From midnight last night the Government implemented Level 4 of its Covid-19 management strategy. How is this likely to affect Provincia Property Fund?
We are now in a state of national emergency and, other than essential services, New Zealand is in lockdown. The likely effects of this “Black Swan” event that we are all living through are new and largely unknown.
The Government has rolled out a number of economic aid packages to alleviate the short- and medium-term effects of the financial headwinds that are expected in the coming months.
We have already had initial discussions with ASB Bank regarding the government backed banking relief package for businesses and they will provide further details as they come to hand.
Providing economic and financial forecasts at this point, we believe, is impossible – especially given how quickly the Covid-19 coronavirus is spreading and the far-reaching impact it is having on every aspect of our lives – socially, financially and economically.
Once we have a chance to understand the detail of the economic aid packages and their expected consequences, we will hopefully be in a position to provide further guidance to Provincia investors.
Remote working plan
On a positive note your management team, fund administrator and legal advisers are all operating remotely with no significant loss of service. We are constantly monitoring our business continuity plans and are confident in our ability to continue to deliver our services to the fund without significant interruption.
The fund is conservatively managed, has modest bank borrowings, and is well diversified. Our tenants are very solid: food, electricity, storage, basic household requirements, water, etc.
85% of our rent roll is “essential services”
Yesterday we completed stage 1 of our rental risk assessment, including discussions with all of our tenants. We are pleased to confirm that approximately 85% of our rental income is from tenants who provide “essential services” and will therefore keep operating.
We are in ongoing discussions with the remaining tenants who will not be able to access their premises from today. Most of these tenants will be entitled to some rental abatement under their leases. We are working through this on a case by case basis over the next couple of weeks.
Our priorities during the Level 4 response period (at least 4 weeks) will be to continue cooperating with our tenants, which is in everyone’s interests. Your management team has had long experience in managing businesses through downturns. Between us we have lived through 6 recessions and sharemarket crashes. In each case the causes were different, but the end results were always the same – recovery.
Last week the Reserve Bank cut the OCR from 1.0% to 0.25%. When we started the fund the OCR was 1.75%. Earlier this week the Reserve Bank announced $30 billion of quantitative easing to keep interest rates low – unprecedented in New Zealand’s history.
Since inception we have maintained a steady 6% pre-tax cash dividend, so the OCR cut will benefit the fund.
It is too early to tell whether the 6% pre-tax cash dividend is maintainable and this will be assessed on a quarterly basis. Distributions will only be made from available net cash operating earnings, which may vary from quarter to quarter. The fund may decide to retain some cash if it considers that this is a prudent cash management strategy during this challenging period.
March quarter dividend
That said, the dividend for the March quarter will be paid in full at 6%.
With the full support of our bank, we are continuing with the capital raise for the acquisition of 18 Noel Burnside Road, Wiri. Commitments to date are encouraging and we are confident the fund will raise the equity required to settle the purchase of this excellent property.
Shareholders who have questions can contact us at any time.
As is our usual practice, we will provide further updates as events unfold.
Please stay safe over the coming weeks.
This content is provided for general information only and should not be relied upon or used as a basis for making any investment or financial decision. To the extent that any information or recommendations in this content constitute financial advice, they do not take into account any person’s particular financial situation or goals. As individual circumstances differ, we strongly recommend you seek independent legal and/or financial advice prior to acting in relation to any of the matters discussed herein. Neither Provincia Property Fund Ltd nor Provincia Property Management Ltd nor Provincia Property Fund Management Ltd nor any person involved in this content accepts any liability for any loss or damage whatsoever may directly or indirectly result from any advice, opinion, information, representation or omission, whether negligent or otherwise, contained in this content.