Now is the right time to list a new $931 million commercial landlord owning Auckland and Wellington office buildings in spite of Covid and lockdowns, a real estate chief says.
Philip Littlewood, chief executive of Stride Property Group which plans to list the new 10-building owning landlord Fabric Property, said despite the pandemic and its effects, the new company's portfolio was different from any other NZX business.
Stride wants to raise $250 million in the initial public offering, floating off commercial buildings from its existing company into the new vehicle. Stride shareholders will 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," he said.
"The markets are highly supportive of Stride's new offering. That's the feedback we're getting," Littlewood said.
Asked 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: "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"There was a lot of sub-lease space very quickly taken up or withdrawn as businesses realised changes would not be as dramatic as initially thought.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."
He explained how Stride got to this point. The story goes back around six years ago when we first looked to establish a new strategy for what was then DNZ, the name Stride was known as previously, he said.
"Around 2015, we rebranded the business from DNZ to Stride Property Group and set our new strategy to build an entirely new funds management business."
The company then had $896m of assets and today has assets valued at around $3.6b based on committed acquisitions and developments, he said.
It has grown more than 400 per cent in the last seven years.
"One of the things we decided to do was to build sector-specific funds management business.
"There are four core commercial sectors: office, industrial and retail but we saw the latter being split into shopping centres and large-format retail. We saw those two as quite different.
"That was an opportunity for Stride to provide a different offer to what had been either diversified investment vehicles listed on the NZX or a selected few sector-specific vehicles like Precinct Properties who I used to work for 20 years ago.
Large-format retail was established from Stride in the form of Investore, launched in July 2016.
"That company grew from owning assets valued at $640m at its IPO to more than $1b today, he said.
In 2019, Stride agreed to establish a wholesale fund in partnership with JP Morgan Asset Management, specialising in the industrial sector and launched Industre. That business is not traded on the NZX separately.
The fund was established in 2020.
Industre had properties valued at about $300m when it was established last year but it was on track to own properties worth $693m later this year, Littlewood said.
"Since then, Stride has been focused on building a portfolio of office properties in preparation for the establishment of its next sector-specific fund and that is Fabric Property," he said.
The PDS showed the Deloitte Building in Wellington will be Fabric's most valuable, worth $230m, followed closely by the new Mansons TCLM-developed block on Newmarket's Carlton Gore Rd.
Fabric's Auckland portfolio is to be:
• The under-development Mansons' office building at 110 Carlton Gore Rd being bought for $217.5m in 2023;
• The $152m building at 46 Sale St;
• $63.7m office block at 34 Shortland St;
• $27.3m block at 21-25 Teed St;
• $22.5m block at 80 Grays Ave;
• $24.3m block at 35 Teed St;
• 7-9 Fanshawe St valued at $11.1m.
The Wellington portfolio is to be:
• 22 The Terrace, valued at $32.4m;
• 20 Customhouse Quay valued at $230m;
• 1 Gray St, valued at $65.1m.
All properties are fee simple, freehold titles except 7-9 Fanshawe St, on a ground lease and 34 Shortland St, a unit titled property.
Fabric owns units on 13 of the 17 levels of the Shortland St building. It controls key decisions of the body corporate for this property through its 85.9 per cent ownership interest, the PDS said.
Stride said it expects Fabric to begin trading from October 6.