Empty Masters store makes money for investors
APN Property Group has found a novel way to attract investor interest in an empty Masters store in Nowra, New South Wales.
But what’s the appeal of a disused barn-like building in regional NSW, investors may well ask?
The fund manager’s new unlisted Nowra Property Fund, aimed at wealthy, sophisticated investors, will exploit a rare leasing commodity – a 13-year, CPI-indexed lease agreement that comes with a 100 per cent rental guarantee from blue-chip supermarket behemoth Woolworths.
Under Woolworths’ guarantee, the 13,000 sq m store will earn income whether it is occupied or not.
The deal is a legacy of Woolworths’ disastrous joint venture into hardware that ended with a $2.6 billion loss and saw it offload a clutch of Masters properties to Home Consortium, a group backed by ex-merchant banker David Di Pilla, Spotlight and Anaconda rich listers Zac Fried and Morry Fraid, and Chemist Warehouse duo Mario Verrocchi and Jack Gance.
Home Consortium scooped up 40 defunct Masters freeholds, 21 development sites and control of 21 leasehold sites, some of which Woolworths had backed as guarantor.
Melbourne-based APN said the Nowra fund was forecast to return monthly cash distributions of around 7.8 per cent and, because the building was near new, would provide a high tax-deferred distribution.
“We’re the first to admit it's not the most glamorous piece of real estate. It’s ugly but effective,” APN chief executive Tim Slattery said.
The fund manager purchased the Masters store in 2015 along with Nowra’s Shell Coles Express service station and the town’s Hungry Jacks, both of which it subsequently sold.
The Masters shed sits on APN’s balance sheet but will be tipped into the five-year fund for $22.8 million at a $1.4 million discount to its book value, a premium APN hopes to recoup with a higher success fee at the fund’s close.
In a note on risks, the fund’s investment overview says: “There is currently no tenant actually trading out of the property – if this remains the case over the five-year fund term, the property’s market value may decrease.”
On the flip side, Home Consortium, which controls the lease, may find a new tenant on better-than-expected rents.
Soon after the terms of Woolworths’ deal with Home Consortium became public in 2016, some disgruntled leaseholders threatened legal action, accusing the consortium of failing to honour Woolworths' guarantee.
Home Consortium settled the dispute privately and has since repositioned multiple former Masters stores into homemaker centres, effectively turning them into internally focused big-box malls.
The consortium, which is considering listing on the ASX, has also sold, or attempted to sell, multiple sites that did not fit its homemaker profile.
It offloaded one former Masters store in Taree in NSW to the local Mid-Coast council for $7 million. The authority intends to consolidate its offices on the site, spending an estimated $27,114,756 including the property's cost.
Another mooted sale of the Ipswich store on Brisbane’s outskirts is being held up by the local council which is chasing $400,000 in overdue rates and fees.
Both the Taree and Ipswich stores were among eight properties Home Consortium put on the market last year. It successfully sold four and withdrew two, one in Cairns and the other in Roxborough Park in Victoria, from the market.
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