Harvey Norman directors are punting on population growth and new housing to fuel future property growth, but the problem appears to be finding locations for Large Format Retail stores (LFR) locations with analysts questioning whether the business is a better property developer than retailer of CE products and appliances.
As of December 2023 the Harvey Norman consolidated balance sheet was anchored by a freehold property portfolio totalling $4.14 billion.
This is comprised of tangible, freehold investment properties in Australia of $3.51 billion, Ireland of $30.12 million and New Zealand of $9.69 million; and freehold owner-occupied properties in New Zealand, Singapore, Slovenia, Australia and Ireland of $581.13
million in aggregate.
Their property segment also includes several joint venture assets totalling $2.71 million.
The freehold property segment comprises 53% of the Companies $7.86 billion total asset base which also includes stock in hand at their stores.
In their latest financial report directors claimed that “There continues to be scarcity of LFR sites” for them to invest in especially in new suburbs being developed in Australia.
“There are no signs of increased LFR supply in the pipeline meaning vacancy rates are likely to remain low, which is conducive to rental growth which will attract investment in the sector”. they claimed.
The business claims that ‘new home developments will ramp up going forward up based on government intervention and the Federal and State Government response to current housing shortages.
Harvey Norman claims that since the end of December 2019, their LFR properties have increased in value by $966.72 million or 37.9%.
This is up from $2.55 billion in 2019 to $3.51 billion as of 31 December 2023.
Harvey Norman owned propery ringed in yellow Redlands Queensland.
Management put the growth down to capital appreciation, capital additions and ongoing refurbishments throughout the pandemic’.
They said that “During 1H24, there has been a lack of sales of LFR properties. This has meant that fair values of the property portfolio have remained largely stable during the period. Whilst there has been softening in LFR property values, this has been.
modest, as the LFR sector has been shielded from some of the headwinds facing other property asset classes”.
“The current sentiment in the LFR market is reasonably positive as we are approaching the end of the cash rate cycle, and it is expected a degree of certainty and confidence will return to the retail investment market. Strong population growth propelled by high net migration as well as the solid labour market has supported spending, providing confidence to both retailers and investors”.
‘This trend is expected to continue, and population growth is expected to remain high”.
During the last six months Harvey Norman management lifted rents for their franchisees, by 5.7%.
Harvey Norman LFR centres accommodate a complementary mix of over 470 third-party tenants that are diversified across a variety of different categories including Food, Lifestyle & Other Service Retailers, Hardware, Medical, Chemists, Pets, and Auto
related products.
A large proportion of these third-party tenants are ASX-listed and national retailers.
