Bunnings-anchored Newmark fund hit by asset writedowns
Newmark’s new Bunnings Preston has lost 10pc of its value in six months. Photo:

Bunnings-anchored Newmark fund hit by asset writedowns

Fund manager Newmark Capital cut the value of its brand-new flagship Bunnings store in suburban Melbourne by 10 per cent, flagged further asset sales and cut its distribution by 16 per cent as higher interest rates hurt the performance of the ASX-listed large-format trust.

A day after settling the acquisition of the 18,600 square metre, two-level store in Preston, valuations released as part of the Newmark Property REIT’s full-year results show the property is now valued at $84 million (as of June 30), down from the $93 million the then-unfinished property was valued at in December – a fall of 9.6 per cent.

Newmark’s new Bunnings Preston has lost 10pc of its value in six months.
Newmark’s new Bunnings Preston has lost 10pc of its value in six months.

Newmark fund manager Ed Cruickshank told The Australian Financial Review the $93 million “as complete” December valuation for the Preston Bunnings had “never been recognised on the REIT’s balance sheet”.

“We settled yesterday having entered into a contract to purchase it for $85.3 million two-and-a-half years ago. A fall of $1.3 million is a decline of less than 1 per cent,” Mr Cruickshank said,

Seven of the trust’s nine properties suffered writedowns following a combination of independent and inhouse valuations, including its Eastgardens Bunnings in Sydney, whose value fell 7 per cent between December and June, and Bunnings Lake Haven on the NSW Central Coast, which dropped 9 per cent of its value.

Only one property’s value went up – a Bunnings in Launceston, which gained 4.1 per cent to $68 million.

In total, the REIT, which derives 73 per cent of its rental income from leases to Wesfarmers-owned Bunnings, Kmart and Officeworks, wrote down the value of its property portfolio by 4.2 per cent or $26 million over the six months to June to $595 million.

On a net basis, the decline was 3 per cent or $16.9 million over the full financial year, contributing to a net fair value loss of $21.9 million on investment properties and generating a statutory loss for the trust of $8.9 million.

  • Related: Rich Lister landlord’s secret to 95pc office occupancy
  • Related: Prominent Melbourne CBD corner set to get Tiffany-style glass retail building
  • Related: These deal makers have a five-point plan to fix Lendlease

This compared with a fair value gain of $41 million in the prior year and statutory profit of $51.8 million.

Operating earnings, which were supported by like-for-like rental income growth of 3.4 per cent, rose 5.5 per cent or $700,000 to $14 million.

Driving down asset values (and lower future earnings) were higher interest rates – the trust’s finance costs nearly doubled to $8.2 million over the past financial year – and an expansion in capitalisation rates across its portfolio by 37 basis points to 5.11 per cent.

The value of the fund’s portfolio is set to fall further (and future earnings could also take a hit) over the coming months should Newmark find a buyer for its Chadstone Homemaker Centre, which has a book value of $82 million.

On Wednesday, Mr Cruickshank flagged the potential sale of a second asset and said the trust’s buyback of its heavily discounted securities had been put on hold until it “executed asset recycling [initiatives].”

The writedowns over the second half of fiscal 2023 matched those reported last week by the country’s largest Bunnings landlord, ASX-listed BWP Trust, which, as the first REIT to report its results this earnings season, heralded the theme of asset writedowns across the listed commercial property sector.

On Tuesday, the Charter Hall Long WALE REIT revealed a $362.7 million valuation writedown against its $6.8 billion diversified portfolio, while the Dexus Industria REIT absorbed a $56.3 million valuation loss against its logistics portfolio.

In the case of large-format retail properties, landlords such as Newmark and BWP have been shielded from sharper valuation falls expected for the office sector because of stronger rental growth and the sought-after status of anchor tenants such as Bunnings.

However, as shown by the 10 per cent fall in value of the Preston Bunnings, a flagship store offering DIY enthusiasts a taste of “hardware heaven”, all commercial property landlords are facing a reckoning from higher funding costs.