Smarter thinking on real estate assets

ABP is prioritising locking in locking in cargo flow with its real estate assets
ABP is prioritising locking in locking in cargo flow with its real estate assets
ABP opted to install a solar array rather than sell prime real estate at Barry
ABP opted to install a solar array rather than sell prime real estate at Barry
Industry Database

Do ports take their real estate assets for granted? Felicity Landon reports

Towards the end of 2017, Associated British Ports launched its "transformed" property arm as a £3.5bn development and investment business. While the announcement was more of a relaunch of what was already there, it was nonetheless notable for refocusing attention on the value of ABP’s assets.

ABP has a 2,400-acre landbank which has been identified as available for development. It owns sites in and around 21 UK ports which it says could create up to 30m square foot of accommodation for new logistics, assembly, manufacturing and other business operations offering road, rail and sea transport options.

However, when ABP carried out a perception audit in the market around people’s awareness of ABP and what it offers, the feedback was that people knew ABP was a port owner and operator, but were not necessarily aware that it had property, says Huw Turner, who is heading up ABP’s newly assembled property team.

“We have been busy over the years delivering property solutions to port occupiers but we haven’t ensured that people have been aware of the work that has been ongoing,” he says. “Port property is important to the group – but it has always been important. So this is a refocus to ensure we are driving our port assets to maximum value and opportunity to the market.”

Mixed use

Within the landbank, there are sites which are absolutely port related; others which might not be port-related in the short-term but might be required in the medium-term; and others which are surplus. Deciding which is which and acting accordingly requires careful thought.

“For surplus sites, we would want to maximise their value but without frustrating port operations,” says Mr Turner. In that respect, many ports around the world have learned the hard way – having sold off land for desirable waterside apartments, they have gained new neighbours who complain about noise, dust and other disturbances from the port. “Nuisance issues are something we are very aware of. We have a strategic pillar of being good neighbours. So we have to think carefully around land use to ensure we don’t take some profit today and then have a neighbour which frustrates the ongoing core business.”

Similar care must be taken with the ‘medium-term’ sites. “In Barry, we have a large site with no immediate use for it. So we are developing a significant solar park to help energy generation, which brings a useful return and green energy. The site can come back to us when needed.”

The priority is locking in cargo flow – portcentric logistics/manufacturing is a key target, says Mr Turner. “We have many examples – from Hull, where we invested jointly with Siemens, in the wind turbine manufacturing facility at Hull, to Cardiff, where a steel processor imports raw product, adds value through processing, and distributes from the port.”

More attention

Consultant Franc Pigna, of Aegir port property advisers, says ports around the world are starting to pay more attention to their property assets, and with good reason.

“Where ports used to compete with each other, today competition isn’t just between ports but between supply chains. While ports are probably the most important node within the supply chain, nonetheless they are a node rather than the main competitive element,” he says. “For the most part, you have landlord ports in the world, most still owned by port authority as a government agency – and we have reached the point where the ability of government to properly fund the expansion and modernisation requirements of their ports is behind us.”

As a result, he says, ports will need to become more financially self-sustaining and find ways of doing so. “It used to be that if a port needed $20m, they would go to the federal government. In emerging markets, ports were part of the national budget and their functions were to create hard currency, handle exports and create jobs – there was no mention of profit. Today things have shifted and the ports industry has to manage this.”

Many landlord port authorities are not really using their largest asset, their property to meet their financial needs and goals, says Mr Pigna. “I think the industry now is starting to recognise that something needs to be done about that.”

For a start, he says, correctly valuing real estate could help ports unleash a lot of tied-up equity, instead of using the traditional promised revenue stream to attract finance for a project.

“Port real estate is very different from anything remotely similar in industry real estate. What makes a port a port needs to be taken into consideration – and nine times out of ten it isn’t,” he says. “In many instances a port will charge rent and won’t even know if the rent they charge is actually making any money. I have come across ports which think they are making a lot of money – and I can show them that they are losing money on the asset value. I think many would be surprised by the values of their assets.”

This is particularly the case when a port has been around for hundreds of years – they may not be paying attention to their real estate and have no idea what it is worth, he says. Analysing and rationalising property assets is "a healthy thing to do", he says.

Making a plan

For its part, ABP has started a rolling programme of port masterplans which will help in spatial land use planning and inform acquisition and disposal opportunities, says Mr Turner.

Mr Pigna comments: “ABP is doing what good asset managers/landlords should do often – ask is this property doing the best possible, and if they have land that is not doing much, perhaps off the port somewhere, this can be shifted.”

Land that isn’t needed today or in the next ten years can be used for something ‘disposable’ such as a logistics park, which isn’t that expensive and can be taken down in 15 years’ time.

Overall, he says, many ports don’t understand the dynamics between their operations and property, but market forces are forcing them to explore this further. Property at a port needs to be seen in conjunction with the core mission, and can absolutely be used to anchor in cargo volumes and shipping services.

Ports have evolved over many decades and what may have appeared to be a logical property decision at the time has sometimes created a legacy for the current generation to manage, points out Murray Gibson, an independent ports consultant who has more than 30 years of operational and commercial experience.

However, selling is either final or very expensive to remedy, he says. Unless the port has a clear future strategy and has adequately addressed the risks to its operations of selling property it considers to be underutilised, “it would be wise to consider short-term uses that retain both the ownership and control of its property portfolio”.

“It is well worth ports preparing a masterplan to underpin their strategic development and, in doing so, to place a value to the port per sq ft/metre/acre for the business that occupies the space today – not just in terms of rent, but also all secondary revenues derived from activities either provided to a tenant, or charged by the port,” says Mr Gibson. “This exercise can also be of commercial benefit when ranking and rating new prospects.”



WEIGHING THROUGHPUT AGAINST STAYING PUT

The word ‘port’ is very broad and has become increasingly so over the past two decades as the divide between ‘combi’ and ‘hub’ ports increases, says port consultant Murray Gibson. “It has been challenging for ports to have to decide where their core strengths lie and, as a result, property has often taken a back seat,” he says.

“Port property, be it land or buildings, is valued by the volume it handles rather than the rent it attracts – throughput versus stay put. This is often a difficult model for non-port industries to understand and is particularly at odds with the institutional property view.

“For example; a port warehouse of say 20,000 square metres that is used for the storage of general merchandise and homewares that statistically churn twice per year is considerably less attractive to its landlord than one that has year-round activity such as food goods, particularly perishables. The port can derive direct and indirect secondary revenues from prime cargo handling and unitised movements in addition to the rent being charged.”

He also emphasises  property at hub ports, if not directly used for prime handling or likely to be required for this in coming years, is still relatively highly priced. “Third party operations such as transport yards, container storage facilities and, to a degree warehouses and distribution centres, are faced with paying a premium, where the opportunity exists, for being on or near ports. Interested parties are likely to be restricted to those operators and 3PLs that have a broad portfolio of services and clients and where their existing network can benefit from a port location.”

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