New Zealand's largest listed property business, with $3.1 billion of real estate, has a three-pronged strategy for success and half of Aucklanders renting plays a part in that.
Kiwi Property Group started its virtual annual meeting at 10.30am today where chief executive Clive Mackenzie explained to shareholders how the business was coping with the pandemic and what it would do to next.
Kiwi owns New Zealand's biggest mall, Sylvia Park, where in the past year it bought neighbouring land to accumulate a 12ha site flanked by the railway line. It also owns New Lynn's LynnMall, and Hamilton mall The Base, held jointly with Tainui Group Holdings.
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"To guide the organisation over the coming months we will focus on three key areas: firstly, we will stabilise the business in the wake of Covid-19 by embedding strict cost discipline, strengthening the balance sheet and ensuring the resilience of our tenant portfolio. Secondly, we will diversify our portfolio, by expanding our asset mix and creating mixed-use communities at our significant landholdings. Finally, we will grow the business through targeted development," Mackenzie said.
On the diversification front, Mackenzie said Kiwi would be "reducing pure retail as a proportion of our mix and investigating opportunities to increase our exposure to new asset classes such as build to rent apartments."
Kiwi has long held ambitions to investigate building hundreds of apartments around its Sylvia Park mall at Mt Wellington, giving it a rising perpetual income stream with what will be tenants for life living in its new properties.
It is yet to build one of those apartments and is still looking into it.
Mackenzie said of the city's tenancy scene: "More than half of Aucklanders are already renting and it's taking longer for people to save for a house deposit. Covid-19 is likely to compound these trends, reinforcing build-to-rent's attractiveness as an asset class in New Zealand."
High-rise apartments could rise in tall blocks on the edge of the mall site on flat asphalted land now used for parking.
Mark Ford, Kiwi chairman, said build to rent "is a concept that has not taken off in New Zealand" but was a significant global asset class. In the United States, built to rent or multi-family [property] was the second biggest asset class after commercial real estate, he said.
It was at an early phase in Australia, developed in the last 18 months to two years: "We expect New Zealand will follow. It's something we're very excited about."
Asked how apartment quality would be maintained, Mackenzie said: "Managing is the area where we can add a lot of value, will lead to tenants wanting to stay and re-sign their leases - if we decide to go ahead."
A Kiwi spokesman also said today the company had not yet decided to go ahead with build to rent and was still investigating it.
Mackenzie said in his address to the AGM today that New Zealand now faced the threat of a recession and the issues that will bring, he said.
On the balance sheet front, Kiwi had banking headroom. It had extended $361m of bank debt facilities in March and has no bank debt maturing until 2023, Mackenzie said. It had $291m in available undrawn credit, a gearing ratio of 32 per cent and that was within its target range.
Kiwi had given rent relief to many tenants and that was forecast to decrease funds from operations by about $20m, he said.
Ford said that in the 26 years since Kiwi was founded, it had witnessed significant changes including the global financial crisis and the Canterbury earthquakes.
He highlighted Covid-19, saying it had caused "unprecedented disruption. While New Zealand has made great strides dealing with the virus, the measures taken to stop its spread have had a pronounced economic impact".
"This isn't the first time the company has faced adversity and it is unlikely to be the last.
"As before, we will face this situation head-on. With many predicting that Covid-19 will accelerate the rate of change in the commercial property sector, the future will bring with it both challenges and opportunities. Kiwi Property will be ready for both, with an unwavering commitment to delivering for our shareholders and other stakeholders."