Today’s smart summary of what you need to know in business and finance, here and overseas
BUSINESS & INVESTING:
* Investore retail property portfolio continues to deliver despite Covid
* House price inflation forecast to peak at 15 percent in 2021
* Airbnb prepares for pre-Christmas listing
* Buffett makes big bets on healthcare, and gold
Newly appointed tourism minister Stuart Nash delivered his first address in his new role yesterday at the Tourism Industry Association conference, leaving delegates in no doubt that he plans to reshape the sector by focusing on more “high value” visitors.
Replacing former minister Kelvin Davis, who had not been popular in the sector, Nash cited four key areas he wanted the industry to focus on – including New Zealand’s international branding, the future which he said would not see a return to ‘business as usual’, or the world that existed pre-Covid, ensuring the full cost of tourism is priced into the visitor experience and finally, achieving a partnership between the Government and the industry being critical to achieve this transition.
He said New Zealand needed to focus on attracting high value and high spending visitors who buy into our own vision of sustainability saying “no longer will New Zealand communities tolerate the worst of our freedom camping visitors, and nor should they. Some have abused our renowned hospitality.”
In a move that will likely be concerning for the backpacking sector, Nash said he firmly believed “the low-spending but high-cost tourist is not the future of our tourism industry.”
The new minister’s approach will be welcomed by many communities including the Central Otago region and Taupo which have struggled for years with freedom campers abusing local facilities and local governments being largely powerless to stop them.
Nash said New Zealanders should not subsidise international visitors to the extent they have.
Some of the costs – such as the impact on infrastructure and the environment – are currently shouldered by taxpayers and ratepayers when they didn’t need to be.
“This includes ensuring visitors pay for the privilege of participating in the New Zealand experience” he said.
Investore retail property portfolio continues to deliver despite Covid
Despite the challenges imposed by Covid on the retail sector, listed property group Investore has posted another strong result, delivering after tax income of $91 million for the six months to September after a 9.4 percent lift in its portfolio valuation to $980.3 million.
Chair Mike Allen said the company’s performance vindicated its focus on large format retail property investments, and the resilience it showed to the impacts of Covid-19.
Gross valuation increases across its 43-property portfolio amounted to $85.3 million.
Allen said the investment vehicle’s net rental income rose $3.3 million to $27.4 million across 130 tenants. Additions to its portfolio during the year included Bunnings Mt Roskill, Mt Wellington shopping centre, and Bay Central in Tauranga which were purchased from Stride Property on April 30.
The improvement was partially offset by increased finance expenses due to the cost of breaking swaps following the issue of the listed bonds in August, used to pay down bank debt.
That, along with the capital raising, was aimed at positioning the firm to grow its portfolio through ‘considered acquisitions.’ The firm’s loan-to-value ratio was at 28.3 percent, compared to 31.3 percent at the end of March.
Investore shares closed up 2c at $2.25.
House price inflation forecast to peak at 15 percent in 2021
With lower interest rates continuing to pour fuel on the already overheated housing market, Westpac Bank is now expecting house price inflation to peak at 15 percent by mid-2021.
“This year has clearly proven a point that we have been making for years – interest rates matter more for the housing market than physical factors like population growth or housing supply” Westpac Bank chief economist Dominick Stephens said in his latest outlook.
ASB Bank also sees more house price inflation on the horizon. Its official forecast is for house price inflation to be at 12 percent by mid-year but this figure could well be exceeded.
The Real Estate Institute’s national house price index rose 13.5 percent in the year ended October, the fastest pace in four years, while Auckland prices were up 15.4 percent year-on-year.
While its expected the expiry of the mortgage holiday scheme and the return of LVR restrictions in March will cool things somewhat, a growing sense that mortgage rates are likely to fall further in the new year will mean any slowdown is likely to be temporary.
BNZ Bank said its current underlying assumption for house price inflation sits near 10 percent for that period, but current momentum presents clear upside risks.
The RBNZ will soon introduce its funding for lending programme, which will provide banks with nearly $28 billion in cheap funding, driving rates down even further.
ANZ is the least bullish of the banks. Its latest forecast is for house price inflation to be up 2 percent by mid-2021 but this forecast pre-dates the latest housing data.
Airbnb prepares for pre-Christmas listing
Despite coronavirus cases continuing to spike in the US, one of the year’s most anticipated US listings is proceeding with accommodation platform Airbnb yesterday releasing its long-awaited prospectus as it gets set to debut on the Nasdaq where it will trade under the ticker “ABNB.”
The company allows users to book short-term rentals and experiences while traveling and has grown to become the largest accommodation provider in the world despite not owning any of the properties it promotes.
Airbnb made US$219 million in net income on revenues of US$1.34 billion last quarter. That was down nearly 19 percent from US$1.65 billion in revenue a year prior. Despite primarily turning net losses, the company has had other occasional quarters of profitability, including the second and third quarters of 2018 and the third quarter of 2019.
In its prospectus, Airbnb put an emphasis on building a community around its hosts and guests, positioning that community as a differentiating factor from its traditional accommodation competitors. The company said it would set up 9.2 million shares of non-voting stock aside in an endowment fund for hosts.
“Our guests are not transactions — they are engaged, contributing members of our community,” the company said in its prospectus summary.
“Once they become a part of Airbnb, guests actively participate in our community, return regularly to our platform to book again, and recommend Airbnb to others who then join themselves. This demand encourages new hosts to join, which in turn attracts even more guests. It is a virtuous cycle — guests attract hosts, and hosts attract guests.”
The company had been scheduled to list in March but postponed the listing once the impact of Covid-19 became apparent.
Buffett makes big bets on healthcare, and gold
Legendary US investor Warren Buffett’s Berkshire Hathaway is making a big bet on the health care sector at a time when the Covid-19 pandemic continues to be a major crisis in the United States.
Quarterly filings reveal Buffet’s Berkshire Hathaway bought new shares in pharmaceutical companies AbbVie, Bristol-Myers Squibb, Merck and Pfizer during the September quarter.
Pfizer has a promising coronavirus vaccine under development, but the company’s share price fell yesterday after competitor Moderna announced progress for its own vaccine.
Buffet’s latest regulatory filing also revealed Berkshire has purchased a stake in miner Barrick Gold. Having previously bashed the yellow metal as an investment Buffet seems to be changing his view on the precious metal after once writing in his annual shareholder letters that owning gold was like having a giant cube that sits there and never produces anything because the commodity doesn’t generate profits or pay dividends.
