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New $100 million-plus industrial fund

Tags: Commercial

A new property fund managed by Augusta Funds Management Ltd has been established to invest solely in industrial property, with an initial portfolio of four properties with a valuation of approximately $118 million.

A total of 75 million $1 shares are being offered to investors in Augusta Industrial Fund Limited (branded Augusta Industrial), a limited liability company that will acquire three properties in Auckland and one in Wellington. The shares are being marketed by Mike Houlker, Samara Phillips and Sarah Prebble of Bayleys’ Syndication and Investment Products division.

Augusta Funds Management’s managing director and a director of Augusta Industrial Mark Francis says the industrial fund has several features that make it significantly different from other shared ownership or syndication offerings by Augusta Funds Management.

“Most of Augusta Funds Management’s offerings have been of single property assets, while this is an offering of shares in Augusta Industrial which will own a number of assets providing tenant and location diversification.”

Mr Francis says the properties selected are forecast to provide an initial pre-tax cash return of 6.5% per annum for the March 2019 and 2020 years – with rental risk spread across 15 tenancies with a weighted average lease term of 8.7 years.

“One of the Auckland properties, located in Penrose, will also offer an opportunity to add value with several options being considered for a substantial amount of surplus land on the front portion of that site.”

Mr Francis says another feature of Augusta Industrial will be a minimum subscription threshold of $10,000 compared with $50,000 for Augusta Funds Management’s single asset offerings. Investors can apply for a minimum of 10,000 shares and thereafter multiples of $1,000.

“The lower minimum public subscription of $10,000 means the offering will be accessible to a much wider range of investors.”

Augusta Funds Management’s parent company, NZX listed Augusta Capital will be a cornerstone investor with a minimum of $7,500,000 (10%) worth of shares. “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.”

The fund intends to apply eventually to be listed on the NZX Main Board, says Mr Francis. “Augusta Industrial will strategically select further properties for inclusion in the fund and over the next two to three years. Once the approximate gross asset value reaches $250 million and subject to shareholder and NZX approval, Augusta Industrial intends to apply to be listed.”

The four properties that have been initially selected for Augusta Industrial have a total purchase price of $114.074 million and comprise 67,784 sq m of net lettable space which is 100 per cent occupied. They are:

862-880 Great South Road, Penrose: A 2.37 ha site with existing tenant Graphic Packaging International NZ to take a new eight year lease later this year over approximately 8,450 sq m of industrial premises on the rear portion of the site. Graphic Packaging International NZ is part of a multinational packaging group which is listed on the New York stock exchange, with the lease guaranteed by its Australian holding company.

Approximately 9000 sqm of prime industrial land at the front of the site, with 135 metres of frontage to Great South Rd, is available for redevelopment. Mike Houlker says the surplus land provides one of the few large-scale development opportunities available in this sough after industrial location.

20 Paisley Place, Mt Wellington: A 7,877 sq m industrial building incorporating a specialty coolstore and distribution complex constructed in the late 1990s on a 1.363ha site. Samara Phillips says the property has an exceptionally long lease tenure for industrial premises totalling 13.5 years.

12 Brick Street, Henderson: a modern 12,000 sq m building constructed in 2009 for current tenant D&H Steel Construction Limited on a 1.9876ha site. D&H Steel is one of New Zealand’s largest structural steel fabricators and has at least 9.8 years to run on its initial long-term lease.

The Hub industrial complex, Seaview, Wellington: a warehouse and distribution centre with 12 tenancies. It comprises four adjoining buildings totalling close to 40,000 sq m on 5.2756ha of land in five titles, predominantly occupied by national and multinational tenants.

Mike Houlker says increases in Augusta Industrial’s income will be driven by rent review provisions in the portfolio’s leases with fixed annual or bi-annual increases generally ranging between one and 3.5 per cent across approximately 74 per cent of the rental income and CPI increases across approximately 18 per cent of the remaining income. There are also various market rent reviews across the leases, either at fixed periods during a lease or on renewal.

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. Houlker says unlike many property funds, Augusta Industrial intends to make distributions on a monthly basis.

The offering closes on 11 June 2018. Details on how the forecast pre-tax return is calculated and the risks associated with the investment can be found in the Product Disclosure Statement at . The site also provides details on presentations that Augusta will be undertaking for interested investors around the country.

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