News

Investment heavyweight ING Property Trust Management is keeping a close eye on further opportunities in Christchurch, following a four-year hiatus.

ING Property Trust Management (INGPT) has just returned to the Garden City, buying two industrial properties in a $24 million deal. The assets, at 8 Foundry Drive and 308 Port Hills Road, both in the Woolston area, are fully leased to high quality tenants, with a combined weighted average lease term of 5.7 years. They represent an attractive rental return for the trust’s 80,000 unitholders of 8.4%.

Foundry Drive, marketed by Colliers industrial specialists Jonathan Lyttle and Paul Pheloung, piqued INGPT’s interest when it came to the market last year but the building, comprising a total of 11,400m2 of warehouse and coolstore, did not, on its own, meet INGPT’s strict criteria for acquisition. The challenge was to present an investment large enough to attract the Trust.

In an off-market deal, colleague Gary Seear approached an investor who had the sort of property he thought would interest ING - Port Hills Road. Currently under construction, the development is scheduled for completion in August. When finished, it will comprise two warehouses with a combined space of 7043m2, including 185m2 of offices, along with a separate stand-alone office building of 726m².

Lyttle and Pheloung say it’s increasingly common for larger investors to pursue sale and leaseback properties.

“Institutional investors are looking to secure good tenants with long term leases but these have been hard to source, so Foundry Dr and Port Hills Rd were particularly attractive. This deal highlights the way in which we have been approaching owner-occupiers to see if they will consider selling and leasing back their properties.

“Sale and leaseback is proving very attractive for some owners of thriving businesses as it enables them to release capital for reinvestment in the operations,” according to Lyttle and Pheloung.

Meanwhile, Seear says that with the demise of the sub-prime market, perception of the commercial/industrial market has changed.

“However, in Christchurch it is different in that we are much more conservative and a lot of our investors/developers use traditional trading banks for finance. What was a good building yesterday is still a good building today – those principles still stand.”

Peter Mence, general manager of ING Property Trust, says the fundamentals are strong and the market ripe for the trust to expand its investment in Christchurch.

“Christchurch has always done reasonably well, particularly in a downturn. It’s a very resilient economy and has better tenant loyalty than many other places. It tends to be reliable and steady.”

Mence says the trust’s decision several years earlier to progressively quit its Christchurch portfolio, predominantly made up of industrial land in Sockburn plus two offices buildings in the CBD, had nothing to do with dissatisfaction.

“It is unfortunate that we haven’t had property in Christchurch for such a long time, but our job is to get the best return for our unitholders and at the time prices were a little high.
The economic dynamics have changed now and we believe investments in Christchurch will add value for our unitholders.

“Our view is that from the bottom up, the property market is still in exceptionally good shape. We’re not saying that there won’t be issues in the next 24 months but we anticipate there will be some real bargains.”

Describing INGPT as a low risk diversified option among the NZX-listed property entities, Mence says the company strictly adheres to a strategy of investment diversification by sector, category and tenant mix. For instance, the IRD is INGPT’s largest tenant, yet with leases in three cities it only contributes 3.8% of total return to the trust’s portfolio, minimising any potential risks of its tenant portfolio weighting.

“We don’t want the portfolio to be overly weighted in any one area as we believe that diversification means a lower risk for our unitholders. With this in mind, we don’t carry a lot of development land that is not earning us income. And if we’re entering a joint venture, we structure the deal so that the developer carries the majority of the risk. As a listed entity, our focus is to maximise unitholder returns in the smartest way possible.”