Could your business realise a share of the $3.8 billion property opportunity?

Your business could be one of hundreds realising their share of a monumental capital realisation opportunity. Are you in a position to take advantage of it?

CBRE’s latest research report, Freeing Up Capital: Opportunities for Real Estate Corporate Owner-Occupiers, has revealed that at least NZ$3.8 billion in capital could be unlocked by some of New Zealand’s companies if they sold and leased back the real estate assets they occupy.

The report 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. It highlights two central facts:

• New Zealand’s strong economic environment through the pandemic is resulting in a strong appetite from investors for real estate.

• It is 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, and CBRE is playing a significant role in bringing about sales and leaseback transactions across the region. We have been active in helping owner-occupiers in New Zealand to raise circa NZ$1.2 billion over the past five years from sale and leaseback deals.

Companies we have helped to successfully raise capital to fund their growth and operations include Toll, Visy, Ingham’s Chicken, Alto Packaging, Valspar and - most recently - The Baby Factory, whose Auckland headquarters we have been marketing recently.

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.

Although this type of transaction is nothing new in New Zealand, our report highlights the significant current opportunity for organisations that own and occupy their assets to capitalise on the current healthy state of the industrial property investment market, particularly amid a low interest rate environment.

Some owner-occupiers may also have assets on their balance sheets that they scarcely use to their potential, if at all. Selling these assets frees up capital for other investments whilst maintaining operational control of the property.

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.

Concentrating just on the materials, healthcare, telecommunications, transport and industrial sectors, our 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% - highlighting 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, although the retail industry has been the most active owner-occupier seller (representing 23% of the transactions in Australia and New Zealand).


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-occupier sales since 2015 being under AU$50 million.

In short, the report shows not only that there is a significant capital realisation opportunity at a macro level, but that the opportunities are open to companies of a wide variety of sizes sectors. It could be time to consider a sale and leaseback to drive the growth of your business into the future.