Precinct cashes up half-share to cut debt

Listed commercial property owner Precinct Properties has an agreement with a fund controlled by Invesco for the sale of a half-share in the ANZ Centre in Auckland for

$181 million.

It was bought by Precinct Properties in 1997, and Precinct’s chief executive, Scott Pritchard, said it had performed well financially, generating an internal rate of return of 9 per cent.

Precinct completed a $76m upgrade of the building in 2013.

Following completion of the sale Precinct’s debt ratio will be reduced significantly to 19 per cent.

But after allowing for borrowing commitments in developing the Commercial Bay building overlooking the Auckland waterfront and Bowen Campus in Wellington, it would rise to 29 per cent.

Pritchard described the deal as another example of the company’s active management approach and ‘‘recycling of capital out of assets’’ into higher-yielding development opportunities.

The sale is subject to Overseas Investment Office approval.

Precinct also reported a draft revaluation gain on its property portfolio of approximately $202m, or an 8.8 per cent uplift, increasing the value of the company to about

$2.5 billion.

Draft asset valuations for the year ended in June 2018 were carried out by independent valuers.

The development portfolio contributed significantly to the revaluation gain, reflecting development profit recognition and capitalisation rates firming on these projects, Pritchard said.

On a like-for-like basis, Auckland asset valuations increased by about 13 per cent compared with June 2018 forecast book values, while Wellington values remained largely unchanged.

The increase recorded in Auckland was mainly attributable to a firming in capitalisation rates supported by recent asset sales evidence, together with market rental growth.

In Wellington, while rentals and capitalisation rates improved over the past 12 months, this has been offset by additional operating expenses, mainly insurance premiums and rates.

‘‘Our forecast net profit, which considers a project’s estimated cost to complete, from the Commercial Bay and Bowen Campus developments has increased to $313m,’’ Pritchard said.

‘‘This follows Commercial Bay’s value on completion increasing to just over $1 billion.

‘‘Based on current project metrics there remains a further $125m of unrecognised profit which is expected to materialise on completion of these projects which would add a further 10 cents per share to net tangible asset [NTA] backing.’’

Precinct’s NTA will increase from $1.23 to about $1.41 per share.

With 39,000 square metres of office and 18,000sqm of retail, Commercial Bay will be Auckland’s largest mixed-use development.

Several major retailers have committed to lease. In March of this year, Precinct welcomed its first wave of fashion stores, including Furla, Superette, Hershel Supply Co, and a Rodd & Gunn bespoke Lodge Bar.