Precinct signs Crown to long-term leases in Wellington worth $500 million

Precinct Properties New Zealand [NZX: PCT] has signed the Crown to a series of long-term leases across four of its buildings in Wellington which it says will generate about $500 million of income over the next 15 years.

The Auckland-based company completed its biggest leasing transaction after three years of negotiations with the government, which will secure 68,000sq m of office space on a weighted average lease term (WALT) of 14.6 years, it said in a statement. The contract extends Precinct's WALT in Wellington to 9.5 years from the current six years and lifts the WALT of its overall portfolio by three years to 7.4 years. Another lease at No 1 The Terrace will be extended to mid-2019 and is under consideration for a long-term lease.

"We are confident that the very substantial investment we are making will result in significant benefits for Precinct and the Crown through re-purposing existing Crown occupied buildings to deliver modern, highly efficient and cost-effective public sector workspace," chief executive Scott Pritchard said. "The long-term leases represent some half a billion dollars in income over the lease terms and provide material earnings security for Precinct while significantly strengthening our portfolio quality in line with our long-term strategy."

Precinct has been tilting its national portfolio to have a greater exposure to Auckland, including the $681 million Commercial Bay development in the city's CBD, with the outlook for Wellington clouded by the government's attempts to cut down on spending. Precinct missed out on the government's first property review in 2012, not long after buying the 10-storey Bowen State and 15-storey Charles Fergusson buildings for $50.4 million.

Mr Pritchard today said it will spend $203 million upgrading the Bowen Campus, signing a construction contract with LT McGuinness to complete the work at a fixed price. Construction at Bowen Campus will start in November at the end of the Ministry of Social Development's lease and is expected to be finished in early 2019.

The property investor will also spend $55 million upgrading Pastoral House, Mayfair House and 3 The Terrace. Pastoral House will be vacated in March next year for 12 months for a complete refurbishment and earthquake strengthening. Mayfair and 3 The Terrace will be refurbished in 2018 and it is expected to be completed in mid-2019.

The projects will be funded through Precinct's existing bank facilities, which will take committed gearing to about 39%, up from 12.8% at December 31.

The shares last traded at $1.255 and have edged up 0.4% so far this year, lagging behind a 16% gain in the S&P/NZX 50 Index.

(BusinessDesk)