How many times have you wondered what it might be like to own the supermarket that scoops up so much of your discretionary income? Until the sheer size of today’s retail emporiums, and the likely staffing, heating and lighting costs come to mind?
How, then, does indirect ownership of bricks and mortar appeal? Now we’re onto to something, even in the new era of the digitised shopping basket.
It was of little surprise then that the listed property group Stride Property had little difficulty persuading investors of the merits of investing in a fairly complex stapled spin-off, Investore Property. This was a newly formed listed property vehicle that also listed on NZX.
Stride Property, better known for now for its NorthWest shopping centre development, was raising capital at $1.49 a share to partially fund the acquisition of 14 Countdown supermarkets from Shopping Centres Australasia Property Group Trustee NZ Ltd (‘SCA’).
Investore is instantly one of the biggest retail sector owners in the land, with a portfolio of 39 large format retail properties formed through the combination of three portfolios, two currently owned by Stride Property and a third being progressively bought from SCA.
External management will lie with Stride Investment Management Ltd (SIML).
The attraction for investors is that supermarket property is highly defensive because there is a quality tenant base in this case, with some ~95 percent of the portfolio leased to stable non-discretionary supermarket operators.
There is also a long weighted average lease term of 14.8 years, with a high proportion of fixed rent reviews and, did I mention, 99.7 percent occupancy.
The tenants include Countdown, Foodstuffs (New World and Pak’nSave) and Fresh Choice, The Warehouse, and Mitre 10.
Investore swept to around $1.61 a share on listing. For the reason it intends to pay out 95-100 percent of distributable profit and on its IPO value of $1.49 that means a gross yield of around 7.3 percent.
The presentation made by Stride at the time of the Investore IPO showed that it will have 75 tenants of its large format retail property and the net contract rental stream will ~$43 million.
The portfolio is weighted 33 percent towards Auckland, Wellington 17 percent, Canterbury 14 percent and Waikato and Otago 8 percent each, with other North Island at 16 percent and other South Island at 4 percent. There are 10 properties in Auckland.
Retail owners may be interested in the fee structure: there is a building management fee of $10,000 per year for each property and a management fee of 0.55 percent of the portfolio value up to $750 million, and a leasing fee of 8 percent of the annual gross rental. The maintenance fee is 4 percent of the cost of any repair and maintenances work.
This story originally appeared in NZ Retail magazine issue 745 August/September 2016