Tale of two cities for Precinct as Auckland rentals rise, Wellington lags
By Suze Metherell
Feb. 18 (BusinessDesk) – Precinct Properties New Zealand, formerly known as AMP NZ Office, boosted half-year profit by 67 percent as rising returns from Auckland office towers made up for stalled growth in Wellington.
Net profit was $39.5 million in the six months ended Dec. 31, up from $23.6 million for the same period a year earlier, the Auckland-based company said in a statement. Gross rental income rose about 20 percent to $82.6 million.
Net property income in Auckland surged almost 19 percent to $18.2 million in the first half, while income from Wellington properties edged up just 0.4 percent to $25.2 million. New Zealand’s biggest city is experiencing rental growth while Wellington is “demonstrating defensive characteristics,” Precinct said in a presentation today.
“I don’t know if I’d go so far as to call it a tale of two cities,” Scott Pritchard, chief executive of Precinct, told BusinessDesk. “Auckland has benefited from strong population growth, both from international immigration and domestically too, leading to strong employee growth in the CBD.”
That’s reflected in Precinct’s strategy, which has an Auckland investment bias, including the start of exclusive talks with Waterfront Auckland, the city’s development project, to develop the Wynyard Quarter. In the first half it generated an additional $15.4 million of property income from three other Auckland initiatives – the redeveloped ANZ Centre, and the purchase of HSBC House and Downtown Shopping Centre in the 2013 financial year.
In Wellington, the outlook for commercial offices is clouded by the government’s attempts to use its size to achieve the lowest possible price for everything from banking services to accommodation. It is currently part-way through a request for proposals process covering 29 state agencies needing an estimated 140,000 square metres of office space between 2016 and 2018.
“A key consideration for the Wellington market is the government’s accommodation plans,” Precinct said today.
About 30 percent of Precinct’s property income in the first half came from No. 1 The Terrace, Bowen Campus and Mayfair House, which have only government tenants.
Of those, Bowen Campus, occupied by the Ministry of Social Development, has a weighted average lease term of 2.7 years and Mayfair House, used by the Department of Corrections, has a WALT of just 2.4 years. Pastoral House, which is home to the Ministry for Primary Industries and includes Bank of New Zealand as a tenant, has a WALT of 3.2 years. As a whole, Precinct’s WALT is 5.5 years.
Still, Precinct cites Bowen Campus, which has one hectare of land next to the Beehive, among its three active opportunities along with Auckland’s Wynyard Quarter and Downtown Shopping Centre.
“Wellington has an enormous amount of promising characteristics,” said Pritchard. “Where Auckland can spread out, Wellington can’t, so it remains a good investment for us.”
He said there was no specific ratio the company was targeting between the two cities which is currently skewed 60 percent to 40 percent in favour of Auckland, after it overtook Wellington a year ago. The need for capital would see some assets sold out of both the Wellington and Auckland portfolios and the ratio would continue to change, he said.
The company raised $62.5 million in new equity in the first half, $50 million of which was from a placement and $12.5 million from a share purchase plan. The money raised was used to reduce bank borrowings 7.8 percent to $556 million. Banking debt facilities were reduced 7.6 percent to $610 million and gearing fell to 34.1 percent from 37.3 percent a year earlier.
The market value of its 18 commercial properties at Dec. 31 was $1.66 billion, from $1.46 billion a year earlier.
Net operating income rose to 3.1 cents per share, from 2.63 cents a year earlier. The company forecast income of 6.2 cents per share, before performance fees, for full-year 2014.
It will pay a second-quarter dividend of 1.35 cents a share, making 2.7 cents for the first half, up from 2.56 cents a year earlier. It is forecasting full-year dividends of 5.4 cents.
Shares in the property group were unchanged at $1.03, and have gained about 1 percent in the past 12-months.