One of New Zealand’s largest ever single-building public property syndications has been launched with Augusta Funds Management Limited’s offering of $70 million worth of capital...
...in a limited partnership (LP) that will own a substantial new Auckland CBD office building.
The 11,117 square metre Building A, in which media company APN Holdings NZ Limited (NZME) is the anchor tenant, is part of a recently completed two-building integrated commercial and retail complex at 2-4 Graham Street, which runs off Victoria Street West. Building A will be purchased from a related company of the developer Mansons TCLM, for $115,818,265.
Augusta is now offering 1400 investment units of $50,000 each in the LP which will own the building, with the balance of the purchase price and establishment costs to be funded by a loan from ASB Bank.
The offering has a forecast pre-tax cash return of seven per cent per annum the period ending March 31, 2017, which is forecast to increase by one quarter of a percent annually for the following four years.
Mike Houlker, head of Bayleys Investment Products and Syndications division which is marketing the offering, says this means that the fund’s forecast pre-tax cash return will climb to eight percent in the year ending March 31, 2021.
“This represents a good return for a premium-grade investment property of this quality in the current low inflationary economic environment.”
Houlker says the offering’s Product Disclosure Statement and supporting advertising makes it clear that the forecast returns are not guaranteed and that the actual distribution rate may vary. However, he says the forecasts are based on three main factors:
- all of the leases have fixed annual rental increases of three percent per annum starting at the beginning of the third year of the lease to NZME and at the second year of leases to other tenants which include global liquor company Pernod Ricard and law firm Meredith Connell.
- the interest rate on the loan from ASB is fixed for the first five years of the loan.
- the vendor and developer will provide a broad capital expenditure and defects warranty until February 2026. This means that Mansons will generally be responsible for repairing any building defects for most of the next decade.
Houlker says the combination of these three significant factors means that income forecasts can be made with a reasonable degree of certainty for the first five years of the lease, assuming there are no tenant defaults or rental arrears.
The property will have a weighted average lease term at 15 August 2016, the anticipated settlement date, of 12 years by income.
NZME has a 15-year lease over the first three floors of the six-level building, It operates a wide range of print, radio and online media businesses such as The New Zealand Herald, GrabOne and Newstalk ZB.
NZME’s parent company, the ASX listed APN News & Media Limited, has announced a proposal (which is subject to shareholder approval) to demerge its New Zealand business and list it on the New Zealand stock exchange.
NZME has also applied to the Commerce Commission for approval of a merger of its New Zealand operations with the New Zealand business operations of the ASX listed Fairfax Media Limited. That merger is also subject to a number of further regulatory and internal approvals.
Augusta managing director Mark Francis says he is excited about the prospect of a NZME Fairfax merger and believes it would potentially strengthen the tenant covenant.
Meredith Connell, which holds the Crown Warrant for criminal work in Auckland with the exception of Manukau, leases the top floor of Building A on a 12-year lease while Pernod Ricard has its New Zealand head office on Level 5 of the building on a 10-year term.
The vendor, part of the Mansons group, is taking a nine-year lease back of the only vacant floor remaining in the building for which it is actively seeking a new tenant. Houlker says the terms of any lease to a replacement tenant must be no less favourable than the Mansons lease which also includes annual fixed rental increases of three percent.
Francis says Building A represented an excellent opportunity to acquire a brand new, premium grade office building in the growth Auckland CBD location of Victoria Quarter which will get a further boost from the convention centre development which is underway on a nearby site.
“The scale and quality of this offer will enable us to continue the momentum and success generated by recent offerings such as the Progressive Enterprises Distribution Centre in Christchurch, a Countdown supermarket in Hamilton, the redevelopment of Oji Fibre’s Penrose premises and Value Add Fund No. 1,our first multi-asset unlisted property fund.”
Augusta Funds Management is a wholly-owned subsidiary of NZX listed Augusta Capital Limited and has in excess of NZ$1.45 billion of assets under management on behalf of more than 3000 investors and encompassing over 150 commercial and industrial premises in New Zealand and Australia.
A copy of the Product Disclosure Statement can be found on www.premiumaucklandproperty.co.nz