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NZ Investment nest egg in Tegel portfolio

Property Here - Saturday, March 09, 2013

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National poultry producer Tegel has put eight large industrial properties generating net annual rental income of more than $9.58 million on the market for sale and leaseback.

The freehold sites, comprising feed mills, hatcheries and processing plants in the Auckland, Taranaki and Canterbury regions, are for sale through Colliers International by deadline private treaty closing on Thursday, April 11.

The properties are offered to investors individually or together as a complete portfolio on new 20-year triple net leases, with rights of renewal giving Tegel the option to extend the terms for up to a further 60 years.

Tegel chief executive Andrew Stevens says the company and its owner, Affinity Equity Partners, elected to sell the freehold interest in the properties to release capital for investment in higher-returning areas of the business, especially export operations.

"The growth prospects for our export business are excellent and as such we are investing in state-of-the-art plant and equipment to enable us to grow exports significantly," Stevens says.

"It makes sense to release capital tied up in land and buildings and reinvest it in an area which we have identified as having tremendous future potential for our business."

Charles Cooper, Auckland managing director at Colliers International, is marketing the property portfolio for sale with Peter Herdson, Jason Seymour and other colleagues nationwide.

Cooper says the properties present an excellent opportunity to acquire substantial industrial property assets occupied by a household brand with a 50-year heritage, on excellent lease terms.

"The properties are offered to the market with new, long-term leases. This provides income security for investors and, furthermore, the properties offer locked-in rental growth and regular market rent reviews - making them ideal passive investment holdings," says Cooper.

The properties are largely maintenance-free from an owner's perspective, with Tegel retaining responsibility for all repairs and maintenance to the buildings, he says.

Structured compound rental growth of 2 per cent a year, reviewed annually, is incorporated into the lease terms, along with a consumer price index-linked rent review at year 10 and a market review at year 20 and on lease renewal dates.

Seymour says the properties, some of which have been part of Tegel's production infrastructure for 40 years, are strategically located near farming and population hubs. The eight properties are:

•The Tegel feed mill at 1-29 Westbrook Ave, Takanini, South Auckland, located on a 1.96ha site, generates $472,093 in annual net rent.

•In nearby Drury, the hatchery at 95 Tegel Rd of nearly 3.5ha in land area, with the net rental at $282,669.

•The third Auckland property for sale is the processing plant at 3-5 Bruce McLaren Drive, Henderson, on a large 7.73ha site, generating $3.03 million in annual net rent.

•In New Plymouth, the feed mill, on a 1.08ha site at 39-47 Paraite Rd. Net annual rental income from the property is $185,263.

•Up the road at 91-95 Paraite Rd, a large processing plant on a 9.41ha site, generating nearly $1.949 million in annual rent.

•The Taranaki hatchery at 464 Richmond Rd, on a 4ha site, with annual rental income of $326,051.

•The largest property in Tegel's Canterbury operations, the 4.28ha processing plant at 112 Carmen Rd, Hornby, which generates over $2.9 million in annual rental.

•The Tegel feed mill on a 1.7ha site on the corner of Shands Rd and the Sir James Wattie Drive property, generating annual rental income of $346,679.

"These properties make up three separate fully integrated supply chains, one for each key region," says Seymour.

"They are highly strategic sites and the company has committed to them for at least the next 20 years."

Herdson says Tegel is the largest producer of poultry in New Zealand, supplying over half of all poultry consumed in the country.

Founded in the 1960s, the company employs around 2000 staff and processes over 40 million birds annually in its three regional hubs: Auckland, Taranaki and Christchurch.

Tegel has a broad, diversified customer base in New Zealand and Australia, supplying well-known customers including Subway, KFC, McDonald's, The Mad Butcher, McCain, Wattie's and all major supermarket brands. The company has forecast revenue of circa $500 million for the current financial year.

"A business such as this makes the ideal commercial tenant: well-established, large and with firm plans for future growth," says Herdson.

"With Tegel's market-leading New Zealand position very well established, with over 50 per cent market share, the company is now investing in export growth to provide further added value and safeguard its future. This property portfolio therefore makes a very attractive long-term, passive, income-generating investment."

The company is in a strong position in an industry which has high barriers to entry, Seymour says.

"Poultry is one of the largest product lines in supermarkets and Tegel is the fifth largest supplier by value to supermarkets across all product categories."

Seymour says the company has built a highly co-ordinated, "integrated" business structure which incorporates all aspects of the poultry supply chain from agriculture to processing and manufacturing to sales and distribution. This eliminates the risk of relying on other parties for supply, he says.

Cooper says Colliers expects to receive offers for individual properties as well as for the entire portfolio from high net worth investors, property investment syndicates and corporate and institutional buyers. "Taken together or individually, the properties offer straightforward investments in a well-known consumer sector.

"There is something here for a range of buyers and we also expect to receive interest from offshore investors looking for long-term income and capital growth opportunities."

Stevens says Tegel is ideally placed to capture significant value from exporting.

"New Zealand is the only country in the world to be chicken disease-free. This makes our product very attractive to Asian markets, where customers are willing to pay a premium for it," he says.

"We are also the only country permitted to export poultry to Australia that has not been cooked at extremely high temperatures."

This disease-free status also provides a significant competitive advantage internationally, as it greatly improves productivity in the supply chain, Stevens says.

Tegel's owner since May 2011, Affinity Equity Partners, shares its vision for export growth and has invested over $20 million in new, high-tech plant and equipment for the Henderson processing plant alone, he says.

"Affinity is committed to growing the business to transform Tegel from a largely domestic supplier of poultry products to an Asia-Pacific supplier of a wide range of value-added processed meats."

Exports have grown from just 3 per cent of Tegel's revenue to 15 per cent over the past three years and are forecast to grow to 25 per cent in the next two years.

Over the past two years, the business has also invested a further $35 million in plant and equipment, Stevens says.

"Tegel is also committed to continuing its operations in New Zealand, with it being impossible to ship the processing facilities offshore.

"Property investors should definitely take comfort in the interdependence of these sites in Tegel's supply chain in terms of long-term commitment to these sites."