A total of 105 million $1 ordinary shares are being offered in Augusta Industrial Fund Limited (Augusta Industrial) to provide sufficient capital to buy four Auckland and one Christchurch industrial properties for $173.8 million.
Shares are available in multiples of 1000, with a $10,000 minimum investment, and are forecast to provide a pre-tax cash return of 6.5% in the March 2019 and 2020 financial years.
The offering is being marketed by Mike Houlker, Samara Phillips and Sarah Prebble of Bayleys’ Syndication and Investment Products division. It closes on March 22, 2019.
“Augusta Industrial is all about diversification, providing a wide spread of tenant and location risk in an asset class that is currently outperforming other commercial property sectors,” says Houlker. “A key objective is to deliver a sustainable and stable income return plus the potential for capital growth.
“Unlike many property funds and other investments, Augusta Industrial makes distributions on a monthly basis which is particularly helpful for smaller investors who have recurring monthly outgoings.”
Augusta Industrial is a limited liability company that was established in April 2018 as an open-ended, unlisted property fund, initially consisting of three Auckland and one Wellington properties.
“The original $75 million share offer was oversubscribed when it closed in June last year with many investors missing out,” says Augusta Industrial chair Mark Petersen. “Within a short time period, the value of these assets has grown to $121.64 million from a total purchase price of $114.074 million.
“The shortage of good quality industrial opportunities should ensure industrial property values remain well underpinned.”
The Augusta Industrial portfolio of nine properties, including the five new properties located in Albany, Henderson, Mt Wellington and Otahuhu in Auckland as well the Castle Rock Business Park in Christchurch, is currently independently valued at $296.7 million. It will have a total of 47 tenants occupying a net lettable area of 175,137 sq m, with a 99 per cent occupancy.
Petersen says Augusta Industrial will continue to look for opportunities to grow its portfolio and maintain a gearing target of 35-40 per cent which may increase to 45 per cent on acquisition of new properties on a short term basis. “Assets will continue to be strategically selected for their ability to contribute to a blended fund weighted average lease term of around six years along with their potential to add value.”
Petersen says Augusta Industrial may look to list on the NZX Main Board at some stage. “However, we do not think it is appropriate to consider a listing for Augusta Industrial at this point given current market conditions,” he says.
The offering’s Product Disclosure statement cautions that no guarantee is given that Augusta Industrial will be listed in the future. It also cannot be listed on the NZX without shareholder approval.
The fully leased properties being acquired in the second stage of the industrial fund, which will further increase its tenant and location diversification, comprise:
265 Albany Highway, Rosedale, Albnay: With a purchase price of $20.1 million, this property comprises four modern standalone buildings totalling 5,504 sq m on a 1.69ha site within the North Harbour Industrial Estate. There are five tenancies with a weighted average lease term of just over five years.
There is an area of surplus land to the rear of the largest building leased by anchor tenant Good Health Products which Houlker says could have development potential subject to future demand and financial viability.
116-152 Swanson Road, Henderson: A 5.6ha property valued at $36.36 million with an extensive 192m of road frontage to one of Henderson’s main vehicular thoroughfares. It has 26,755 sq m of industrial buildings occupied by five tenants, including a substantial freestanding high stud warehouse completed in 2011 and located at the road frontage.
Long established tenant Blue Star Group is the largest occupant. A portion of surplus land, which could be developed, is positioned on the north-western periphery of the property.
510 Mt Wellington Highway, Mount Wellington: (pictured above) A three-hectare property with three fully leased industrial buildings plus a Z Energy service station, totalling 18,827 sq m, valued at $37.95 million
The property is currently leased to four substantial tenants, says Samara Phillips. “In addition to Z Energy, these are infrastructure construction company McConnell Dowell, the ASX listed hardware distributor Dicker Data, and multinational automotive parts supplier Repco which uses the largest building as its distribution centre”.
“The property is located in a prominent position with three road frontages in the middle of one of Auckland’s most sought after industrial suburbs and also has surplus land on the eastern side of the site”.
5 & 21 Beach Road, Otahuhu: A 4.1ha heavy industrial complex in a prominent corner position with two standalone factory warehouses and ancillary buildings totalling 22,757 sq m. It is valued at $25.65 million.
5 Beach Road is leased to Fletcher Building’s Steel Group Limited, with over 12 years remaining on its current term. 21 Beach Road is leased to Pacific Steel, New Zealand's only manufacturer of wire rod, reinforcing bar and coil products. It has a new seven-year term agreed from June 2019 with a rent increase from $1,088,221 pa to $1,190,458 in June 2020 and fixed 2.5 percent annual rent increases from 2021 to lease expiry.
**Castle Rock Business Park, Mary Muller Drive, Hillsborough, Christchurch **(pictured below): A 7.95ha modern industrial park which has a purchase price of $53,758,095.
Phillips says the business park is in a popular eastern Christchurch industrial suburb between Lyttleton Port and the Christchurch CBD. “Built in stages from the early 2000s, it has attracted 15 well known tenants across its 13 buildings providing significant diversification of income.
“Value add opportunities also exist as the low 41 per cent site coverage on this large land area, which is in a single title, allows for future development and possible subdivision.”
Augusta Funds Management’s parent company, NZX listed Augusta Capital is a cornerstone investor in Augusta Industrial and will continue to hold at least 10 per cent of its shares, subscribing for a minimum of 10.5 million shares in the offering.
“This means Augusta Capital’s interests are aligned with the fund’s shareholders and there is a significant incentive to ensure the fund is performing well,” says Mark Francis, Augusta’s managing director and a director of Augusta Industrial.
“The growth in the Augusta Industrial Fund further evidences the execution of Augusta’s strategy to develop and grow a range of multi-asset property funds in order to be New Zealand’s most diverse and respected institutional grade funds management business across multiple sectors in both listed and unlisted platforms.”
Francis says Augusta Industrial’s strategy for the acquisition of properties is focused on assets with strong property fundamentals such as proximity to key infrastructure and strong tenant covenants and long term leases or the ability to convert to long lease terms. It is also generally targeting properties which have leases with fixed rental increases or, where possible, negotiating new leases with fixed rental increases.
“Each property is actively managed by Augusta Funds Management in order to maintain or increase property values and achieve growth in rental income,” says Francis.
Established in 2003, Augusta Funds Management specialises in shared ownership structures with approximately $1.8 billion of property assets under management across New Zealand and in Australia on behalf of over 3,500 investors.
It will provide asset management, development and project management, treasury and financial management and legal and compliance services for Augusta Industrial. Bayleys Property Services will provide day-to-day property and facilities management services.
Augusta Industrial is being structured as a Portfolio Investment Entity (PIE) with tax deducted at an investor’s prescribed tax rate up to a maximum of 28 per cent.
Applications for shares can be made via a Product Disclosure Statement available from Bayleys or by visiting www.augustaindustrialfund.co.nz.
Details on how the forecast pre-tax return is calculated and the risks associated with the investment can also be found in the Product Disclosure Statement.