Stride Property Group has pulled out of plans for an initial public offering to float its office buildings off into a newly listed company and problems in China are being cited.
Problems at Chinese mega-developer Evergrande were today referred to by Philip Littlewood, Stride chief executive as why the Fabric Property float was canned.
"What's happened is the international property and capital markets have become very volatile. In relation to Evergrande, that's an incredibly significant company and there's a perceived contagion associated with that and the knock-on for other property companies in Australia.
"We don't need to do anything right now, so on balance, we've decided to defer the offer and review it again when the market conditions are stable. We're in no rush" Littlewood said.
Evergrande is heading for a corporate restructuring that could see investors lose tens of billions of dollars. Its debts amount to around $447 billion (US$315b). That is more than three times the entire debt load of the New Zealand Government and around two-thirds of all outstanding Australian federal debt.
But some who studied the IPO said today there wasn't the domestic appetite for investment in it by New Zealand businesses, given Covid and its effects on the office market sector. The pandemic created uncertainty which meant the timing was wrong.
Tim Storey, Stride chairman, announced the Fabric Property IPO withdrawal today.
"Stride Property and Stride Investment Management - together Stride Property Group or Stride - advises that, in light of recent market conditions, it has decided to withdraw the current demerger and initial public offering, together the IPO of Fabric Property, it announced.
"Stride remains committed to its strategy of growing its real estate investment management business and maintaining a core investment in the office sector. The agreement to acquire the property at 110 Carlton Gore Rd, Newmarket, Auckland, is conditional solely on the successful completion of the IPO prior to 31 March 2022. Stride will now assess the next steps for its office portfolio," it said.
Storey added: "Stride considers its office portfolio to be high quality with strong sustainability credentials, and it remains attractive within Stride or as a separate entity. We will continue to evaluate market conditions and assess the appropriate approach that is in the interests of both existing Stride shareholders and potential investors."
Asked if it was the right time for the float last week, Stride chief executive Philip Littlewood said yes. Now was the right time to list in spite of Covid and lockdowns, he said.
Despite the pandemic and its effects, the new company's portfolio was different from any other NZX business, he stressed. That's why the timing was good.
Stride had wanted to raise $250m in the initial public offering, floating off commercial buildings from its existing company into the new vehicle. Stride shareholders were to get one share in Fabric for every four they own in Stride.
"These buildings are high quality, with 77 per cent of the $931m portfolio being either prime or grade A, an average age across the whole portfolio of only 10.5 years and with a long weighted average lease term of 7.2 years, but most importantly the portfolio has one of highest sustainability ratings in the sector, with 68 per cent of the portfolio being rated as Green Assets," Littlewood said last week.
"The markets are highly supportive of Stride's new offering. That's the feedback we're getting," Littlewood said.
Asked last Monday how the market would receive the offer, Littlewood said: "We've been signalling this for some time. From the perspective of the offer, we think the portfolio is heading in a direction for the future with its high quality and strong green rating credentials."
Asked how Covid could affect such a deal, he said last week: "It did have an impact last year because there was a lot of uncertainty around people's jobs and whether businesses would survive. However, what we observed was that when the lockdowns finished, everyone got back to work. The economy was relatively resilient but also people wanted to get back into the office. That was our experience.
"There was a lot of sub-lease space very quickly taken up or withdrawn as businesses realised changes would not be as dramatic as initially thought. We've been doing leasing over this lockdown period because people are confident they'll come out the other side."