Carpark sold for profit, and Keys confident on leasing
Newmarket Property Trust managing director David Keys made announcements about six issues today — the yield on the units, conditional sale of the Rialto carpark, plans for Rialto Heart of Broadway, leasing of the Grant Thornton Centre, prospects for leasing the AA Centre, and the trust’s future as a part of the Commonwealth Bank of Australia group.
On the last of these points, his comment was more a no-comment, but it remains an issue.
The yield on the units would be 6.5c/unit, which makes a 13% yield on the unit price of around 50c. Based on year-end valuations, the trust’s net tangible asset backing should be about 70c, putting the units on a 29% discount.
$1 million profit on carpark
Mr Keys said the trust had entered into a conditional agreement to sell the Rialto carpark for $7 million, $1 million above the book value set a year ago. The trust has reserved access to parking spaces to satisfy resource consent requirements and has preserved the ability to offer its retail customers two hours’ free parking with receipt validation.
The trust would use the money to upgrade and secure tenants for the AA Centre and to redecorate and re-image the Rialto Heart of Broadway.
Mr Keys said it was time to review the merchandise mix in the Broadway retail and cinema complex, which was seven years old — not least because Country Road is heading back to 277 when its lease expires next April.
“Obviously when they first told us we were a bit disappointed because ironically they came to us from 277. They’ve been trading reasonably.
“But we’re really quite excited now. It’s amazing how many categories of tenant and individual tenants are out there wanting to be in Newmarket. Newmarket has received approaches from, and is in dialogue with, a number of major retailers who are keen to be on this key location on the Broadway strip.”
Leading edge of fashion a possibility
The two-storey Country Road store could be turned into four separate tenancies and Mr Keys said the arcade might be rejigged.”
In examining the mix of retailers, Mr Keys said one option was to aim for the leading edge, another idea is to go for a young persons market, or it could stay with the mainstream.
The expansion of 277 and the future threat of a 45,000mÂ² Westfield centre, both at the other end of the Broadway strip, could be daunting, but Mr Keys understands the first (small) stage of the 277 expansion and redevelopment is fully leased, while the second stage there and any Westfield development are 2-3 years away.
As well as the time factor, he said some retailers were considering a two-shop Newmarket.
Country Road’s lease was at market, with an upper constraint that took it slightly below market. “By cutting the space up, we might do better than that,” Mr Keys said.
Village Rialto Cinemas recently renewed its lease on the five cinemas. Above the Rialto complex, the Grant Thornton Centre (formerly the Westpac office tower, also known as On Broadway) is fully leased, with accountancy firm Grant Thornton also taking naming rights.
Four AA floors empty but tenants in sight
The AA Centre on the corner of Albert & Victoria Sts is the building the Newmarket trust ended up with after its merger with the National Property Trust was torpedoed. It has lost law firm Davenports from one level and Linz (the Government’s Land Information NZ) from three, but Mr Keys said market response had been good.
He said two corporates had the AA Centre on their shortlists, both for three floors, and there were other potential corporate tenants around. “Vacancy rates are dropping quite quickly. The Auckland Club tower vacated by Bell Gully was virtually 100% vacant 8-10 months ago, and it’s now 84% leased. We’re not having parties and dances about it, but the vacancy rate’s definitely on the improve.
“We seem to be competing with buildings like the Auckland Club, Shortland Centre I & II, AmTrust Pacific (ex-Price Waterhouse).”
With the Royal SunAlliance Centre and AMP’s PricewaterhouseCoopers Tower (under construction) as Auckland’s two premium buildings, and the ASB Centre and ANZ Centre as the city’s A grade offerings, Mr Keys said the AA Centre was probably B grade but was running close to the ASB Centre in lease terms.
For its vacant spaces, “we’re talking a face $230/mÂ² gross, which is about $170/mÂ² net, and we’re talking an effective rent quite a bit lower than that with incentives.”
The incentives picture is mixed — some tenants want a rent discount, others a fitout, others just want the effective rent. “The rents we’re pitching put us in a very competitive position — that’s the way the property’s valued, by CB Richard Ellis. Maybe that valuation is a bit lower or more realistic than others in the market.”
Bank reviewing its options
On the corporate question, Mr Keys said the Commonwealth Bank was reviewing its options. The Australian bank owns ASB Ltd, which in turn swallowed up Sovereign Insurance, which controls management of the Newmarket Property Trust.
On another control string, when Commonwealth took control of Colonial First State in Australia it also took control of the management of Colonial First State Property Trust in New Zealand.
Commonwealth has dome some shuffling of Colonial’s and its own business, with more likely, but the question of what it might do about its relatively small New Zealand listed property trusts has not been answered yet. Colonial and Newmarket could be forged into a good generalist portfolio with a combination of industrial, retail, and a spread of office stock from the suburbs to city fringe to central business district.