Retail landlords ‘likely to be hardest hit’
Warehousing and logistics tenants still able to operate at level 4, says analyst
An analyst examining the lockdown’s effects on the multibillion-dollar NZX real estate sector says retailheavy stocks could suffer more than warehouse or logistics-heavy ones.
Rohan Koreman-Smit, an analyst at Forsyth Barr, said just how affected the listed entities were by the pandemic and Auckland’s lockdown would depend on their exposure to different market segments.
Listed companies and trusts have in the last few years repositioned investment portfolios out of places like Christchurch and Wellington and more in Auckland, he noted.
Many were therefore more exposed to the longer lockdown in that city, he said.
Landlords with heavier retail holdings might need to write off the most rent money, he said.
“Retailers haven’t been able to trade, and certainly for the many weeks in Auckland in particular. Retail is likely to be the hardest hit and get the most rent abatement,” he said.
During last year’s first lockdown, retailers suffered the most, he recalled, and got the most rent abatement.
Listed businesses with big retail holdings are:
Precinct Properties with shops and restaurants in the $1b Commercial Bay,
Kiwi Property Group which owns Sylvia Park, the lifestyle centre opposite and LynnMall;
Stride Property Group which owns Westgate mall, NorthWest;
Investore Property, managed by Stride, which owns many supermarkets — but Koreman-Smit said it was likely to suffer only minor impacts.
Industrial and warehousing giants like Goodman Property Trust and Property For Industry would suffer only minor impacts with their logistics and warehouse tenants generally allowed to operate, Koreman-Smit said.
“Industrial landlords saw some of the smallest rent abatements during the first level 4 lockdown,” he said.
Kiwi Property Group suffered the most last year, providing around $20 million of rent abatements — around 8 per cent of annual rent, KoremanSmit said. The company continues to trade below net asset value.
“But this time might be different to last,” he forecast. “From what I understand, they haven’t had the same early demands from tenants to get rents cut. People are in clearer positions than last time. Some have signed new leases since the last lockdown which have clearer provisions on lockdowns. Others are more certain of the process, having gone through the first lockdown.
“Last time, the Government said a month. This time, they’ve drip-fed it so the tenants haven’t sought rent relief as fast because the length of lockdown has been uncertain.
“Thirdly, we just had reporting seasons and there have been pretty spectacular numbers. Retailers have reported strong earnings, so it’s going to be harder for those retailers to argue the case for rent relief.
“We’re also seeing monthly rent collections starting to come in so landlords will have a clearer idea of where they stand over the next couple of weeks,” Koreman-Smit said.
Precinct noted recently how last year’s lockdowns had cost nearly $3m at Commercial Bay.
Restaurants, cafes and food outlets recorded a $2.8m loss in the latest year when they opened two months after New Zealand’s highest Covid alert level 4. But pedestrian numbers recovered before the August lockdown to more than 1m people a month, showing how retail recession can become retail recovery.
Commercial Bay opened last June and, even though New Zealand was back at Covid alert level 1 by then, thousands of CBD office workers stayed home, far from the new building with 120 retail outlets — much like they’re doing right now.
“Commercial Bay hospitality achieved successful openings, however, the impact of lockdowns led to a $2.8m loss for the year,” landlord Precinct Properties NZ said last month in its June 30, 2021, annual result.
Its portfolio was valued up by $282.9m, helping push up net profit by 411 per cent.
Last year’s $35.1m net profit rose to $179.9m, with the unrealised valuation gains significantly boosting the bottom line.
Retailers have reported strong earnings, so it’s going to be harder for those retailers to argue the case for rent relief.
Rohan Koreman-Smit, analyst at Forsyth Barr