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Equity Bottom-Up

Precinct Properties New Zealand / Equity Bottom-Up

<h2>Precinct Properties Bowen Campus stage 2 building 2 gets the green light</h2>
Precinct Properties (PCT) has announced it is committing to the development of 44 Bowen Street after securing a 15 year lease to KPMG for two of the 8 floors. 44 Bowen Street is directly adjacent to PCTs existing 40 Bowen Street development. The development now totals NZ$195m with 21,000sqm of office space and an expected yield on cost of 6.6% once fully leased. Tenant pre-commits are ~47% for the office space (see table below) with both buildings also providing a small amount of retail/F&amp;B as well as storage, end of trip facilities and car and bike parks. The buildings share a common entrance lobby and basement facilities including carparking; as such there are cost savings of NZ$1-2m from aligning construction timetables.
Our current forecasts include 40 Bowen Street, we estimate 44 Bowen Street will be +2-3% accretive to our medium term estimates on a pro-forma basis. Assuming an end valuation in line with Bowen Campus stage 1 (June cap rate of 5.6%) this development would provide a +NZ$35m revaluation gain on completion or a +3cps increase in NTA. This development, coupled with the potential sale of PCTs remaining 50% share in ANZ tower, continue its strategy to lower its average building age and lift WALT, resulting in lower near-term tenant incentives and maintenance capex and driving better distribution growth. However, with office markets typically cyclical and PCT trading at a +23% premium to its NTA we are NEUTRAL rated.
Other points of note:
<ul>
<li>Tenants returning to offices: “the majority of occupiers have now returned to their offices”</li>
<li>Leasing: Since 30 June 10,000sqm of leasing transactions have been concluded across both Auckland and Wellington markets</li>
<li>Subleasing: No further clients have notified PCT of an intent to reduce floor space (was 4 tenants covering c.6,000sqm at the FY20 results)</li>
<li>Dividend guidance: 1Q21 dividend of 1.625cps was declared and FY21 dividend guidance of 6.50cps reaffirmed</li>
</ul>
Bowen Campus Stage 2 metrics
<figure class="editor-figure mceNonEditable"><img src="https://mail.google.com/mail/u/0?ui=2&amp;ik=f57c39853c&amp;attid=0.2&amp;permmsgid=msg-f:1683736942603372245&amp;th=175dd5d4171386d5&amp;view=fimg&amp;sz=s0-l75-ft&amp;attbid=ANGjdJ9P_J47VtYbmNUyI_IMZb2ooJ_1C85RPW1DIFHPWEv5eI32-Bgo82xoQoVqzTmvr5ockPryT3wsnfAyH8ouNKi7lVI256IZJaF0tS4zsTz_0pJaojMDqnaSfnQ&amp;disp=emb" width="482" height="223" class="editor-image img-responsive" data-image-whitelisted=""></figure>
Source: Company reports, Forsyth Barr analysis
Rohan Koreman-Smit&nbsp; Senior Analyst, Equities
<figure class="editor-figure mceNonEditable"><img src="https://mail.google.com/mail/u/0?ui=2&amp;ik=f57c39853c&amp;attid=0.3&amp;permmsgid=msg-f:1683736942603372245&amp;th=175dd5d4171386d5&amp;view=fimg&amp;sz=s0-l75-ft&amp;attbid=ANGjdJ92MU4ZncakfBx_fKAJ97xUR36X0WEJPdzZPkG1ThO9PPw6iJRQ_qupcsXAlLYps9uq8QQSO5CC-JcYVd5MMRbjUHquczZMqSjQy1x8tqMD__2eadKcBR42Z2A&amp;disp=emb" class="editor-image img-responsive"></figure>
 P: +64 9 368 0085 | TF: 0800 367 227&nbsp; Level 23, Lumley Centre, 88 Shortland Street, Auckland

Precinct Properties Bowen Campus stage 2 building 2 gets the green light
Precinct Properties (PCT) has announced it is committing to the development of 44 Bowen Street after securing a 15 year lease to KPMG for two of the 8 floors. 44 Bowen Street is directly adjacent to PCTs existing 40 Bowen Street development. The development now totals NZ$195m with 21,000sqm of office space and an expected yield on cost of 6.6% once fully leased. Tenant pre-commits are ~47% for the office space (see table below) with both buildings also providing a small amount of retail/F&amp;B as well as storage, end of trip facilities and car and bike parks. The buildings share a common entrance lobby and basement facilities including carparking; as such there are cost savings of NZ$1-2m from aligning construction timetables.
Our current forecasts include 40 Bowen Street, we estimate 44 Bowen Street will be +2-3% accretive to our medium term estimates on a pro-forma basis. Assuming an end valuation in line with Bowen Campus stage 1 (June cap rate of 5.6%) this development would provide a +NZ$35m revaluation gain on completion or a +3cps increase in NTA. This development, coupled with the potential sale of PCTs remaining 50% share in ANZ tower, continue its strategy to lower its average building age and lift WALT, resulting in lower near-term tenant incentives and maintenance capex and driving better distribution growth. However, with office markets typically cyclical and PCT trading at a +23% premium to its NTA we are NEUTRAL rated.
Other points of note:

Tenants returning to offices: “the majority of occupiers have now returned to their offices”
Leasing: Since 30 June 10,000sqm of leasing transactions have been concluded across both Auckland and Wellington markets
Subleasing: No further clients have notified PCT of an intent to reduce floor space (was 4 tenants covering c.6,000sqm at the FY20 results)
Dividend guidance: 1Q21 dividend of 1.625cps was declared and FY21 dividend guidance of 6.50cps reaffirmed

Bowen Campus Stage 2 metrics

Source: Company reports, Forsyth Barr analysis
Rohan Koreman-Smit&nbsp; Senior Analyst, Equities

 P: +64 9 368 0085 | TF: 0800 367 227&nbsp; Level 23, Lumley Centre, 88 Shortland Street, Auckland

Precinct Properties: Bowen Campus Stage 2 Building 2 Gets the Green Light