Real estate business

Announcing a new billion-dollar real estate venture

NZX-listed Precinct Properties NZ will form a new venture with a Singaporean government entity that has the potential to become a billion-dollar business.

“Precinct has conditionally accepted the formation of a new real estate investment partnership with Singapore’s sovereign wealth fund GIC,” the company said on the exchange.

“The partnership will initially acquire five assets from Precinct’s existing portfolio in Auckland and Wellington for a total of approximately $590 million and has the capacity to grow to approximately $1 billion over time.”

GIC will buy three Wellington and two Auckland assets in Precinct: Defense House, Charles Ferguson Building and Mayfair House in the capital and Auckland’s 10 and 12 Madden St in the Wynyard area.

Precinct will hold a minority share or 24.9% of the “partnership”, which will be matched to a loan-to-value ratio of 50-60%.

GIC already has a strong and growing presence in New Zealand.

Today’s announcement follows Precinct sale a half stake in the ANZ center on Albert St to a GIC entity.

GIC also owns half of New Zealand’s largest shopping center chain with the ASX-listed Scentre Group, where a $1 billion investment was made two years ago in Newmarket to expand the mall. .

The five GIC/Scentre shopping centers in this country all carry the Westfields brand.

Scott Pritchard, CEO of Precinct, announced the deal.

“Establishing a new, collaborative and committed partnership with a global investor of this scale and quality represents a strategic step forward for our business. Partnering with GIC provides access to capital with an aligned partner and fully supports the execution of Precinct’s future growth, further enhancing shareholder returns.

“We are leveraging our well-located premium assets, our experienced team and Precinct’s unique position in the market. The newly established partnership will aim for stable and secure low-risk returns through investments in high-quality real estate. well rented.”

Precinct will be the investment manager for the partnership and there is a market fee agreement for the funds and property management of the assets. Proceeds from the sale of the seed portfolio assets will initially repay bank debt and provide funding for future growth, Pritchard said.

Today, Precinct also announced its interim result for the six months to December 31, 2021.

Revenue fell slightly from $97.1 million a year ago for the six months to $96.9 million. Operating profit increased from $42.8 million to $45.5 million.

Net income after tax was down sharply, from $163.2 million to $42.2 million, mainly due to the change in unrealized real estate revaluations.

These increased the semi-annual accounts of last year for the same period by 148.5 million dollars, but for this year, a nil amount was recorded, which affected the net result.

“An internal review of 2021 property valuations undertaken in December did not indicate any material movement in value during the period. We would normally only undertake annual valuations,” Precinct said in a somewhat surprising statement.

This contrasts with a massive revaluation gain of more than $392 million at Property For Industry in its half-year results released this week. But Pritchard said PFI’s result was annual and Precinct’s was provisional. No revaluations were announced – it wasn’t that the buildings weren’t going up in value.

Precinct shareholders receive higher dividends this semester, rising from 3.25 cps to 3.35 cps.

Jarden analysts reported that the pandemic was hitting the company financially.

“We have already considered the impact of Auckland’s long lockdown on Precinct, in particular on Commercial Bay Retail, Generator and Commercial Bay Hospitality,” Arie Dekker and Vishal Bhula wrote in a preview of today’s result. .

Omicron was likely to add additional pressure on the business in the second half of its financial year, in which it is currently trading, they said.

They estimated that Covid could have a $7 million impact on the annual result.

The half-year accounts revealed the impact today.

Precinct tenants have been restricted to varying degrees during Auckland’s 107-day lockdown.

The company provided support through a series of measures, including rent reductions of $4.1 million, rent deferrals of $100,000 and $400,000 in lease restructurings.

Precinct did not claim the government wage subsidy.

Commercial Bay Hospitality claimed an additional grant of $500,000 during the period to help retain hospitality staff. The short-term flexible leasing company Generator did not claim any further subsidies, according to the accounts.

Precinct claims it is the only listed inner city specialist landlord in New Zealand to own premium, Grade A commercial office buildings.

It owns HSBC Auckland Tower, AON Center, Jarden House, Deloitte Center, 204 Quay Street, Mason Bros. Building, 12 Madden Street, 10 Madden Street, New $1 Billion PwC Tower dollars and commercial bay retail.

In Wellington, it has the AON Center, NTT Tower, Central on Midland Park, No. 1 and No. 3 The Terrace, Mayfair House, Charles Fergusson Building, Defense House, Bowen House and Freyberg Building.

Precinct also has Generator, a short-term rental specialist, letting 13,600m² in nine locations in Auckland and Wellington.

The shares are trading around $1.52, giving a market capitalization of $2.4 billion.

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