Investor queries Kiwi on business case for $54m seismic upgrade

The company believes upgrading the Majestic Centre will turn it into a premium asset. Photo / Mark Mitchell

The $54 million earthquake strengthening of Wellington's tallest office tower drew investor concern yesterday and questions about the Government's appetite for tax deductions on such huge building upgrades.

Jim Taylor, a unitholder in Kiwi Income Property Trust, which held its annual meeting at Auckland's Eden Park, questioned the board about expenditure on the 28-level tower, only valued at $61.3 million.

"What was the business case for doing that?" Taylor asked of the $54 million upgrade now under way and initially only planned as a $35 million job. "Is it purely defensive?"

Kiwi chairman Mark Ford said the tower and Papanui's Northlands shopping mall needed upgrading.

"As a good corporate citizen, we needed to front foot it and address earthquake requirements for occupational safety and health, and from a commercial point of view," Ford said.

"From a business case, we're much more proactive and believe repositioning the Majestic Centre and Northlands will position the buildings as premium assets and very desirable."

NZ Trade & Enterprise, IBM, Opus Consulting, Ernst & Young, Cigna Life, Government of Japan and Airways Corporation are tenants in the tower on the corner of Willis St and Boulcott St.

Kiwi lost its $52.2 million PricewaterhouseCoopers Centre in Christchurch to earthquakes.

Taylor also wanted to know about tax breaks.

"I've heard noises from yourselves and others about the injustice of not being able to claim this as a tax deduction. Where is the lobbying up to?" Taylor asked.

Kiwi chief executive Chris Gudgeon said he was behind pressure going on the Government for commercial landlords to get tax breaks on seismic work and he hoped to make headway on the issue soon, despite the fact that Peter Dunn was no longer Revenue Minister after Todd McClay was appointed to that post.

"The property sector and Local Government New Zealand is very concerned about our tax system which does nothing to incentivise earthquake strengthening. We've been active through the Property Council and Kiwi has formed a coalition with Local Government NZ, Business New Zealand and a Wellington property company to lobby and working with IRD and we were all set to meet Peter Dunn," Gudgeon told the meeting. "So we've had to refocus on the new man," Gudgeon said.

The topic could come to national prominence after Monday's Cabinet meeting because the Government is due soon to decide its response to the Royal Commission of Inquiry into the Canterbury earthquakes and how far it will go in forcing landlords to upgrade their buildings.

Another unitholder wanted to know how many other buildings needed seismic upgrades and Gudgeon said about 2 per cent of the portfolio by value was high-risk (below 33 per cent of new building standard), about three-quarters was low-risk and 25 per cent moderate risk.