flexibility, the medium term outlook for Generator remained positive.