At least AU$24 billion in capital could be unlocked by some of Australia and New Zealand’s top listed companies across just 40 companies if they sold and leased back the real estate assets they occupy.
That’s one of the key findings from CBRE’s new Freeing Up Capital: Opportunities for Real Estate Corporate Owner-Occupiers report, which examines the land and buildings currently held on balance sheet across 40 ASX200/NZX50 listed companies in five sectors: Materials, Healthcare, Telecommunications, Transport and Industrial.
Real estate recycling is nothing new, with owner occupiers having raised circa AU$11 billion over the past five years from sale and leaseback deals.
CBRE’s report highlights a significant ongoing opportunity for listed corporates to consider these opportunities in a low interest rate environment to capitalise on buyer demand for commercial real estate assets offering strong tenancy covenants.
CBRE’s Pacific Head of Research Sameer Chopra, notes, “Freeing up property assets from corporate balance sheets is an attractive way for organisations to redeploy the capital tied up in a low-yielding property back into their business at higher rates of return. This AU$24 billion monetisation opportunity could also be understated, given the recent strong performance of the industrial property sector, where owner occupier transactions have been particularly prevalent.”
Chris O’Brien, Asia Pacific Executive Director of CBRE’s Capital Markets – Industrial & Logistics business, adds “Given current fundamentals and rental growth forecasts, industrial & logistics assets – regardless of lease tenure – are attractive for investors. There is also unprecedented demand for assets that are strategically positioned to be repurposed for the new economy.”
Utilities could also prove to be a fruitful sector for property divestment, although Mr Chopra said land and buildings in this sector were typically bundled in with power generation on corporate balance sheets, making it harder to analyse the true book value of property assets in this sector.
Concentrating just on the Materials, Healthcare, Telecommunications, Transport and Industrial sectors, CBRE’s report shows that the owner-occupiers in these five sectors average a 7% capex to sales ratio, while 60% have a return on equity in excess of 10% – highlighting the opportunity to reinvest capital into newer, higher returning opportunities such as capex investments, acquisitions, debt repayments or shareholder returns via a special dividend or share buy-back.
CBRE’s Asia Pacific Director, Corporate Capital Markets, Tom Fowke notes, “Corporate owner occupiers in industries such as Healthcare, Telecommunications, Manufacturing and other industries are achieving a higher return on equity and invested capital within their core business as opposed to having their capital tied up in real estate. We are seeing a trend of corporate occupiers strategically monetising their owned real estate and capitalising on the demand by listed and unlisted property funds for sale and leaseback opportunities. This is allowing occupier groups to raise capital and increase liquidity while not losing occupational control of their property assets.”
Analysing the AU$11 billion in owner occupier sales in the past five years shows that the most actively traded property type was retail (representing 23% of the transactions in Australia and New Zealand), followed by petrol stations (18%), communication assets (18%) and Food & Beverage properties (15%).
This has included sales by major retailers such as ALDI, Coles, David Jones, Myers, Wesfarmers (via the sale of Bunnings warehouses) and Woolworths.
Market Share of Owner Occupier Sales by Property Type
CBRE’s analysis shows that 25 owner occupier deals over AU$100 million each have unlocked AU$9.5 billion of capital since 2015. This includes BP’s 2019 AU$1.08 billion sale to Charter Hall of a 49% interest in 295 properties across Australia and New Zealand – the region’s largest owner-occupier portfolio sale on record.
However, most transactions have been smaller in size, with 77% of owner occupiers sales since 2015 being under AU$50 million.