Fletcher’s $15 million headache
Commercial Bay builder pays the price for delays as developer warns of a ‘critical’ two months ahead for the project.
Precinct Properties has withheld $15.4 million of payments to Fletcher Construction and is likely to withhold more for delays at its Commercial Bay development on Auckland’s waterfront.
Precinct revealed the payment delay in its half-year result for the six months ended on December 31, 2018. The company’s chief executive, Scott Pritchard, said the $15.4m of liquidated damages was related to delays in the construction programme from July to the end of December 2018.
‘‘All we are saying at the moment is that’s the amount of liquidated damages that we have retained so far. Now, that number is likely to grow and what we haven’t said is what it will grow to because we don’t know yet the extent of delays.’’
Pritchard said there was now also a bit of slippage to the current construction programme of about a month that occurred over Christmas and the new year.
Last August Precinct revised the opening dates for Commercial Bay’s retail development and the PwC Tower to September 2019 for retail and December 2019 for the office tower because of the construction programme delays.
The slippage might affect those opening dates ‘‘but we don’t know yet’’, Pritchard said.
‘‘We will continue to closely monitor this development, with the next two months being critical in progressing the project.’’
It was the first time the liquidated damages had appeared in its accounts. Before July last year Fletcher had not missed any construction ‘‘milestones’’.
The liquidated damages would not be updated again until its fullyear results, which would be released in August 2019.
With a development pipeline of more than $1 billion, ‘‘$15m is not material’’, Pritchard said. But the company would update the market on opening dates for the retail and office tower, if they did change.
The Commercial Bay total project cost had risen to $690m compared to $685m in June 2018.
Precinct also announced it was raising $150m from shareholders to reduce its bank debt and fund developments in Wellington and Auckland.
It was offering $130m of shares to wholesale shareholders and another $20m in shares to retail investors with the ability to accept
$10m of oversubscriptions. The price of the new shares would be determined through a bookbuild, an auction-type process. Precinct had $710.4m of total borrowings and total assets of $2.5b.
For the half-year, Precinct recorded an after-tax profit of
$25.5m, 44 per cent higher than the previous half-year of $17.7m.
The difference was mainly the loss on the sale of 10 Brandon St in Wellington.
Pritchard said the first six months of the financial year had been immensely busy as the company continued to progress its long-term strategy.
‘‘We are achieving continued growth for our shareholders and enhancing our business by transforming the portfolio into a higherquality set of assets.’’
It had achieved 100 per cent occupancy in Auckland and Wellington, showing the quality of the portfolio and the demand for premium innercity office space.
The company had increased leasing at Commercial Bay to
84 per cent for retail space and
80 per cent for office and completed the redevelopment of the Charles Fergusson Building in Wellington at the end of 2018. It was now occupied by the Ministry for Primary Industries.
The company also announced it had completed the purchase of the other half of Auckland’s leading flexible office space provider, Generator New Zealand, after buying 50 per cent in May 2017.
Generator offered a great opportunity to expand further into the fast-growing flexible-space market, Pritchard said.
Founded in 2011 by Ryan Wilson, Generator had quadrupled in size since Precinct’s investment. It had spaces in five city-centre locations – three in Britomart and two in Wynyard Quarter.
Precinct paid $4m for half the company in 2017 and $7.4m for the other half.
Generator made up about half of the city’s co-working market.
It had committed occupancy levels near 80 per cent, 1200 members, more than 40 staff, and a footprint of about 12,600 square metres, which included 16 event and hospitality spaces and 40 meeting rooms, Pritchard said.
‘‘We know there is an increasing demand in the market for businesses with fewer staff to have access to collaborative, flexible work environments that offer the high-end facilities that are typically reserved for large corporate office users.’’
Pritchard said Precinct hoped to take Generator to Wellington’s market in the next 12 months.
‘‘We will continue to closely monitor this development.’’
Precinct Properties CEO Scott Pritchard, above