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Forsyth Barr

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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

Precinct Properties New Zealand / Equity Bottom-Up

<h2>Precinct Properties NZ$250m Capital Raise and Wellington Acquisitions</h2>
Precinct Properties (PCT) has today announced the acquisition of two office buildings in Wellington, which will be funded through a NZ$250m capital raise. The two properties, Bowen House (NZ$92m) and the Freyberg Building (NZ$49m), bolster PCT’s development pipeline and lift its weighting in Wellington. Upon completion of the Bowen House NZ$57m redevelopment in mid-2023, PCT expects this property to yield 5.25% and deliver a development profit of 10%. These metrics appear tight versus PCTs other development opportunities, which may partly reflect the long-term government lease which PCT has secured. In addition to PCT’s recent revaluation uplift, this equity raise further reduces pro-forma gearing to c.29%, and committed gearing to 34%.&nbsp;PCT has also guided to FY22 AFFO of 6.7cps (ForBarr 7.1cps) and DPS of 6.7cps (ForBarr 6.7cps) with distributions being supported by low/no tax payable as a result of the internalisation of management.
At a high level it appears PCT is consolidating its Wellington portfolio around Government (similar to its strategy in Auckland around Commercial Bay). With speculation that PCT is looking to purchase the downtown carpark (contiguous to Commercial Bay), the final stage of Wynyard yet to commence, and now redevelopment of the Fryberg Building, the surplus funds from the capital raise do provide some capacity to fund these initiatives but we suspect further funding options (capital notes/asset sales/equity) are likely if the majority of these initiatives progress.
Conference call at 10am NZT:&nbsp;<a href="https://s1.c-conf.com/diamondpass/10014445-h0us35.html" target="_blank" data-saferedirecturl="https://www.google.com/url?q=https://s1.c-conf.com/diamondpass/10014445-h0us35.html&amp;source=gmail&amp;ust=1624062966475000&amp;usg=AFQjCNEHOYUwNYQ5Wo786FBA_10w2bbyng" rel="noopener">https://s1.c-conf.com/diamondpass/10014445-h0us35.html</a>
Key details
<ul>
<li>Scope for &gt;NZ$250m – The equity raise consists of two parts; (1) an underwritten NZ$220m placement and (2) a non-underwritten retail offer of up to NZ$30m with the ability to accept oversubscriptions.</li>
<li>Seismic and refurbishment required at Bowen&nbsp;&nbsp;– PCT noted that it will carry out seismic strengthening and refurbishment works at Bowen House which will be completed in mid-2023. The works are estimated to cost NZ$57m and the acquisition is then expected to yield 5.25% with PCT having agreed to a 15-year net lease to The Parliamentary Services with fixed rental increases.</li>
<li>Freyberg a development project – The purchase of the Freyberg Building is yet to go unconditional, although commercial terms have been agreed and PCT are currently undertaking due diligence. The NZ$49m acquisition provides a development opportunity for PCT, with a holding yield of ~4-5% in the near-term with redevelopment commencing in 1-2 year time.</li>
<li>Office dynamics – Office dynamics in Wellington have remained robust, given the strong growth of Wellington public service FTEs (+27% since 2017), and low prime vacancy levels.</li>
<li>Internalisation benefit – The new internal structure means that recent revaluations and new acquisitions do not result in a higher level of management fees.</li>
</ul>

Precinct Properties NZ$250m Capital Raise and Wellington Acquisitions
Precinct Properties (PCT) has today announced the acquisition of two office buildings in Wellington, which will be funded through a NZ$250m capital raise. The two properties, Bowen House (NZ$92m) and the Freyberg Building (NZ$49m), bolster PCT’s development pipeline and lift its weighting in Wellington. Upon completion of the Bowen House NZ$57m redevelopment in mid-2023, PCT expects this property to yield 5.25% and deliver a development profit of 10%. These metrics appear tight versus PCTs other development opportunities, which may partly reflect the long-term government lease which PCT has secured. In addition to PCT’s recent revaluation uplift, this equity raise further reduces pro-forma gearing to c.29%, and committed gearing to 34%.&nbsp;PCT has also guided to FY22 AFFO of 6.7cps (ForBarr 7.1cps) and DPS of 6.7cps (ForBarr 6.7cps) with distributions being supported by low/no tax payable as a result of the internalisation of management.
At a high level it appears PCT is consolidating its Wellington portfolio around Government (similar to its strategy in Auckland around Commercial Bay). With speculation that PCT is looking to purchase the downtown carpark (contiguous to Commercial Bay), the final stage of Wynyard yet to commence, and now redevelopment of the Fryberg Building, the surplus funds from the capital raise do provide some capacity to fund these initiatives but we suspect further funding options (capital notes/asset sales/equity) are likely if the majority of these initiatives progress.
Conference call at 10am NZT:&nbsp;https://s1.c-conf.com/diamondpass/10014445-h0us35.html
Key details

Scope for &gt;NZ$250m – The equity raise consists of two parts; (1) an underwritten NZ$220m placement and (2) a non-underwritten retail offer of up to NZ$30m with the ability to accept oversubscriptions.
Seismic and refurbishment required at Bowen&nbsp;&nbsp;– PCT noted that it will carry out seismic strengthening and refurbishment works at Bowen House which will be completed in mid-2023. The works are estimated to cost NZ$57m and the acquisition is then expected to yield 5.25% with PCT having agreed to a 15-year net lease to The Parliamentary Services with fixed rental increases.
Freyberg a development project – The purchase of the Freyberg Building is yet to go unconditional, although commercial terms have been agreed and PCT are currently undertaking due diligence. The NZ$49m acquisition provides a development opportunity for PCT, with a holding yield of ~4-5% in the near-term with redevelopment commencing in 1-2 year time.
Office dynamics – Office dynamics in Wellington have remained robust, given the strong growth of Wellington public service FTEs (+27% since 2017), and low prime vacancy levels.
Internalisation benefit – The new internal structure means that recent revaluations and new acquisitions do not result in a higher level of management fees.


Precinct Properties: NZ$250m Capital Raise and Wellington Acquisitions