Sale of corporate properties benefits companies and investors

10:06 AM Friday October 30, 2015 Chris Dibble

The sale of the huge Otahuhu Power Station complex (within red border) is a win-win-win situation for Contact Energry, investors and Auckland’s industrial growth.

Since the global financial crisis, senior leadership teams across all businesses have been analysing their balance sheets to reduce unnecessary wastage and leverage under-utilised capital. Now with balance sheets in better shape due to economic expansion and increasing revenue, opportunities for growth are back on the agenda.

One of the biggest opportunities for businesses to unlock and utilise capital more efficiently is through the sale of their office headquarters or distribution centres with a long lease in place – or via the disposal of property and land holdings that have become surplus to requirements.

This strategy is beneficial as capital can be redeployed back into the business to improve IT systems, marketing channels and staff appointments as well as to take advantage of increased sales activity in the current growth environment.

It also provides property investors with high-calibre purchasing opportunities that are seldom available.

Many of these opportunities are provided with long leases in place, which provides security for the business to operate from their current location without any operational or relocation hassles in the future..

The property investor reaps the benefit of a ‘sale and leaseback’ by purchasing a tenanted property with cash flow from a well-known national brand that also provides the investor with a strong covenant facilitating the ability for debt leveraging..

A recent example is Burger King’s national distribution centre that services 83 Burger King Restaurants nationwide, located in South Auckland at 10-18 Alderman Place, Otahuhu.

The 1406 sq m building includes a high stud warehouse, dry store, freezer and chiller rooms, a plant room and loading bay with canopy and five roller doors. Burger King has operated the site for the past 15 years with the current lease providing the potential to be extended to June 2052, if all rights of renewal are exercised.

Colliers International brokers, Hamish West and Andrew Hooper, who are marketing the site have commented that Burger King’s global brand and plans for further expansion provide the perfect opportunity for Burger King and a property investor to benefit from the sale and leaseback in the current environment.

Hopper and West, along with colleague Ben Herlihy, are also undertaking a sale and leaseback on behalf of Service Foods Ltd that operates from more than one hectare of land at 132 Portage Road and 17 Saleyards Road.

Service Foods is one of New Zealand’s largest, privately owned and operated food distribution businesses established in 1980. The company directly imports more than 2,000 products in around 20 countries worldwide and was a Deloitte Fast 50 award winner in 2009.

Service Food Ltd recently injected large sums of capital to refurbish the buildings, but want to sell the property under a sale and leaseback arrangement in order to free up capital for business growth and acquisitions.

The sale of Contact Energy’s Otahuhu Power Station site further underscores this business strategy currently being adopted by major New Zealand companies..

Contact Energy’s colossal 38ha (gross) site zoned Business 5 on multiple titles nestled between Highbrook Business Park and the southern motorway is also being marketed by Hooper, West and colleagues Andrew Reed and Greg Goldfinch.

The site, now surplus to Contact’s requirements, provides investors and developers with a significant purchasing opportunity given the scarcity of zoned industrial land in the area.

This sale provides a win-win-win situation. Contact Energy will receive the benefit of extra capital, industrial developers will be able to purchase one of the scarcest resources in Auckland, and perhaps most importantly for the further growth of Auckland, is the ability to lease space once the site is fully developed.

The sale comes at a time when the industrial market has been crying out for land for business growth. According to the latest Colliers International vacant land survey, there are only 520 ha of vacant industrial land in the former territorial authority of Manukau. Almost a third of this is under the ownership of Auckland Airport.

Recent analysis undertaken by the Property Council New Zealand for the Independent Hearings Panel highlighted the lack of land for Auckland’s housing and business needs. The productivity commission has also highlighted the impact of the lack of land constraining development and increasing land values..

Auckland has a critical scarcity of sites of this size close to the airport, motorways and the city. Recent commentary surrounding the re-use of Auckland Council golf courses and bowling greens is a topical example of how desperate the situation has become.

The fact is that finding easily developable industrial sites of scale to purchase that are less than $300 per sq m in the area has now become harder than finding a needle in a haystack and this scarcity along with rising rents is seeing rapid increases in land values.

According to Colliers International’s latest Auckland industrial vacancy survey, regional vacancy is at 2.2 per cent the lowest recorded in the last two decades.

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Chris Dibble, associate director of research and consulting for Colliers International.