Augusta Capital Ltd opened its unlisted industrial fund to new investment today as it seeks up to $115 million to add 5 properties to its portfolio.
That includes subscription for $10.5 million of shares by Augusta Capital itself, to ensure it maintains a shareholding of at least 10% in the fund.
The $115 million includes $10 million of oversubscriptions. Depending on takeup, new shares will comprise 58.3-60.5% of the fund’s total shares.
Gearing at this point will be in a range of 40-42%. Augusta said in the product disclosure statement it intended to continue growing the portfolio – though it had nothing further in sight for this year or 2020 – and intended to maintain a gearing target of 35-40%, which might increase to 45% short-term when new properties are acquired.
To ensure Augusta Industrial maintains its PIE (portfolio investment entity) status, no investor will be allowed to have a shareholding exceeding 19.99% of the post-issue total.
The share offer opened today and closes on Friday 22 March. Acquisition of the new properties (4 of them from other Augusta entities) will be settled and shares allocated on Thursday 28 March.
The whole portfolio of 9 properties has been valued at $296.7 million.
The portfolio’s 4 initial properties, 3 in Auckland, one in Wellington:
- Penrose, 862-880 Great South Rd
- Henderson, 12 Brick St
- Mt Wellington, 20 Paisley Place
- Wellington, Seaview, The Hub
New properties – 4 in Auckland, one in Christchurch:
- Rosedale, 265 Albany Highway
- Mt Wellington, 510 Mt Wellington Highway
- Henderson, 116-152 Swanson Rd
- Otahuhu, 5 & 21 Beach Rd
- Christchurch, Hillsborough, Castle Rock Business Park, Mary Muller Drive
Augusta sees greenfield development opportunities at 3 of the new properties – Henderson, Mt Wellington & Rosedale.
Industrial fund chair Mark Petersen, who’s also an Augusta Capital director, says in the product disclosure statement that Augusta Industrial’s original $75 million share offer was oversubscribed. The initial portfolio’s value grew in a short time from a total purchase price of $114.1 million to $121.64 million.
The product disclosure statement highlights 2 areas of cost in managing the portfolio – management & property management fees, and interest.
Augusta Funds Management Ltd, the Augusta Capital subsidiary which runs all its portfolios, will charge a management fee of 0.5%/year of the total average value of the fund’s tangible assets, up to $500 million of assets under management, 0.4%/year above that figure.
The property management fee has been set at 1.5% of gross rental income, with 3 exceptions in the existing portfolio, on which the fees will be $50,000/year until 14 June 2021 unless it can recover more than that from tenants under their leases.
The manager will also be entitled to a performance fee equal to 10% of any shareholder returns above 10%/year, capped at 15%/year. Certain other transaction fees are also payable.
The other big cost factor is interest, forecast to be about 27% of the industrial fund’s net income for the next financial year: “Increases or decreases in interest rates will have a material effect on Augusta Industrial’s returns,” the offer document says.
“To manage this risk, Augusta Industrial has entered into interest rate swap agreements under which about 68% of Augusta Industrial’s drawn debt will be hedged on 28 March 2019, and this is expected to increase to 70% following settlement of the land sale at Great South Rd. This will reduce the exposure to floating interest rates.”
Augusta Capital chief executive Mark Francis has talked of the company’s intention of eventually listing the industrial fund, and following a similar track for other funds such as the tourism fund now being created, but hasn’t put a timeframe on listing.
In this product disclosure statement, the company states bluntly: “As part of this offer, Augusta Industrial does not intend to quote these shares on a market licensed in New Zealand and there is no other established market for trading them. This means that you may not be able to sell your shares.”
The offer document adds: “We do not think it is appropriate to consider a listing for Augusta Industrial at this point given current market conditions.”
Link: Augusta Industrial Fund
Attribution: Product disclosure statement.