UPDATE: Precinct's Commercial Bay development faces delays

Published: Wed 29 May 2019 02:36 PM
UPDATE: Precinct's Commercial Bay development faces more delays, higher costs
(Adds comment from Fletcher Building in the 14th paragraph, updates share price in final paragraph)
By Rebecca Howard
May 29 (BusinessDesk) - Precinct Properties New Zealand says its high profile Commercial Bay development being built by Fletcher Building will now take even longer and cost more.
The total cost for the redevelopment of the former Downtown shopping centre at the bottom of Auckland’s Queen Street will now be $690million-$700 million, versus its February forecast of $690 million.
It now expects the retail centre to be completed in March 2020 and the PwC office tower to be done in April the same year.
In February it said there was “minor slippage” of about a month to the construction programme "which may impact previously disclosed completion dates of September 2019 for retail and December 2019 for office.”
Chief executive Scott Pritchard said "as previously stated, the last two months have been critical in progressing the project, and it is unfortunate to have to confirm that we have observed further slippage beyond what we observed earlier this year”.
This was the latest in a series of previously announced delays. The retail centre was originally expected to open by October 2018, with the office tower completed by mid-2019.
The potential cost increase of $10 million reflects the delays to opening, Precinct said today.
The revised opening date for the retail centre takes account of expert advice that the base building works are unlikely to be finished before December. In addition, Precinct has decided to provide additional time for completion of retail fit-out works after that, the company said.
"The yield on cost is expected to remain largely unchanged in a range of 7.4 percent to 7.5 percent, ensuring that the development remains on track to deliver the expected benefits to Precinct’s long-term earnings," it said.
It noted that Fletcher Building has brought a number of claims against Precinct under the construction contract seeking extensions of time and/or additional cost, and further claims are anticipated.
Fletcher - the country's biggest construction firm - revealed massive losses for 2017 and 2018, particularly in its high-rise construction business, the Building + Interiors unit. These were largely caused by escalating costs on some major projects.
"To date, these claims have not resulted in material additional costs or extensions of time being awarded and Precinct remains confident that the provisions of the construction contract appropriately protect Precinct from losses due to contractor delay and/or breach of contractor obligations," Precinct said.
In February it withheld $15.4 million from Fletcher in liquidated damages as at Dec. 31, and Pritchard says he expects that amount will grow.
Fletcher Building said today it remains within the "construction provisions announced in February 2018". It also "remains confident in our programme". It confirmed it has brought a number of claims and "further claims are anticipated", but said it cannot provide further details as it is bound by confidentiality clauses.
Precinct shares were down 0.6 percent to $1.65 while Fletcher shares were down 3.3 percent at $5.26.
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