Precinct Properties' Commercial Bay project delayed: Fletcher payments withheld

Auckland's $1 billion office tower has hit further snags.

Costs have risen and Fletcher Construction payments are being withheld at Precinct Properties' Commercial Bay office tower on Auckland's waterfront, but the business has significantly pushed up its half-year profit from $17.7m to $24.6m.

Precinct announced today that total Commercial Bay project costs rose from $685m to $690m. Christmas/New Year holiday period delays had resulted in "around one month slippage in the construction programme" and $15.4m has been withheld from the builder for late delivery.

The tower's offices were originally scheduled to open this July but won't now be finished until December. Although H&M opened last year, the rest of the shops which were due to open last November won't now open till September this year, according to previous Precinct announcements.

Precinct chief executive Scott Pritchard did not rule out further Commercial Bay delays but defended the extra costs.

"The slippage we have seen may impact those dates but we just don't know yet. The extra $5m total project costs were just opportunities to drive extra value and were minor scope changes," he said this morning when Precinct released its result.

But he remained "excited" by the project where form work is up for the roof-top foil feature and the 39-level building to be valued at around $1b on completion is having a major impact on the skyline.

"The structure is as high as she goes," Pritchard said today. An event to celebrate reaching that milestone that would be announced soon, he said, but refused to give any date.

On Fletcher payments, he said $15.4m was the total withheld to date and it occurred in the half-year period to December 31, 2018 - the first time such liquidated damages had appeared on Precinct's accounts.

SkyCity Entertainment Group said last week it had withheld $39.5m from Fletcher Construction because the convention centre is so late.

An NZX statement from Precinct explained more and flagged the possibility that Fletcher could take legal action against Precinct for withholding the payments.

"Included within the Commercial Bay construction contract is the right to liquidated damages if certain milestones are not met. As of December 31, 2018, $15.4m of liquidated damages have been withheld from the contractors. The amounts withheld have been recognised as part of current liabilities and a contingent asset has been identified as ultimate recovery is not able to be considered virtually certain since Precinct's right to retain these liquidated damages could be disputed," the statement said.

Precinct has leased 84 per cent of its shops, up from 76 per cent last year. Office pre-leasing commitments stand at 80 per cent, up from 78 per cent.

Precinct made $24.6m net after-tax profit in the latest half-year, up on the previous corresponding period's $17.7m and Pritchard highlighted $191m of asset sales settled during the half-year.

The business announced a $150m equity raising plan today which Pritchard said was partly to fund expansion at Wellington's Bowen Campus and Wynyard Quarter stages three and four.

"Precinct's announcement to raise $150 million of equity through an underwritten placement and retail offer will allow Precinct to repay bank debt and further supports our future development opportunities by providing additional funding capacity," Pritchard said in a statement to the NZX.

Precinct's properties were valued last year at just under $2.6b but Pritchard predicted the portfolio would be "close to $3b" once current expansions and plans went ahead.

"We have a $1.2b development portfolio," he said, noting much of that would be completed in the next 12 months.