Welcome to First Light Capital’s spring market update

What a week!

New Zealand has been buoyed by an incredible All Black performance, toppling world number one ranked Ireland and setting up a World Cup semi final against Argentina this weekend. If you’re reading this from France, enjoy the atmosphere and shout loudly for our boys to continue on to the final. We are all very envious!

Of course, we’ve also had the small matter of an election and a change in government. While we don’t yet know exactly what that government will look like, we do know National’s Chris Luxon will be the man in charge of navigating our high inflation and interest rate environment.

There’s often an economic waiting game in the lead-up to an election, and with that now over and summer within touching distance, the mood of the country is definitely improving. This morning the latest September quarterly CPI figures were released which came in at 5.6% and below forecasts. This is very encouraging news as it shows the significant hikes delivered to the OCR by the RBNZ are starting to take effect and that inflationary pressures are starting to cool. There is a long road ahead and there certainly will not be any talk of the OCR coming down just yet, but this should at least significantly reduce any risk of further hikes.

The commercial real estate sector has remained very subdued of late, with few transactions to report on. Vendors seem to be more acknowledging of the economic landscape and pricing, however the high cost of debt is still prohibitive for many would-be purchasers. But again, the mood is definitely picking up, and most agencies are expecting an uptick in activity between now and the end of the year.

Toby Hunn

First Light Capital Director

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Staff update

We are delighted to introduce our newest team member, David Annan.

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David Annan is a valuable addition to First Light Capital, bringing with him over 12 years of extensive agency expertise, with a specific focus on industrial properties in Auckland. Throughout his career, David has gained a deep understanding of various facets within the industry, including sales, leasing, and development. His client portfolio is a testament to his versatility, ranging from small businesses to large corporations, each benefiting from his comprehensive knowledge and tailored solutions. David is widely recognised for his unwavering commitment to achieving successful outcomes for his clients.

David holds a Bachelor of Property (BProp) from the University of Auckland and is married with a young family.

Please join us in extending a warm welcome to David Annan!

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Portfolio Updates

You will have received the latest October quarterly updates for our respective syndicates and funds. While the very high cost of debt levels (typically circa 8.1% across the various syndicates) is still punishing, we are seeing some very healthy rental increases across the portfolio, through CPI-linked leases and also leases with market rent reviews. The latter is seeing some tenant pushback, which is understandable. It can mean some landlord concessions (i.e. capex works) to get across the line, which can be drawn out and is not unusual in these circumstances.

In terms of activity from First Light Capital, we concluded the sale of an Auckland CBD property in May, which was the only property in the wider FLC portfolio that had any vacancy. We are very pleased with the conclusion of this sale, as there are a number of cases where properties in this position have their value compromised by the bank forcing a sale due to the vacancy and subsequent lack of income.

As reported in July, we also concluded the purchase of a medical facility in Christchurch and we continue to look at opportunities in this sector of the market. In September we settled on the sale of an industrial property located in East Tamaki that was privately held. This was a reasonably long and complicated process but concluded with a good result. Also in September we completed the capital raise for the Convertible Note issued for the First Light Property Fund. As always, we continue to look for further opportunities and will consider options with little to no debt which would offset the continued impact of higher interest rates that we are expecting for the immediate future.

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Bank Funding

As we have reported in our AGM’s and also on many of the quarterly reports we will continue to assess any opportunity to re-finance on the various debt facilities across the portfolio.

This is not a quick process and we need to manage existing relationships alongside any new ones but will continue to review this across the wider portfolio with all the main banking providers available to us in New Zealand.

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Sustainability

The toitu programme allows landlords to measure, manage and reduce the amount of carbon emissions that result from everyday operations. The Toitu programme requires the participation of a landlord’s tenants, but the initial feedback has been very positive and as such we look forward to working with our tenants and Toitu to reduce our carbon footprint in line with international best practices and being able to set ambitious goals for the future.

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AML audit

First Light Capital uses Cloudcheck Verifi Identity Services to verify existing and prospective investors’ identities for AML purposes. Many of you have been contact by us recently to upgrade and thank you for working through this with us. In November First Light Capital is undergoing an AML audit, so as we work through this process we may be in further contact with some of you if required.

Cloudcheck is the leading Electronic Identity Verification and anti-money laundering solutions software for New Zealand and Australia.

With Cloudcheck, investors identities can be verified either through live photographs that match a form of identification, or by securely signing onto their online banking profiles. On a mobile device the process takes 3-5 minutes.

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First Light Capital in the community

Last year First Light Capital participated as a sponsor to the NZME Children’s Christmas Party, and we are pleased to say that we

will continue to sponsor again in 2023. The Children’s Christmas Party will provide 2000 deserving children in our community an experience they will never forget. The children invited will be suffering from either life threatening illness, physical/ intellectual impairment, domestic violence, or living in underprivileged circumstances.

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The Goal is simple: To put smiles on these children's’ faces for at least one day this year. These special children will be treated to a day of celebrity stage shows, fun rides, games, yummy food, treats and many more fun activities. They will also experience a Santa’s toy cave filled with thousands of high quality toys where they will receive 3 or 4 each to call their own. However, words on paper cannot do justice to what this day will mean to these children.

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