“Which building do they own?” the quite new shareholder in Precinct Properties NZ Ltd asked me after the company’s annual meeting on the Auckland waterfront on Wednesday.
“All 4,” I said, pointing to the existing PwC Tower on Quay St, the new tower under construction across Albert St which will take the PwC name on completion next year, Zurich House poking through the middle from the Queen-Customs Sts corner, and HSBC House on the corner of Queen & Quay Sts.
Through the back of this accumulation of assets, the upper levels of the Quay West apartment tower (not a Precinct property) was also visible from the corner of Albert & Customs Sts. Not visible was a fifth Precinct property, Quay Tower, on the corner of Albert St & Customs St West.
The Precinct quartet pictured are a formidable collection on Auckland’s central city waterfront, each in its own right. They also happen to sit above the tunnels that will make the Britomart railway station a throughpoint instead of a dead end, and they are all undergoing their own distinct changes.
The rail link will make the immediate surrounds of the Britomart, new Aotea & new Karangahape Rd stations prime focal points for city activity, even more than the present Britomart bus terminus does.
Above those rail tunnels, Precinct’s Commercial Bay 2-level retail component is now scheduled for completion next March and the office tower on the Albert-Customs Sts corner the following month.
The HSBC tower will be transformed – a hotel on the lower levels, office space above it redeveloped.
Both the HSBC tower and Zurich House are being tied into each other & the new PwC Tower via the retail component and the laneways that will cut across the block. The existing PwC Tower is affected because some tenants will move to the new tower, and new tenants will move into both the new & old PwC towers.
In the financial year to June 2019, Precinct’s portfolio was revalued upwards by $161.7 million, or 6.1%.
From the annual meeting coverage below, you can gauge Precinct’s businesses in Auckland & Wellington and the company’s response to environmental issues.
Mr Stobo said the company’s board had decided to hold payments to directors at last year’s level after an annual review.
The 2020 first quarter dividend has been increased by 5% to 1.575c/share.
Following a review of dividend policy, Precinct will transition towards paying out about 100% of adjusted funds from operations as dividends. the company will use retained earnings to fund capital expenditure required to maintain the quality of its portfolio.
Chief executive Scott Pritchard gave an overview of Precinct’s Auckland/Wellington central city focus: “The Auckland city centre market is particularly strong. It is achieving higher growth compared to the wider Auckland region. With office employment expected to grow by around 11,000 city workers by 2023 and 30,000 additional inner-city residents over the next 10 years, activity levels in the Auckland city centre will be underpinned by these drivers.
“Auckland is New Zealand’s gateway city, it is moving ahead at an increasingly fast pace and we recognise the value of being located here. It is a hub for ideas, productivity, social development & much more.”
At the Commercial Bay office tower & retail precinct, under construction on the site of the former Downtown shopping centre and linking in 1 Queen St (HSBC House) & 21 Queen St (Zurich House), Mr Pritchard said 98% of the retail space was leased. Total office commitments are around 82%, with a number of leases under negotiation.
The opening dates are unchanged from those given in August – next March for retail, next April for the PwC office tower.
In the Wynyard Quarter, Precinct committed to stage 2 of the development on Madden St last year without tenant commitment. The office space is now fully leased, a year ahead of completion. The project is on budget and slightly ahead of programme.
The Generator business:
Precinct’s acquisition of the Generator coworking business is part of the central city focus: “The way in which people are working is changing and we are responding to this. The most recent example would be our purchase of the remaining 50% of coworking company Generator. Generator allows us to provide flexible office space and meeting & events solutions to a broader range of New Zealand businesses. Generator is the leading flexible space provider in the Auckland city centre and its business is highly complementary to Precinct’s strategy.
“As well as accessing a wider client base, Precinct’s existing clients can also access Generator’s meeting & event spaces, providing increased levels of amenity. Precinct clients are also using Generator space to manage certain growth & office space requirements for project teams. Over the last few months, we have also secured occupiers into the Precinct portfolio from previously occupied Generator space through extending our offering and providing office space solutions to occupiers we wouldn’t otherwise have had access to.
“With a clear strategy for the Generator business, we expect to see continued growth in demand from the coworking & flexible space market in the Auckland & Wellington city centres.”
Regionally, the Wellington city centre is performing well. With office space in the city centre remaining limited after a reduction in total supply and demand pressures increasing, especially for high quality office space. In addition, an increase in demand for city centre office space is being driven by considerable growth in the government employment base. We expect to see the increased activity levels within central government translate to a number of Crown entities requiring additional space, further supporting the Wellington office market we invest in.”
Precinct has completed stage 1 of the Bowen Campus redevelopment. The company acquired the office precinct adjacent to the Beehive & Parliament Buildings in 2012.
The Charles Fergusson Building reached practical completion last December and is now occupied by the Ministry of Primary Industries. The NZ Defence Force occupies the Bowen State Building, now Defence House, where the fitout was completed last month.
Compared to the feasibility assessment, Mr Pritchard said rent had increased, cap rates were lower and occupancy was higher.
1 Queen St (hotel on lower levels, office above) is in the detailed design phase. Construction remains on schedule to start in mid-2020.
At Wynyard, design has progressed for a further 19,000m² of space for stages 3 & 4. Resource consent applications have been lodged, and Mr Pritchard said tenant inquiry levels were good. He hoped construction could start during the next 12 months.
In Wellington, the remaining land at Bowen Campus will allow development of 21,000m² of office space.
Mr Stobo posed the question of how to integrate sustainability across operations & design: “Companies in the real estate sector, along with the building & construction sectors, have an integral role in improving current & future societies. Precinct’s sustainability efforts are therefore focused on incorporating sustainable design across our assets and improving our operational performance.
“In the last year, we have continued to focus on understanding & responding to our material environmental, social & governance (ESG) risks & opportunities. Our goal is to create sustainable value through city centre real estate. We have now developed an initial suite of ESG targets which are aligned to our material topics to help us achieve this goal.
“As a direct result of our strategy, the environmental performance of our portfolio is improving. We are seeing positive results from our investment in sustainable design. The recently completed Mason Bros building (in the Wynyard Quarter) achieved a 6-star green star rating and won the green building award at the 2019 NZ Property Council awards. As well as setting a new benchmark in sustainable design, the Mason Bros building has delivered measurable environmental improvements & social benefits.”
Precinct has reduced the carbon emission intensity of its operating business: “Since 2016, when we began reporting this metric, we have reduced emission intensity by over 20%. While we recognise the good progress made so far, we are currently exploring more options to reduce our carbon footprint. We recognise to maximise the benefits of our efforts in reducing our climate impacts, both measuring & managing emissions is key.”
The internationally recognised measure of sustainable performance in real estate is GRESB – the global real estate sustainability benchmark, run by the GRESB BV organisation based in Amsterdam.
In the 2019 assessment, released in September, Precinct’s score was 77, up from 69 last year.
Mr Stobo: “We are now trending ahead of the global average of 72 and we rate a public disclosure level B against the global average of C. This year, GRESB included 964 participants globally, representing $US4.5 trillion in gross asset value. As a team & business, we are extremely proud to have lifted our score and to have recorded improvements in every area against our 2018 submission.
“GRESB continues to help our business make improvements in public disclosure, measurement, building design & how we approach sustainability at Precinct. We are committed to progressing all areas we can improve in.”
Attribution: Annual meeting.