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Fletcher Building top table looks revitalised, but shareholders skip scrutiny

Fletcher Building Ltd’s annual meeting at Eden Park today was a good one, for many reasons.

It was also a bad one, for a couple of very important reasons.

It had some stage-managing, but it also had some frank views from the new helmsmen, clear statements of ambition & about the expertise to carry that ambition through from 5 new directors & one up for re-election, and Ihumatao protesters politely asking questions (and asking more questions than the rest of the shareholders there).

The losses the company has incurred ($191 million net for the last financial year) wounded a company that has a long history of strutting.

Sometimes in that situation, companies say they are changing – but don’t. Much has been made (including on this website) of the lack of construction nous on the board, but today there was evidence of new attitudes.

New Fletcher Building chair Bruce Hassall.

Bruce Hassall, former senior partner & chief executive at accountancy firm PwC NZ, took over the chair at Fletcher on 1 September from Sir Ralph Norris, who resigned from both chair & board. The one other director not up for election or re-election was Tony Carter. Mr Hassall – not culpable for the disastrous downturn – ran a smooth meeting, didn’t dodge questions, and asked staff to add to answers.

In the presentations from Mr Hassall & chief executive Ross Taylor, and the brief speeches from the 6 directors facing election – and even just from the fact that the company has 5 brand-new directors out of a total 8 – you could see a new determination to run Fletcher’s affairs far better. Albeit the newbies toed the party line.

Shareholders leave scrutiny to Ihumatao protesters

That point about protesters asking over half the questions is a funny one. They were naturally single-minded, but also apologetic about dominating the meeting.

Longtime sniper Coralie van Camp, second on the roster for questioning directors, wanted all directors standing for election to give their opinion on the Ihumatao subdivision, and all 5 duly said they supported it.

Although new company chair Bruce Hassall initially tried to close Mrs van Camp down, saying this wasn’t the time for general business questions, she stood her ground and made it clear her request was for each of these 6 directors to state their position. They did so, some in detail, all in support of the subdivision proceeding.

9 Protect Ihumatao campaigners & supporters asked questions of the board, and got most of their answers from residential & development chief executive Steve Evans. The answers weren’t what the Ihumatao group wanted to hear, but they were straight & unequivocal responses.

As happened at the Fletcher annual meeting last year, Protect Ihumatao’s practice of popping up with new questioners eventually brought groans from other shareholders.

But what were those other shareholders at Eden Park for? The food trolley, for one thing, and to hear the top table’s view on the year gone & the outlook. But until the final questioner took the microphone, this was not a lossmaking company under deep scrutiny. And the harrumph at the prodding over Ihumatao was a signal to leave it alone, as if to say: ‘We’re investors, here to see our investment is moving forward, even if our directors now want to have a social conscience.’

Top table responds to all protest questions

Listed company boards are encouraged nowadays to act in more socially sympathetic ways, so hearing out the Ihumatao crowd was a proper response. The subdivision land is in an area a short distance from Auckland International Airport which was occupied for hundreds of years before colonisation in the 19th century. Families were driven out, some have returned to push historic claims, but Fletcher Building has won the right to develop through hearings & court proceedings.

Fletcher Building chief executive Ross Taylor.

Chief executive Ross Taylor offered what he said were a few salient comments: “We’re not touching the stonefields site. As we’ve worked in partnership with iwi that have mana whenua for the site, we’ve developed our plans with their consultation. We’ve actually taken part of the site we’re developing and left that undeveloped next to the stonefields site to enhance the entryway.

“We’re actually developing 480 houses on only 25ha. We’ve been through many forums now, both national & international, reviews & both legal processes with the most recent one being the Environment Court. We’ve respected those processes and we’ve actually engaged in those processes over many years, and quite legitimately engaged in them, and effectively all those independent reviews have supported the approach we’ve taken and the way forward on this project.

“So I look at all that – and then you could say does the project make sense for shareholders in an economic sense, and that’s where you finally get to after doing all the other stuff first, and it does. “So, as I look at all that, I think we’re behaving appropriately, we’ve been respectful, we’ve respected both the community angst as well as the legal processes and we get to the position that we should move forward with the project, and that’s the position we’re taking.”

To another shareholder, Mr Taylor said he couldn’t give the company’s holding costs on the project, but that the project was still appropriate measured against the weighted average cost of capital.

A questioner said that, 20 years on, Fletcher could be pressured to develop the buffer zone it was leaving. Mr Taylor commented: “The buffer is enshrined in our development approval. We can’t ever touch it.”

Mr Evans added that the company was in discussions on who to hand the buffer zone over to, iwi or Auckland Council.

The Steel & Tube non-deal

Answering an online questioner, who’d asked about Fletcher’s takeover offer for Steel & Tube Holdings Ltd, and had suggested: “Wouldn’t it be wise to get your own house in order before seeking to acquire other companies?” Mr Hassall expanded on the response at the time (5 weeks ago), in which Fletcher questioned the Steel & Tube board’s lack of support to “progress the proposal in a timely manner” and announced that Fletcher was pulling its offer.

Today, Mr Hassall said “there was a window of opportunity” and the offer “was on strategy. We talked around our New Zealand businesses, and growing those and refocusing on the core.

“The second thing. We have a highly performing steel business and we saw an opportunity where we could put those 2 businesses together. They had many complementary product offerings, and also locations, so putting those 2 businesses together created an opportunity to deliver an enhanced customer service & experience right across the whole range of product suites, and also deliver positive return to our shareholders.”

On the question of timing, Mr Hassall said Steel & Tube had just run a formal due diligence process before its capital-raising in September, so Fletcher didn’t have to rerun that process: “There was a window and we took it.”

A boys’ club? We’re getting better at inclusion, says chair

A shareholder asked about “the poor performance of the company over time” and the role of women at Fletcher Building, questioning the claim in the annual report (page 40) that “facilitating an inclusive & motivating working environment for women is important to us. Ultimately, we want to create a culture in which gender diversity in management & our industry is the norm. For this reason we provide targeted development for women within the business…”

In contrast to that statement, the shareholder said, if he looked around the room, “it looks like a boys’ club, and it’s not good enough”. There was no information in the report to support the claim of facilitating a changed environment, pay rates or pay equity: “For a company this size & importance in New Zealand, it’s not good enough. And particularly when you have a large retail company, PlaceMakers, which doesn’t perform that well in my view… where you must have a number of female employees – and if you don’t you should have.”

Mr Hassall countered: “At a board level & as a company we are very focused on the importance of gender, and we’re also focused more generally around the importance of diversity, because it’s important as an organisation that we reflect New Zealand, and particularly that we reflect the customers that we’ve got.

“I think your comment’s a little bit harsh. We’re also an industry that’s heavily dominated historically by males. Now that is changing. But… Fletcher Building has done a lot of really good things in recent years around diversity & women. For example, Global Women, formed a number of years ago, Fletcher Building was one of the principal partners involved in there and it’s still actively involved.

“Around broader diversity, I think we were the first corporate in New Zealand to get the diversity tick. Have we got some more work to do? Of course we do. Do we need to address gender mix across our executive teams, middle-senior management? Yes. Can’t solve it overnight. We have a number of programmes and a number of them are spelled out in the annual report.”

Mr Hassall said Fletcher had a programme on pay equity and would report back on that in the annual report next year: “We are focused on it. In our remuneration of employees, that was one of the things that was taken into consideration, but more work to be done.”

As for PlaceMakers, Mr Hassall told the shareholder: “I do need to pull you up on that. PlaceMakers is one of our best performing businesses, and it’s the star performer in the Fletcher Building group, has been for a number of years and I’m sure will continue to be so… It is an outstanding business.”

After 105 minutes, a modestly probing question

And at the end of it all, longtime listed company investor Robert Gray closed questiontime with a curly one about future liability for late completion of the SkyCity International Convention Centre & Precinct Properties Ltd’s Commercial Bay redevelopment of the downtown block at the foot of Albert & Queen Sts.

Mr Hassall said Fletcher had completed “7, nearly 8” of the 16 building & interiors division projects which had come under the spotlight 2 years ago, resulting in closure of the company’s vertical construction business. “We remain confident with the provisions we’ve established [but] can’t comment on specific projects.”

Mr Gray asked: “Can the company speed up delivery – [for instance] by working longer hours?” Mr Hassall said nothing. Mr Taylor responded: “You & I both wish that.”

And in those 2 questions about construction liability, Mr Gray laid bare the default by the body of shareholders: ‘The leaders had spoken, no further inquiry needed. We made a loss last year, no dividend, all happy.’ That’s how the meeting was, sadly, a bad one.

Links:
Fletcher Building annual meeting, 20 November 2018, webcast
Annual meeting documents & guidance
Presentation
Chair’s written address
21 June 2018, Fletcher Building strategy presentation slides

Related story today:
Guidance kicks Fletcher share price down as new chiefs present positive outlook at annual meeting

Earlier stories:
16 October 2018: Fletcher gets miffy over Steel & Tube time to get advice, pulls what was only ever a “non-binding & indicative offer”
5 October 2018: The price was moving, the confidentiality remains, and still-weak Fletcher insinuates Steel & Tube takeover “compelling”
22 August 2018: Updated: A loss, but flow of red ink stops at Fletcher Building
2 March 2018: Fletcher gets US waiver, still negotiating funding terms
21 February 2018: Fletcher half-year loss $322 million
14 February 2018: Another $486 million of losses for Fletcher Building, and Norris resigns
27 October 2017: Sheppard turns Fletcher meeting into “absolution or exorcism” exercise
21 September 2017: A year on, Fletcher board still has ‘construction nous vacancy’ pencilled in
20 March 2017: Fletcher Building cuts earnings guidance by $110 million

Attribution: Annual meeting.

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Top 10 holiday park & central Waiuku development site sold

The Top 10 holiday park at Orere Point (pictured), at the top of the Firth of Thames in Auckland’s south-east, has been sold through Bayleys to a buyer who intends to retain it as a holiday park.

In Waiuku, the agency has sold a central development site which has multiple residential leases in place.

South

Orere Point

2 Orere Point Rd:
Features: established Top 10 holiday park on 5.29ha at Firth of Thames, multitude of sites, permanent caravans & cabins plus communal facilities & owner’s accommodation; maintained to high standard by owner for past 34 years
Outcome: sold as freehold going concern for $2.5 million + gst, Auckland-based buyer intends to continue to operate as holiday park with plans to expand services
Agent: Josh Smith

Waiuku

The Waiuku development site outlined.

24, 28 & 30 Bowen St, 4 & 6 Martyn Place, 9 Court St (outlined):
Features: 6660m² town centre development site in 6 titles, local centre zoning, opposite Mitre 10 & New World stores, multiple residential leases
Outcome: sold for $3.25 million + gst at $492.4/m²
Rent: $78,833/year net (gst inclusive)
Agents: Shane Snijder & Virginia Zhou

Attribution: Agency release.

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Argosy sells in Hastings & Palmerston North, buys Turners site

Argosy Property Ltd has sold 2 properties in Hastings & Palmerston North, reducing assets outside its core Auckland & Wellington markets to 3, and it’s added an industrial yard in Wiri (outlined in picture above) to the Auckland portfolio.

Transactions:

  • Hastings, 1478 Omahu Rd, sold for $10.2 million, a 12% premium over book value, settlement scheduled for March 2019
  • Palmerston North, 31 El Prado Drive, sold for $35.5 million, a 25% premium over book value, settlement scheduled for December
  • Wiri, 133 Roscommon Rd, 15,838m² industrial yard leased to NZX-listed Turners Automotive Group Ltd, acquired in September for $8.6 million; the 15-year lease provides a holding return of $430,000/year net + gst (5% yield) with fixed reviews of 2.5%/year and a market review in year 6.

Argosy chief executive Peter Mence said of the Turners deal: “We are pleased to have commenced what we envisage to be a mutually beneficial long-term relationship with an organisation that has a significant real estate footprint across New Zealand.”

Turners uses this property to store damaged & end-of-life cars. It also owns a large site at 160 Roscommon Rd, used for trucks & machinery.

Attribution: Argosy release.

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Warehouse sells, new childcare centre passed in

Colliers sold the Bell Tea warehouse at East Tamaki at auction yesterday, but a new childcare centre at Whenuapai was passed in.

North-west

Whenuapai

1-9 Maramara Rd:
Features: 2200m² site, 575m² purpose-built new building, New Shoots Children’s Centre Ltd, licensed childcare centre for 90 children
Rent: $257,400/year net + gst + opex, 18-year lease term from 13 August 2018, 2 6-year rights of renewal
Outcome: passed in at $4 million
Agents: Josh Coburn, Caroline Cornish & Shoneet Chand

South

East Tamaki

305 East Tamaki Rd:
Features: 6052m² site, 3992m² warehouse, storage & office building occupied by Bell Tea & Coffee Co Ltd, full drive-around
Rent: $421,402/year net + gst, 7 years remaining on lease renewed in 2013
Outcome: sold for $7.5 million at a 5.6% yield
Agents: Paul Jarvie, Andrew Hooper & Hamish West

Attribution: Auctions.

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City loft & Onehunga section sell

A city loft and an Onehunga property zoned for intensification sold at Bayleys’ residential auctions last week.

CBD

Queen St

QVB Building, 6 Victoria St East, unit 6B:
Features: 2-level loft, mezzanine bedroom
Outcome: sold for $511,000
Agents: Julie Quinton & Wendy Nichols

Uptown

Highgate Towers, 8 Howe St, unit 3A:
Features: 2 bedrooms, 2 bathrooms, 2 balconies, 2 parking spaces
Outcome: passed in
Agents: Julie Quinton, Trent Quinton & Ellis Prince

Isthmus east

Onehunga

53 Spring St:
Features: 989m² site, 4-bedroom villa in terraced house & apartment buildings zone
Outcome: sold for $1.95 million
Agent: John Procter

Parnell

258 Parnell Rd, unit 43:
Features: studio, parking space
Outcome: auction postponed
Agent: Trisha Vincent

Isthmus west

Avondale

76 Riversdale Rd, unit 4:
Features: one-bedroom unit, carport
Outcome: up for sale by mortgagee, withdrawn from auction
Agents: Cherry Killgour & Steve Leyland

South

Manurewa

2 Totara Rd:
Features: 1042m² section, 3-bedroom house, basement garage, resource consent approved for 3-lot subdivision
Outcome: passed in, back on market at $799,000
Agents: Vanessa Nash, Ginny Cheyne & Stefni Baigent

Attribution: Auction documents.

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2 old suburban centre retail strips sell

Streetfront retail properties in New Lynn & Papatoetoe – both redevelopment prospects – sold under the hammer at Colliers’ auction today.

North-west

New Lynn

3114-3120 Great North Rd (pictured above):
Features: 486m² site zoned business – metropolitan centre, 307m² single-level strip retail building, 18m street frontage, 4 tenants, 3 leases expire in 2021, 2023 & 2025 with no renewal right, rear parking
Rent: $85,240/year net + gst
Outcome: sold for $1.3 million + gst
Agents: Gareth Fraser, James Appleby & Josh Coburn

South

Papatoetoe

74 St George St, Papatoetoe (outlined).

74 St George St:
Features: 1174m² site zoned business – city centre, allowing for development up to 27m high, 368.5m², land at rear used as shared parking, building fully tenanted
Rent: $101,641/year net + gst
Outcome: sold for $1.95 million + gst
Agents: Gareth Fraser & Matthew Barnes

Attribution: Auction documents.

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Sale St redevelopment sells

A redeveloped building on Sale St (pictured), above Victoria Park, and 2 development properties at Greenlane & in Papakura are the leading sales in Colliers’ latest transactions list.

CBD

Kitchener St

2 Kitchener St, unit 1:
Features: 1026m² retail unit, 3 tenancies
Rent: $223,500/year net + gst
Outcome: sold for $3.5 million + gst at a 6.39% yield
Agents: Adam White, Simon Felton & Gawan Bakshi

Victoria Quarter

Hobson Towers, 26 Hobson St, level 6:
Features: 325m² office floor, 14 parking spaces
Outcome: sold with vacant possession for $2.03 million + gst
Agents: Tony Allsop, Simon Child & Roger Seavill

34 Sale St:
Features: 6317m² redevelopment, 4 office floors, 2 parking levels
Outcome: sold for $63 million + gst at “a yield in the early 5%s”
Agents: Simon Child, Sam Gallaugher & Matt Lamb

Isthmus east

Greenlane

614 & 616 Great South Rd, Greenlane.

614 & 616 Great South Rd:
Features: 3867m² commercial property, net lettable area 2125m² in 2 buildings
Outcome: sold for $11.6 million at a 3.1% yield on holding income
Agents: Gareth Fraser, Simon Child, Josh Coburn & Colliers’ capital markets team

South

Papakura

40-44 East St, lot 2:
Features: vacant 1507m² corner site formerly occupied by the New World Papakura carpark
Outcome: sold for $1.54 million + gst
Agents: Chris Wakim & Matthew Barnes

South of the Bombays

Wellington

Petone

140 Hutt Rd:
Features: 1160m² site, 1020m² warehouse, showroom & office, 10 parking spaces
Outcome: sold with vacant possession for $2.475 million + gst
Agents: Kieran Lennon (Colliers) in joint agency with Gollins Commercial

Taita

1115 High St:
Features: 4818m² development site
Outcome: sold with vacant possession for $1.95 million + gst, with quotes in place for the removal of 1170m² of various structures
Agents: Tim Julian & Janette Lillas

Attribution: Agency release.

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2 sales & 6 leases by Commercial Realty

Commercial Realty Ltd agents have completed 2 sales & 6 leases with values over $50,000 in the last 3 months.

Sales

Isthmus east

Penrose

1016a Great South Rd:
Features: 882m² industrial unit
Outcome: sold for $2.775 million to a nearby owner-occupier
Agents: David Turner & Danny Guise

South

East Tamaki

325 Ti Rakau Drive, unit 5:
Features: 180m² industrial unit, 2 levels, 3 parking spaces
Outcome: sold for $550,000 to an air-conditioning company as owner-occupier
Agents: David Turner & Brad Rathbun

Leases

Isthmus east

Penrose

16 Olive Rd:
Features: 988m² industrial premises, leased to a quickly expanding national tenant
Rent: $110,000/year net + gst
Agents: Willie Fernandes & Danny Guise

North-west

Swanson

212 Swanson Rd, units 1 & 2:
Features: 990m², long-term lease
Rent: $71,000/year net + gst
Agent: Daniel Speck

South

Drury

4 Creek St:
Features: 630m², warehouse plus yard area
Rent: $105,000/year net + gst
Agents: Mark Bramwell & Brad Rathbun

East Tamaki

1E Lady Ruby Drive:
Features: 460m² warehouse & office unit, road frontage
Rent: $65,000/year net + gst
Agent: David Turner

Takanini

12 Marphona Crescent, unit 1:
Features: 365m² industrial unit with road frontage, leased to an overseas company
Rent: $60,000/year net + gst
Agent: Brad Rathbun & David Turner

12 Marphona Crescent, unit 2:
Features: 360m² industrial unit, leased to an international tenant before development completion
Rent: $55,000/year net + gst
Agent: Danny Guise

Attribution: Agency release.

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Apartment & townhouse sell, 4 more passed in

Bayleys sold an apartment & a townhouse at its auctions around Auckland last week, and 4 were passed in. The auction of another townhouse was postponed.

Isthmus east

Parnell

18 Brighton Rd, unit 1:
Features: 3-bedroom townhouse, 2 living rooms, 2 bathrooms, deck, parking space, designed by Marshall Cook
Outcome: passed in
Agent: Fleur Denning

Avoncourt, 57 Gladstone Rd, unit 1:
Features: half the top floor, 2 bedrooms, office, 2 living rooms, parking space, lift from carpark
Outcome: sold for $1.64 million
Agent: Fleur Denning

25 Windsor St, unit 4:
Features: 4-bedroom townhouse, 2 living rooms, 2 bathrooms, garage + parking space
Outcome: auction postponed
Agent: Fleur Denning

Remuera

Norfolk Manor, 2 Bassett Rd, unit 7:
Features: 199m² + balconies, terrace, 4-bedroom apartment, 2 living rooms, 2 bathrooms, 2-car basement parking, storage locker
Outgoings: rates $5412/year including gst
Outcome: passed in, back on the market at $2.347 million
Agent: Paul Sissons

Royal Oak

13 Turama Rd, unit 1:
Features: 3-bedroom townhouse, 2 bathrooms, study, 2 parking spaces
Outcome: sold for $1.145 million
Agent: Andrew Rumbles

North-east

Albany

22 Library Lane, unit 7-6-11:
Features: 46.7m² + 4.9m² balcony, one-bedroom apartment completed in September, parking space
Outcome: passed in, back on market at $508,000
Agents: Tina Tang & Ansen Huang

South

Pakuranga

40 Latham Avenue, unit 5:
Features: 2-bedroom unit, carport
Outcome: passed in, back on market at $589,000
Agents: Galina & John Shutkowski

Attribution: Agency release.

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Updated: PFI adds to Wiri portfolio

Published 25 October 2018, yield corrected 1 November 2018:
NZX-listed Property for Industry Ltd has bought an industrial property at 12 Hautu Drive, Wiri, for a net $12.3 million at a 5.25% yield (originally given as 5.35%).

The 10,946m² site has a 4488m² warehouse with 514m² of office & amenities, and is leased to Kiwi Steel Ltd until 31 January 2030. The lease, currently $645,611/year net + gst + opex, provides fixed rental growth of 3.0% annually. Kiwi Steel is also the tenant at PFI’s 2500m² warehouse development on surplus land at Cavendish Drive, Manukau.

PFI general manager Simon Woodhams said yesterday: “This acquisition increases our presence in Wiri, one of Auckland’s major industrial hubs and a key precinct for PFI. The company currently owns 8 properties in the wider Wiri/Manukau area, representing more than 10% of the portfolio.

“The acquisition of 12 Hautu Drive is in line with the company’s strategy of investing in quality industrial property, and the acquisition will be accretive across a broad range of measures. The acquisition will also increase PFI’s weighting to Auckland industrial property.”

Settlement is expected to take place on 31 October.

Attribution: Company release, agency additions.

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