At least NZ$3.8 billion in capital could be unlocked by some of New Zealand’s top listed companies if they sold and leased back the real estate assets they occupy, according to a new CBRE report.
This is one of the key findings from CBRE’s new Freeing Up Capital: Opportunities for Real Estate Corporate Owner-Occupiers report.
It examines the land and buildings currently held on balance sheets across 40 listed Australian and New Zealand companies in the materials, healthcare, telecommunications, transport and industrial sectors.
The report highlights that:
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-New Zealand’s strong economic environment through the pandemic is resulting in a strong appetite from investors for real estate. It is also creating opportunities for Kiwi companies to invest in their core businesses and generate higher rates of return, by freeing up and redirecting capital currently tied up in low-yielding real estate assets into their business.
-Across Australasia AU$24 billion in capital could be unlocked in this way.
Bruce Catley, managing director of industrial capital markets for CBRE NZ, says that real estate recycling is nothing new in New Zealand.
However, the report highlights a significant ongoing opportunity for listed corporates to consider opportunities in a low interest rate environment to capitalise on the current healthy state of the commercial property investment market.
“Owner-occupiers in New Zealand have raised circa NZ$1.2 billion over the past five years from sale and leaseback deals.
"Companies to have successfully raised capital to fund their growth and operations include Toll, Visy, Alto Packaging, Valspar and - most recently - The Baby Factory, which is currently marketing at 58 and 62 Stonedon Drive in Auckland through CBRE.
“Visy sold and leased back its sizeable facility in Auckland for $178.3 million in the third quarter of last year. In doing so, and by taking advantage of yield compression in the industrial sector, it was able to partially fund significant growth through acquiring O-I Glass, one of the largest glass manufacturers in Australasia.
“Toll Group also took advantage of this approach when they acquired a 17 hectare site in Otahuhu from Fletchers in 2017 to enable the development of a purpose built new rail-served distribution hub, and then recouping acquisition and development costs to reinvest capital into their business.”
He says that corporate owner occupiers in industries such as the life sciences sector, telecommunications, manufacturing, distribution and transport are achieving a higher return on equity and invested capital within their core business as opposed to their capital being tied up in real estate.
“We are seeing a trend of corporate occupiers monetising their owned industrial real estate and capitalising on demand by listed and unlisted property funds for sale & leaseback opportunities. This allows occupiers to raise capital and increase liquidity while not losing occupational control of their property assets and we are experiencing an emergence of shorter term leasebacks becoming more frequent.”
Zoltan Moricz, executive director of research for CBRE New Zealand, says, “New Zealand’s strong economic environment through the pandemic is resulting in both a strong appetite from investors for real estate, as well as strong opportunities by corporates to invest into their core businesses by freeing up and redirecting capital currently tied in real estate assets.
This is providing a perfect storm of opportunity and rationale for sellers and buyers.
“The latest lockdown has lessened pressure to lift interest rates in New Zealand. We therefore expect a gentler rates curve and prices to stay stronger for longer over the next 18 months or so. In this environment, corporate New Zealand is revisiting its property occupancy strategies to unlock value.
“The multi-billion monetisation figure we see could be even higher, given the recent strong pricing performance of the industrial property sector, where owner occupier transactions have been particularly prevalent.”
Concentrating just on the materials, healthcare, telecommunications, transport and industrial sectors, CBRE’s report shows that the owner-occupiers in these five sectors average a 7% capex to sales ratio, while 60% have a return on equity in excess of 10%.
This highlights the opportunity to reinvest capital into newer, higher returning opportunities such as capex investments, acquisitions, debt repayments or shareholder returns via a special dividend or share buy-back.
Analysing AU$11 billion in owner occupier sales in the past five years shows that industrial assets through the food and beverage, materials, industrials, transport and utilities industries have been the most actively traded.
However, the retail industry has been the most active owner occupier seller (representing 23% of the transactions in Australia and New Zealand).
The 18% market share of petrol station sales includes the largest single transaction that involved BP selling a 49% interest in 295 properties across Australia and New Zealand for $1.08 billion.
CBRE’s analysis also shows that 25 owner occupier deals over AU$100 million each have unlocked AU$9.5 billion of capital since 2015.
This includes BP’s 2019 AU$1.08 billion sale to Charter Hall of a 49% interest in 295 properties across Australia and New Zealand - the region’s largest owner-occupier portfolio sale on record.
However, most transactions have been smaller in size, with 77% of owner occupiers sales since 2015 being under AU$50 million.
-Article supplied by CBRE
