Supermarket Assets Rally A Full Range Of Investors

Two Countdown-tenanted supermarket properties offered to the market for tender earlier this month, have sold to an Auckland-based investor for more than $40 million.

The New Zealand subsidiary of publicly-listed Australian company Woolworths Limited put the two standalone fully-leased modern supermarkets in Orewa, north of Auckland, and Papakowhai in Wellington, up for sale when the country was at Alert Level 1.

Marketed by Peter Gorton and Ryan Johnson of Bayleys, the two properties were offered for sale together as a portfolio, or individually and multiple tenders were received for the properties from around the country and from a broad range of investor entities.

The two properties which have 6,875sqm gross lettable area were ultimately sold to a single high net worth investor at a blended result of $44,355,369.

With a net combined rental income of $2,209,188 across the two properties, the sale represented a 4.98 percent yield.

Ryan Johnson, Bayleys national director commercial, said the scale of the portfolio stirred up the investor market which, on the back of low bank returns and a proactive hunt for income-generating property, recognised the value that non-discretionary retail assets such as supermarket properties boast.

“If anything, the COVID-19 scenario served to increase the amount of interest we received for these properties,” said Johnson.

“In the best of times, supermarkets are a proven non-discretionary asset class so we knew the market would respond positively.

“But the way that supermarkets kept trading and paying rent throughout the COVID-19 lockdown underlined the role that supermarkets play as an essential service and ramped up the appeal of these investment opportunities to new levels.”

Woolworths New Zealand’s head of property Matthew Grainger, said that they were pleased with the result, and will re-invest the proceeds to fund the company’s considerable development plans.

“We have a significant property development pipeline over the coming years, and the result of this sale highlights that the market is keen to invest in supermarket properties.”

Johnson said investors of all profiles – from private individuals to syndications, listed entities and intergenerational family trusts – appear to be revising investment strategies to focus on defensive asset classes including supermarkets, healthcare and large format retail.

“Their search for income is taking them nationwide with Auckland investors in particular seeking opportunity elsewhere in the country as such assets become harder to find closer to home for them,” he said.

“That sentiment was certainly evident with the Woolworths New Zealand properties which have new initial 10-year leasebacks to Countdown, one of the country’s largest companies and employers, with rights of renewals to potentially extend Countdown’s occupation of each asset until 2080.”

“This longevity of tenure is paramount for investors and lenders, especially in the current lending environment.”

Peter Gorton, Bayleys’ associate director retail investments, said the Orewa property is located 200-metres from Orewa Beach and the 9,380sqm site has strong underlying land value.

“It has development-intensive zoning which permits future mixed-use residential development up to an 18-metre height limit, so this property has the dual advantages of a stable income stream for the foreseeable future and the irreplaceable land value of an almost one hectare beach-side site,” said Gorton.

Countdown Aotea, in Papakowhai, Porirua City, around 20 kilometres from Wellington’s CBD, is located in a catchment that has seen significant new residential development in recent years.

“This property is regarded as a trophy asset with its future growth and accessibility further underpinned by the Transmission Gully roading project which is expected to add more value to the broader location,” said Gorton.

Woolworths New Zealand has emerged strongly from the pandemic environment with increased staffing levels, an increasing number of stores, and resilient trading results.

It owns and operates more than 180 Countdown supermarkets in New Zealand and is the country’s largest private sector employer, with 18,500 employed in its store network, support offices, processing plants and distribution centres.