Port Otago's property subsidiary Chalmers Properties has
increased its asset value from $83 million a decade ago, with
subsequent purchases and developments, to recently push
beyond $250 million for the first time. Senior business
reporter Simon Hartley talks to Chalmers Properties general
manager David Chafer about its widespread portfolio of
investments, and market conditions.
Port Otago's former Otago Harbour Board building in the
Steamer Basin is set for a $400,000 internal refit. Photo
by Peter McIntosh.
Dunedin ground lease rentals remain the ''backbone'' of
Chalmers Properties' widespread investment portfolio, with 177
city tenants, spread largely over industrial land parcels
bordering Dunedin's upper harbour.
While they provide the bread and butter for its portfolio,
Chalmers is undertaking several multimillion-dollar
developments in Dunedin, Auckland and Hamilton at present -
arguably one of its most active years during the past decade.
Last year Chalmers completed the purchase of a 2-year-old
North Shore Bunnings site from Bunnings for $27 million and
with a new 15-year lease, which propelled its asset base
beyond $250 million, to $252 million, for the first time.
Of the $252 million asset valuation, Dunedin accounts for
$127 million, Auckland $95 million - and growing - while
joint ventures in Hamilton stand at $30 million.
The importance of Port Otago and Chalmers Properties'
financial contribution to 100% owner, the Otago Regional
Council, was emphasised earlier this week when councillor
Michael Deaker said rates rises were kept in check by Port
Otago's annual dividend, totalling $126.8 million since 1990.
In outlining the ORC's 12-month work programme, ratepayers
had to be aware its one-third contribution was overshadowed
by interest and port dividends, and the latter should not
always be taken for granted.
Chalmers Properties general manager David Chafer said the
Dunedin ground lease property portfolio values accounted for
$123 million of the total $127 million Dunedin property
valuation and provided the ''backbone'' of Chalmers' income.
All Chalmers' rental income, for the year ending June 2013,
was $12.7 million, up on the previous year's $12.5 million.
While not wanting to separate out Chalmers' revenue and
profit from the combined group of Port Otago and its
operations and Chalmers, the property subsidiary often
provided the cornerstone to Port Otago's annual dividends to
the Otago Regional Council.
Given the vagaries of property cycles, Chalmers' annual
revaluations contribution could move by several million
dollars on any given year. Mr Chafer was circumspect about
making any forecasts on rental income in the near future, but
said changing trends in Auckland were creating more interest
and turning up opportunities.
''In Auckland, from the industrial sector, we expect to see
some [rental income] benefits over the next few years, with
lower market vacancy levels,'' he said.
That could also be in the form of extensions to existing
sites, land sales or redevelopment.
Chalmers' largest development in Dunedin is a $4 million
design-and-build investment in an office and warehousing
project in Sturdee St, where demolition is due to begin in
the coming weeks before a single-storey, concrete tilt-slab
building takes shape, with Calder Stewart construction the
The almost 7600sq m site will by the end of 2014 have almost
3200sq m of warehouse, office, canopy and yard. Later there
will also be three separate warehouse units for lease, at
600sq m each.
The build and lease-back project's main tenant is pallet and
container company Chep, which is a subsidiary of ASX-listed
Brambles, a supply chain logistics company, and is on a
10-year lease for the Sturdee St site.
Mr Chafer said the combined rental incomes from all the
Sturdee St spaces would be several hundred thousand dollars
Also coming into play in Dunedin in the months ahead will be
an up-to-$400,000 ground-floor refurbishment of the 1980s,
black glass, former harbour board offices, wharfside in
Dunedin's Steamer Basin.
''It covers the ground floor and common areas, freeing up
about 200sq m of space for lease,'' Mr Chafer said.
Chalmers' large footprint of ground leases in Dunedin has
been criticised in the past by those wanting to buy ground
leases and have entirely freehold properties.
Mr Chafer maintained Chalmers had a duty to provide
shareholders with best-value property deals, but would always
consider freeholding land as and when it arose with any
''We have sold off some [ground lease land] over the years,
but we need to be able to sell at the full market value,'' Mr
''If [our] land ownership did get in the way of other
developments, we look to assist,'' he said.
In combined Dunedin and Auckland holdings, industrial
properties accounted for 79% of space, bulk retail 19% and
offices 2%, while the occupancy rate for combined Auckland
and Dunedin was 97.5%, he said.
Aside from the $27 million Bunnings deal, vacancy rates in
Auckland were coming down and interest had been heightened on
the existing stock, Mr Chafer said.
''Suddenly there's a lot of confidence in the sector from
those looking to expand,'' he said of the relative buoyancy
in the Auckland market.
He noted a recent Chalmers' North Shore sale, of a property
valued at $5.3 million, that was sold on vacant possession
for $5.8 million.
Other recent, separate deals around Auckland included a Wiri
container yard, signed up for 12 years at $705,000 per annum,
a bulk retailer for 12 years at $268,000pa, a food supplier
at 5 years and $98,000pa and a North Shore property, leased
for three years, at $201,000pa.
Expansion at a Manukau property is Chalmers' priority at
present, where it has nine existing bulk-retail tenants. It
wants to expand the footprint by 1500sq m for five new
tenants - at a build cost of $3 million - which will expand
the total space to 7500sq m.
Mr Chafer said the project would be more profitable by using
existing land from car- parking for the expansion.
''Any developments we do are at the lower end of the risk
scale. We're typically looking for pre-commitment from
tenants,'' he said.
Even Chalmers going ''unconditional'' on a deal, be it
expansion or a build and lease-back scenario, was always
subject to obtaining building and resource consents, he said.
An industrial property in Avondale is also under
redevelopment, with a $600,000 warehouse extension under way
and the tenant signed up to a six-year lease, Mr Chafer said.
In Hamilton the sole investment is an industrial park on the
northern outskirts, which was fortunate as recently SH1 was
realigned past its boundaries.
The 100ha site is held in two separate joint ventures (JV),
which were orchestrated by Mr Chafer's predecessor, Andrew
Each JV covers 50ha, the first being Chalmers 50:50 with the
Auckland-based Hounsell Group, the second JV having a 33%
share each; Chalmers alongside the Hamilton-based Porter
Group and Hounsell.
Mr Chafer said Hamilton was now in a ''marketing phase'',
having put in the infrastructure, roading and drainage on the
''stage one'' 22ha site, with three sales concluded and title
releases under way.
In one of the joint ventures, Chalmers is in a conditional
agreement for a land sale and will take a 50% share of the
$18 million sale price of the 14ha property.
Mr Chafer said Chalmers was ''keeping an eye on
developments'' in Christchurch, given the overall $40 billion
being spent in the Canterbury rebuild.
While often dealing with subsidiary companies, Mr Chafer said
several tenants were backed by much larger entities,
including building supply giant Bunnings.
Chep's owner is ASX-listed Brambles, a more than $A5 billion
($NZ5.31 billion) revenue company with a sharemarket
capitalisation of more than $A15 billion ($NZ15.9 billion),
while another new Auckland tenant is a subsidiary of
NZX-listed Horizon Energy Bunnings.
''We like it when cash flows [Chalmers' rental income] are
secured by such strong entities, which gives us comfort in
undertaking the developments in the first place,'' Mr Chafer
''Based on quality properties and strong cash flows, they
underpin our ability [of the overall wider port group] to
obtain quality lending,'' Mr Chafer said on obtaining
competitive interest rates.
While the group revenue of both port and property operations
was $117 million last financial year, based on assets
totalling $470 million, Mr Chafer said Chalmers' latest
contribution had to be left to be revealed in the pending
half-year report being presented to the ORC on April 16.
• 100% subsidiary Port Otago.
• Rental income: Year ending June 2012, $12.5 million. Year
ending June 2013, $12.7 million. Year to June 2013,
before-tax profit up 2% to $9.8 million.
• Combined Dunedin and Auckland holdings - industrial
properties 79%, bulk retail 19%, offices, 2%. Occupancy
Auckland and Dunedin 97.5%.
• Asset value: 2012 - $201 million, 2013 - $226 million, 2014
(at half year) - $252 million.
• Current $252 million asset valuation: Dunedin $127 million,
Auckland $95 million, joint ventures in Hamilton, $30
177 ground lease tenants. Investment buildings include former
Otago Harbour Board building, new $4 million Sturdee St
Tenants include: Bunnings $27 million store purchase and new
lease. Wiri container yard, bulk retailer, food supplier,
North Shore property, $3 million expansion at Manukau
property for five new tenants. Recent property sale for $5.8
million, $500,000 above valuation.
100ha industrial site, stage 1 is 22ha, infrastructure
completed; first sales of industrial lots under way. 50%
share in pending sale of 14ha, $18 million, site.
In two joint ventures: 50:50 - Chalmers and Auckland-based
Hounsell Group. 33% shares each: Chalmers, Hamilton-based
Porter Group and Hounsell.