Hardly normal: Analysts are concerned Gerry Harvey’s foray into property development could be funded at the expense of existing shareholders.
Photo: Rob Homer
There’s been a cautious reaction to Gerry Harvey’s announcement that Harvey Norman plans to build offices and apartments above several of its existing retail stores, with concerns the play may be funded by equity raisings.
Harvey Norman will build a 12-storey office tower above its Domayne store at Macquarie Park in Sydney’s northern suburbs. A six-storey commercial building and a 27-storey hotel and apartment tower are also part of the $150 million project, according to a report in the Australian Financial Review.
Harvey Norman is “under-geared” and its founder has a traditional preference for raising equity over adding to debt, so Morningstar analyst Tim Montague-Jones worries that an aggressive foray into property development could be funded at the expense of existing shareholders.
Another Harvey Norman analyst, who spoke on condition of anonymity, said he had been “chasing up” the retailer for information on how it would fund its strategy for mixed-use developments – Harvey has flagged a development on 200,000 square metres around the Harvey Norman store at Perth’s City West to “dwarf” the Macquarie Park project – but had received no solid information.
“I’d be more comfortable if [Harvey Norman] brought in a partner for some of these developments, so they just provided the land and some equity,” the analyst says.
“If they do it all themselves, they’re bringing on more debt and more risk. Investors don’t look at Harvey Norman as a property developer, even if property represents $2 of its $2.60 share price. They look at it as a retailer so if they go too far down this development road they could really impact the share price.”