Enhancing Value in Industrial Property through Recapitalisation and Lease Restructuring

 

Introduction

This case study explores an example of the recapitalisation and lease restructuring strategy implemented by Mates Invest. Mates Invest have a strategy to maximise returns and create long-term value for its investors by identifying underperforming industrial properties, recapitalising them upon settlement, and strategically restructuring leases to optimise rental income and property performance over the investment term.

 

Objective

The management objective of Mates Invest was to enhance the value of its property portfolio by:

1. Identifying and acquiring underperforming industrial properties at fair prices
2. Recapitalising the properties upon settlement to improve their condition and rental potential.
3. Restructuring leases to maximise rental income, increase WALT and occupancy rates.
4. Utilising a long-term investment approach to create sustainable value and deliver attractive returns to investors.

 

Strategy

Property Selection and Acquisition

Mates Invest’s experienced team of property analysts, market researchers, and investment managers conduct comprehensive research to identify potential target properties. We focus on large format and industrial properties with the following characteristics:

• Strong locations: Properties situated in well-connected zones with easy access to major transportation routes and population centres.
• Upside potential: Properties with potential for value appreciation through revitalisation, refurbishment, or lease restructuring.
• Asset Class: Focusing on manufacturing, distribution, supply chain and large format investment assets providing income security long term in industries that support the local economy.

 

Recapitalisation upon Settlement

Through the Due Diligence process (prior to settlement), Mates Invest put together a recapitalisation plan.  This involves projecting additional capital requirements to fund renovations, property enhancements, and strategic improvements aiming to.

• Upgrade facilities: Renovate and modernise the buildings & siteworks, e.g. adding concrete yard areas or canopy to meet the needs of quality tenants and in turn increasing rental profiles and attracting new businesses.
• Improve infrastructure: Enhance the overall infrastructure, such as parking facilities, security systems, and energy-efficient solutions to add value to the asset.

NOTE: Recapitalisation expenditure is depreciable, so not only does it add value to the asset immediately, but it is also depreciated on our cash flows to provide better outcomes for investors.

 

Lease Restructuring

Mates Invest recognise the importance of lease optimisation to drive rental income and boost occupancy rates. We adopt a proactive approach to lease restructuring, which includes:

• Tenant evaluation: Assessing the existing tenant base and identifying opportunities to improve existing leases or attract alternative high-quality, long-term tenants with strong financial standings.
• Tenant retention: Establishing good landlord-tenant relationships, working with tenants to provide space and infrastructure to meet their changing needs and addressing tenant concerns promptly to reduce turnover rates.
• Increase rental rates: Setting rental rates to market level, based on higher quality of improvements as recapitalisation/refurbishment.

 

Long-term Investment Strategy

Mates Invest are committed to a long-term investment approach to capture the full value potential of properties under management. Instead of a short-term “fix-and-flip” strategy, we are focused on cultivating sustainable growth by:

• Regular property reviews: Continuously assessing the performance of each property and identifying areas for improvement.
• Portfolio diversification: Expanding the portfolio to include a mix of properties across different locations and sectors.
• Staying updated with market trends: Monitoring market dynamics, macroeconomic factors, and shifts in tenant preferences to adapt their strategy accordingly.

 

Success

Mates Invest’s approach to enhancing the value of industrial properties is underpinned by our metrics of success, being

• Increased property value: Recapitalisation and strategic improvements resulting in appreciation of property values over time.
• Enhanced rental income: Lease restructuring leading to higher rental rates and improved tenant retention, increasing cash flow and overall profitability.
• Strong occupancy rates: The fund’s focus on tenant satisfaction and retention contributes to consistently high occupancy rates across the portfolio.
• Attractive investor returns: The fund delivers competitive and stable returns to its investors, establishing itself as a preferred commercial property investment vehicle.

 

Conclusion

Through diligent property selection, recapitalisation upon settlement, and strategic lease restructuring, Mates Invest is committed to proactive management and a long-term vision of a better built environment.  By continuously adapting their strategy to market conditions and tenant demands, the fund will position itself as a successful and reliable investment vehicle, providing attractive returns to its investors while contributing to the growth and development of the property sector in New Zealand.