Newmark Property REIT (ASX:NPR) discusses FY23 results

Chris Langford, Managing Director of Newmark Property REIT (ASX:NPR), discusses FY23 results and acquisitions.

Peter Milios: We are talking today with Newmark Capital. Established in 2011, Newmark is a property funds management group which places a strong emphasis on real estate fundamentals. We welcome back to the network Chris Langford. Chris, thanks for your time.

Chris Langford: Thank you, and good morning.

Peter Milios: So, Chris, can you give us an overview of Newmark Capital, which includes Newmark Property REIT and unlisted property funds?

Chris Langford: Sure. Newmark Capital has six unlisted single asset trusts as well as Newmark Property REIT, which is A-REIT listed on the ASX with a number of Bunnings and large format assets in it. And right now, NPR as it's known, the tagline, has just completed the acquisition of a property in Preston, a large Bunnings store there with about 18-19,000 metres of lettable area. It's trading really well. And the underlying properties are performing very strongly, but obviously we've had some headwinds with interest rate rises and instability in the listed markets.

Peter Milios: Shifting to the Newmark Property REIT, why have you expanded into the large format retail space?

Chris Langford: Well, those assets, that trust, and a number of other properties that we've owned for some time, were in the unlisted format, unlisted structure for some time, and we acquired our first properties in that trust back in 2014. And we have other assets in the unlisted trust that also have elements of that large format retailer. So we're big believers in that sector. We've been active in that sector obviously for that 9-, 10-year timeframe. We have some very good relationships with the tenants, and we understand the markets along the East Coast that we invest in. We understand them really well and we're seeing some extraordinary growth and really strong performance in those markets. So we are big believers in the sector, with further population growth and a strong economy. And in those particular local markets, we think there's a really long way to go.

Peter Milios: NPR recently reported its fiscal year 2023 results. Can you please provide a summary of the results for the year?

Chris Langford: The NPR results for the FY23 year was strong. We met our distribution guidance. We had like-for-like income growth of 3.4%. We extended the hedging profile, increased the amount of hedging and extended the duration for our debt coverage. And the assets have continued to perform really strongly. Since reporting date, we have also seen the acquisition of the Preston property that I referred to earlier. So it's been a very strong year and the outlook's very good.

Peter Milios: So you mentioned Preston, but you also settled another property, Underwood, in fiscal year 2023. How is Preston trading and how is Underwood performing in the current cost of living environment?

Chris Langford: Well, we don't get the sales forecast, but we get the anecdotal feedback from the business and their store managers. We know that the Bunnings Preston opening back in late June was a very, very strong result. We know that the press coverage and the feedback that's had from locals has been exceptionally good, and Bunnings are very, very pleased with the initial sales for the first month or two. And with Underwood, there was an issue with Underwood where the Officeworks store had a fire and the store had to be closed and demolished. That's now being rebuilt. So there are some issues there just delaying the completion of that acquisition. That will happen in October. But meanwhile, the balance of the property is trading and has been obviously purchased, and it's trading very strongly.

We have a number of retailer inquiries about wanting to get into our property, into our centre. We don't have any more available space. It's fully leased. And the growth in that South Brisbane, Southeast growth corridor is exceptionally strong. There's a lot of business, there's a lot of small medium enterprise there. There's a lot of population. And as a result, we're seeing really good demand from retailers to get a presence in that locale. And because we've got this fantastic landholding on the corner of two major arterial roads, very high profile, highly trafficked, it's prime real estate in a very strong growth area. So cost of living issue is obviously a very key consideration, but we think that this sector has very strong natural hedges against inflation.

Peter Milios: With regard to Underwood, is it your only asset that is not leased to Bunnings? Is it part of a strategy to move away from Bunnings and increase exposure to large format retail?

Chris Langford: No, no, we're not moving away from Bunnings. We've always said there'd be this balance between the standalone Bunnings and other major retailers in that sector. Obviously with Officeworks, with Total Tools, with JB Hi-Fi, with Supercheap Auto, there are so many other great retailers in that sector, and a number of those are in Underwood. And we think that being right next door to Bunnings and having access to this fantastic growing population with some very strong retailers, there will be the opportunity to improve the mix and extend the lease profile at Underwood over time.

Peter Milios: Your targeted gearing is 30-40%. The settlement of your two new properties will push gearing up to 45%. How are you progressing with asset sales to lower this number moving forward?

Chris Langford: Yeah, we've had the Chadstone Homemaker Centre on the market for a period the last few months. We've had very strong engagement and we've got quite advanced negotiations with a particular group on that, and we're very comfortable with the way that's progressing. We've also had, as a result of that campaign and also our results announcement earlier this year, we've had some approaches on other assets, which is also encouraging. And they're all very indicative of the NTA pricing range, that it makes us very comfortable that we'll end up with a good result there in the next month or two.

Peter Milios: And lastly, Chris, what are the other key challenges, opportunities, and priorities facing NPR?

Chris Langford: Look, I mean, we think the underlying assets in the NTA of $1.85 is, how do we get that message out there? We've got a very, very good loyal following on the register. We've got a lot of long-term investors who've been invested in this trust for a long time, and we have some institutions who have been very supportive and very big believers of the fundamentals of the really high-quality assets in it. So it's a case of balancing that long-term view and that conviction with obviously trying to get the message out there in the shorter-term and dealing with the market in a more immediate timeframe. We want to see that security price improve, but there are some structural challenges with the REIT sector at the moment, and particularly being a small cap REIT, we get punished for low liquidity.

But underneath it all, as I said, the quality of the assets is terrific. And whilst we're frustrated that a small number of investors are choosing to sell out at well below NTA pricing, we need to get that message out there that they need to be more disciplined and be more patient. Property at the moment is a patience game. And with the quality of these assets, we believe it will pay dividends to wait.

Peter Milios: Chris, thank you for your time.

Chris Langford: Thank you very much.