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Precinct agreement to buy No1 Queen Street in Auckland

Precinct agreement to buy No1 Queen Street in Auckland

Precinct Properties New Zealand (NZX: PCT) announced today that it has entered into an agreement to buy the HSBC office tower at No 1 Queen Street in Auckland, conditional on Precinct board approval (including the completion of due diligence) and Overseas Investment Office approval.

The waterfront tower adjoins the Downtown Shopping Centre which Precinct recently acquired and sits adjacent to the Precinct-owned Zurich House, PwC Tower, and AMP centre.

Scott Pritchard, Precinct's Chief Executive, said, “This is an exciting opportunity for Precinct. This acquisition along with the recently acquired Downtown Shopping Centre consolidates our Auckland footprint, as well as providing us with an enormous amount of flexibility in considering our options for the Downtown Shopping Centre.”

“With almost 2 hectares of land positioned on Auckland’s CBD waterfront, excellent access to public transport and well established amenities, it is our ambition to create a world class heart to Auckland’s city centre.”

PCT will pay a private vendor $103 million for the tower representing an initial yield of 7.7%.

Mr Pritchard said, "Significant reductions in prime and A-grade vacancy over the past 12 months and no new supply have resulted in a market where well located assets should meet strong demand from occupiers and benefit from market rental growth. We believe that these factors will underpin the benefit of this acquisition, as well as leading to value growth for the balance of our portfolio."

Completed in 1972 and refurbished in the late 1990’s, the property benefits from large rectangular floor plates of around 1,000 square metres, uninterrupted views of the Harbour and an attractive rental price point. The building occupies a site of 2,322 square metres and provides the potential for further development on the north-west waterfront portion of the site through Precinct’s ownership of the adjacent Downtown Shopping Centre.

The 21 level tower includes 17 levels of office space, 1,160 square metres of retail space, 127 car parks and is 88% occupied with a Weighted Average Lease Term (WALT) of around 4 years. Major occupiers include HSBC, Baldwins Intellectual Property and the New Zealand Transport Agency. The vendor will provide a 6 month rental underwrite over the 2,300 square metres (approximately two full floors) of vacant space.

Following the acquisition, Precinct's weighting to Auckland will increase to 57% consistent with its investment bias to this city. Precinct's occupancy and WALT will remain unchanged.

Precinct has secured bank credit committee approved debt funding to complete the acquisition which would result in an increase in bank facilities from $535 million to $635 million. If debt funded, the acquisition would result in Precinct's gearing increasing from 33.5% to 37.5%. Given expectations for valuation growth, gearing would be expected to stay around this level following the completion of existing committed capital expenditure.

Settlement of the acquisition is expected to take place in approximately five months' time and during this period the Board intends to review all funding options available including debt, equity and the sale of non-core assets. The Board will seek to balance considerations of portfolio optimisation, earnings growth and maintaining an appropriately geared balance sheet.

The acquisition is expected to be accretive to earnings from settlement due to the initial yield of 7.7%, and to contribute to earnings growth over the coming years due to the superior prospects for rental growth for this asset. The extent of earnings accretion will depend on the choice of acquisition funding.

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