Archive for September, 2010

Rent Reviews & Lease Renewals

A forthcoming rent review or lease renewal is an important time for both property owners and occupiers.

Below are some relevant points for you to consider.

  • Ensure that you have diarized exactly when the next rent review or lease renewal is due.
  • Review the existing lease to understand the timetable and process involved, at least two months prior to the relevant date.
  • Collate information on fit out levels at the commencement of the lease.
  • Understand the appropriate rental levels applicable to your property from market evidence.
  • Ensure compliance with the relevant timetable in the lease.
  • Engage a professional to advise you on the process.

A Registered Valuer will be able to give the appropriate advice on reviewing the lease documentation prior to review or renewal, present options of different strategies for dealing with the process, advise on rental levels, present a market overview, undertake negotiations on behalf of one of the parties and advise throughout the whole process.

This is an important time in either your business operation, or the ownership of the property and it is crucial that you receive the correct professional advice to maximize the benefit of your situation. Accepting the wrong rental level, costs you real money.

Morice are extremely experienced in the process of rent reviews and lease renewals; it is after all our business. Please contact us for a meeting to discuss this aspect or any of your property requirements.

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September 22, 2010 at 3:45 pm

Sale & Lease Back of Property

Raising finance by selling operational property during periods when borrowing is difficult can provide cash for expansion, takeover or additional working capital.

For most companies real estate is considered supportive but ancillary to the core business. Provided that the lease is drafted to provide appropriate control over the property most companies could lease rather than own the land and buildings used in their business.
A sale and leaseback usually takes the form of a sale of a freehold property to an investor, with the vendor taking an occupational lease in return for a capital payment.
However, occupiers should understand the strategic, financial and operational implications of what they are doing. Matters that are important to consider are timing, lease flexibility, accounting and tax issues, affordability and the financial cost involved.

Timing – is it right for the business and the commercial & industrial property cycle.

Strategy – Does it fit with the operational strategy and what is the planned investment route for the proceeds?

Affordability – can the business afford the ongoing rental stream and other costs under the proposed lease?

Accounting & Tax issues – not owning a property eliminates depreciation, and any gain from a sale is recognized as income and this may increase overall earnings to a company. Often a rent expense can be lower than the cost of amortizing mortgage debt and lease payments can be structured to achieve cash management goals.

Lease flexibility – leases should include a sufficient initial term as well as renewal options to insure the property will continue to be available for a company’s use. The form of lease used allows the company’s control, security and flexibility concerns to be satisfied.

From an investors viewpoint they are likely to view sale & leasebacks as a relatively safe investment option. This view will depend on the building quality and the tenant’s financial standing.

A registered valuer provides market rental and capital yield parameters advice which is invaluable in this process. It is important that an appropriate rental level is chosen so that a balance is achieved between the vendor and purchasers aspirations.

Morice is experienced in advising in this type of transaction. A recent example was a sale and leaseback opportunity in Takapau Road Waipukurau. Morice provided valuation advice on market rental levels and an appropriate capitalization yield to PGG Wrightson.

A sale and leaseback was agreed on a 9 year lease with rights of renewal at $132,506 pa with CPI rental growth increases at rent review. The property sold at auction in September 2009 for $1.7m reflecting an initial yield of 7.79%.

To discuss any of the above issues or to see whether a sale & leaseback transaction is suitable for your business or investment portfolio then call Simon or Brian at Morice on 06 835 3682 for a no obligation chat.

September 22, 2010 at 3:39 pm

PCNZ/IPD New Zealand Property Index

Results for the year to 30 June 2010 announced a total return of 3.6%.  This result continues the positive momentum of previous quarters’ returns. www.ipd.com

September 9, 2010 at 4:45 pm

Prime Rents and Yields Summary June 2010:

Hastings & Napier Prime Rents & Yields Summary is now available.  This 6-monthly “where it is at now” analysis provides a summary of the local commercial market across the retail, office and industrial sectors; the data is also related to other investment vehicles, and property markets in both New Zealand and worldwide.  A condensed summary shows marginally weaker yields in the 6 months to June 2010 with the office sector worst, rental growth has declined slightly with the office sector again the worst. 

The full report is available on our website http://www.morice.co.nz

September 6, 2010 at 3:29 pm


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