'Essential business' tenants like Countdown shore up Investore Property's portfolio value

Tuesday, 28 April 2020

Leasing to 'essential businesses' like Countdown supermarkets has helped big retail property owner Investore Property hold up the value of its portfolio during Covid-19.

Investore, whose biggest tenant is Countdown, has reported the value of its property portfolio has risen by 1 per cent to $761.4 million, but the value remains uncertain. It's not as high a percentage rise as the company earlier expected.

Investore which owns large big box retail centres throughout New Zealand leased by the likes of Countdown, Bunnings, Foodstuffs, Mitre 10 and The Warehouse said the value of its properties was $761.4m at March 31 2020, but on valuers' advice that valuation was 'uncertain'.

Recently Kiwi Property, one of the biggest retail landlords owning several malls, reported a $290m fall in its portfolio value to $3.1 billion, and property company Argosy reported a rise in its overall portfolio value, by 3.6 per cent from a year ago to be worth $1.78b on March 31 2020, driven by its industrial and office buildings, while its retail properties dropped 6.5 per cent in value.

More than 80 per cent of Investore's tenants by gross rental comprise 'essential businesses'. Countdown is its biggest tenant leasing more than 30 large stores from Investore.

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Draft valuations for Investore's stores in early March had been higher and had been withdrawn by the valuers due to the impact of Covid-19.

'The independent valuers engaged by Investore have included material valuation uncertainty clauses in their reports, understood to be consistent with market practice as a result of Covid-19,' the company said.

'These clauses highlight that less certainty, and consequently a higher degree of caution, should be attached to the valuations as a result of the Covid-19 pandemic.'

The revised valuations reflected changes in the value of individual properties of between 0 per cent and a fall of 7.5 per cent from the draft valuations, Investore said.

Investore focuses on owning large format retail stores and on tenants whose businesses are 'non-discretionary' like supermarket operator Countdown. More than three quarters of its contract rental income is from supermarkets.

'The resilience of Investore's portfolio in the economic climate created by Covid-19 has led to the valuations remaining relatively robust,' Investore said.

The value of three large format retail stores in the North Island being bought by Investore for $140.75m has fallen 5 per cent, $7m, since Investor entered into the deal in November 2019. The purchase of the properties settles at the end of April.

The properties were Bunnings Mt Roskill and Mt Wellington Shopping Centre in Auckland and Bay Central Shopping Centre in Tauranga.

Including the three properties, more than 80 per cent of Investore's tenants by gross rental comprised 'essential businesses' as defined on the Government's covid19.govt.nz website and were permitted to remain open and trading.

Investore expected additional tenants would re-open for trade under alert level 3 and was trying to help tenants do that.

'Although Covid-19 has created significant uncertainty in the market prompting valuers to reassess a number of their assumptions, including for rental growth, downtime and ongoing trading conditions, overall we are still seeing relatively strong values for the Investore portfolio,' Investore fund manager, Fabio Pagano said.

'This portfolio has benefited from its focus on large format retail properties that cater to everyday needs, with 78 per cent of contract rental derived from supermarkets. A significant proportion of Investore's tenants are permitted to remain open and trading at all Covid-19 alert levels.'

The Investor board reconfirmed it expected the total cash dividend for the financial year 2020 to be maintained at 7.6 cents a share, assuming no further deterioration in economic conditions due to Covid-19.