Archive | Augusta Capital

Augusta buys Queenstown site for second tourism fund hotel

Augusta Capital Ltd announced last Monday it had entered into an unconditional agreement to acquire land in the Queenstown cbd for a 5-star hotel development, and on Friday it confirmed settlement.

The site is at 17-19 Man St, en route to the Queenstown gondola. Augusta intends to transfer it to its proposed tourism fund. In the meantime, managing director Mark Francis said the company would continue to progress discussions with potential hotel operators.

“Locations for a hotel development in Queenstown do not come much better than this site,” he said. “The location is central Queenstown, within walking distance of all the key sights & activities in the Queenstown cbd, while sitting in an elevated position which provides premium, uninterrupted views out to the Remarkables.”

He said the vendor had obtained resource consent to undertake the proposed hotel development, which has been progressed to a level of detailed design. “Initial discussions have also been held with potential contractors regarding construction of the hotel, but a construction contract will not be let until a hotel operator is secured. It is expected that construction should commence by the middle of 2019.”

The total consideration payable under the agreement was $13.95 million for the land as well as the designs, intellectual property & site works undertaken to date.

The planned tourism fund already has one asset lined up – 54 Cook St, on the fringe of the Auckland cbd, which is being converted from office to a pod hotel for Jucy Snooze Ltd. The shareholders of Augusta Value Add Fund No 1 Ltd approved the sale of the building to the Augusta Capital group in September, awaiting transfer to the tourism fund.

Earlier stories:
23 October 2018: Fund shareholders approve sale to initiate Augusta tourism fund
24 September 2018: Pod hotel the opportunity for Augusta to close value-add fund with strong return and open tourism fund

Attribution: Company release.

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Funds manager Augusta lifts earnings 122%

Augusta Capital Ltd lifted its half-year earnings by 122%, driven primarily by higher operating earnings & revaluations. On another measure, the non-GAAP adjusted funds from operations assessment of underlying financial performance, the return was 16% higher than a year ago.

Augusta chair Paul Duffy said in the results release on Thursday: “The material improvement in the interim result reflects the early benefits of Augusta’s transition to a funds management earnings model, which is being actively supported by improved balance sheet capability.

“Improved earnings came from Asset Plus and the launch of the Augusta Industrial Fund. The launch & expansion of investor funds, including fees from assets under management, are now core to the company’s growth story.”

Mr Duffy said the new funds had attracted new investors, and a number of existing investors had reinvested.

Broad picture

The company generated $5.03 million of net offeror & underwriting fees and created $950,000 of ongoing gross annual management fees from the 2 new offers.

Net management fee income rose 32% to $4.17 million ($3.15 million), driven by strong transactional income & new assets under management.

Net rental income fell by $840,000 following divestment of Augusta House (19 Victoria St West in Auckland) in July 2017 and the retail title in March 2018, offset against income from the Hub in Wellington until 15 June 2018.

Corporate costs increased by $620,000 to $5.02 million, driven by the level of investment required to support the launch of new fund initiatives.

Net funding costs fell $570,000 to $890,000 after the sale of directly held investments. The company had $32 million of undrawn lending facility at 30 September, to support new initiatives.

Total assets were reduced by $36 million to $105.3 million, primarily as a result of the sale of the Hub in Wellington to the Industrial Fund for $44.9 million. The bulk of these proceeds ($35.9 million) was applied as a debt repayment and the balance held as working capital.

Group gearing based on drawn debt was 6.3% of gross asset value. Intangible assets & goodwill are held at cost net of impairment, driven by asset sales in the managed portfolio. However, Augusta will continue to revalue investment assets to fair value.

2 new investment offerings were completed oversubscribed, raising $143.5 million of new equity, and Augusta completed transition of the Asset Plus Ltd management contract.

Key finance & portfolio points:

  • Net profit & total comprehensive income, up 122% to $5.1 million ($2.3 million)
  • Net revenue, up 7.1% to $11.84 million ($11.05 million)
  • Profit before fair value movements, disposals & tax, up 14.3% to $5.9 million ($5.2 million)
  • Adjusted funds from operations, up 16% to $4.56 million ($3.94 million)
  • Total assets, down 25.2% to $105.3 million ($140.85 million)
  • Net assets, up 3% to $86.7 million ($84.2 million)
  • Net asset value/share increased to 99c (98c) due to retained earnings
  • Net tangible assets/share, fell 3c to 75c (78c, but up from 71c in March)
  • Basic & diluted earnings/share 5.83c (2.62c)
  • Second quarter cash dividend 1.5c/share, fully imputed with imputation credits of 0.583c/share attached, and supplementary dividend of 0.2647c/share for non-resident shareholders; the board expects to maintain the full-year dividend at 6c/share, subject to quarterly review
  • All assets within the Augusta Value Add Fund unconditionally sold, generating an 11.7% internal rate of return 
  • Increase in corporate costs as Augusta continues to invest in people to support the growth strategy.

Outlook
Managing director Mark Francis said Augusta would maintain its focus on growing assets under management & diversifying the portfolio: “The tourism sector remains a key focus for Augusta’s next new multi-asset fund offering, and we have previously signalled our intentions as to the future growth of the Industrial Fund. The acquisition of the Queenstown Views property is a further asset secured for the tourism fund initiative and we are also pursuing further opportunities in both Queenstown & Auckland.”

Immediate aims: 
• Exit the final 2 Finance Centre assets
• Launch sector-specific funds
• Grow existing assets under management, specifically Asset Plus & the Augusta Industrial Fund 
• Leverage balance sheet to support underwriting & broader business objectives 
• Invest in further IT to support growth 
• Active asset management in New Zealand & Australia in terms of acquisition, divestment & development opportunities.

Immediate aims:

  • Exit the final 2 Finance Centre assets
  • Launch sector-specific funds
  • Grow existing assets under management, specifically Asset Plus & the Augusta Industrial Fund 
  • Leverage balance sheet to support underwriting & broader business objectives 
  • Invest in further IT to support growth 
  • Active asset management in New Zealand & Australia in terms of acquisition, divestment & development opportunities.

Attribution: Company release.

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Augusta to settle Cook St deal today

Augusta Capital Ltd said yesterday its transaction to buy 54 Cook St, at the top of the Auckland central business district, was unconditional and would settle today.

After leasing the former Radio NZ studios building to tourism company Jucy Group Ltd in September, Augusta decided to buy the building from the Augusta Value Add Fund No 1 Ltd to seed a tourism fund.

Jucy will operate a Snooze hotel business at the Cook St building. It’s better known operation is the Jucy rental vehicles business.

Augusta said it could proceed with the latest transaction, the purchase of the last unsold property held by the value–add fund, after the last condition, on the cost estimate, was satisfied.

Earlier stories:
23 October 2018: Fund shareholders approve sale to initiate Augusta tourism fund
24 September 2018: Pod hotel the opportunity for Augusta to close value-add fund with strong return and open tourism fund

Attribution: Company release.

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Fund shareholders approve sale to initiate Augusta tourism fund

Augusta Capital Ltd said on Friday the shareholders of Augusta Value Add Fund No 1 Ltd had approved the sale of 54 Cook St, at the corner of Nelson St at the top of the Auckland cbd, to the Augusta Capital group.

The transaction is one of a series of events following the lease of the building to Jucy in September. First, the building would be transferred from one entity to another under Augusta’s control, and that will seed a tourism fund.

The transaction remains conditional on obtaining a satisfactory cost estimate from Augusta’s quantity surveyor by this Friday.

Managing director Mark Francis said if the sale proceeds, settlement should occur on Wednesday 31 October.

Link:
24 September 2018: Pod hotel the opportunity for Augusta to close value-add fund with strong return and open tourism fund

Attribution: Company release.

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Pod hotel the opportunity for Augusta to close value-add fund with strong return and open tourism fund

NZX-listed property fund manager Augusta Capital Ltd will achieve 2 aims simultaneously when it leases the building at 54 Cook St, on the fringe of the Auckland cbd, to Jucy Snooze Ltd for a pod hotel.

That transaction, which has several conditional components, will:

  • finalise the sale by Augusta Value Add Fund No 1 Ltd of its 5th & last asset, resulting in closure of the fund & distribution of remaining funds, and
  • enable Augusta Capital subsidiary Augusta Funds Management Ltd to launch a new open-ended tourism fund.

Managing director Mark Francis talked about a tourism fund as one of several openings for new investment when he addressed Augusta’s annual meeting in July, and in the company’s annual report.

But first, the purchase of 54 Cook St will enable the value-add fund to close with an 11.5% pretax internal rate of return to investors after 2½ years, and a return of $900,000-1 million to Augusta Funds Management as a performance fee.

Northington to advise on transaction

The $16.5 million + gst Cook St sale is conditional on the value-add fund’s shareholders approving the transaction by 20 October, as it’s considered a related-party transaction. The fund company has engaged Northington Partners Ltd to provide independent advice on the proposed sale.

The transaction is also conditional on Augusta Funds Management obtaining a satisfactory cost estimate from its quantity surveyor by 26 October. If the sale proceeds, settlement is expected to occur on 31 October.

Augusta established the value-add fund in April 2016 to acquire a portfolio of 5 properties, which were identified as having value-add opportunities through either redevelopment or repositioning. The objective of the fund was to sell the properties after the value-adding improvements had been implemented, and to return the net proceeds from the property sales to investors in the fund.

Augusta has signed a conditional agreement to lease 54 Cook St to Jucy Snooze Ltd for 20 years, with fixed annual increases of 2.0% & market rent review every 10 years, and 2 7-year rights of renewal.

The lease agreement is conditional on resource consent, building consents and the cost estimate for the landlord’s works being no more than $14.5 million.

Jucy chief executive Tim Alpe (right) & his brother, Jucy Group chief operating officer Dan Alpe, sitting in a hotel pod.

Jucy chief executive Tim Alpe said on Thursday the 4-storey 388-bed hotel would be capable of accommodating over 466 visitors/night in a mixture of pod-style accommodation & ensuite rooms, as well as Jucy Group’s head office. The building, which used to house 1ZB’s radio studios, is one block up Nelson St from the southern edge of SkyCity Entertainment Group Ltd’s international convention centre.

Mr Francis said Augusta Funds Management intended to initially acquire & hold the asset on its balance sheet and then use it as a seed asset for a new open-ended tourism fund: “The new fund is consistent with Augusta’s core strategy to broaden & diversify our funds management offerings to appeal to a wider range of investors. At this stage, Augusta expects the Tourism Fund’s initial offering to be opened in the first quarter of 2019.”

Earlier stories:
21 September 2018: Jucy to open big pod hotel up street from new convention centre
30 July 2018: Augusta expands its portfolio platform, a different way of managing & seeing property investment

Attribution: Augusta release.

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Augusta expands its portfolio platform, a different way of managing & seeing property investment

Augusta Capital Ltd talks of new directions in its annual report, and managing director Mark Francis (pictured) gave some details on that approach when he spoke at the company’s annual meeting in Auckland last week.

One is for the parent company to take a stake of 7.5-10% in funds it establishes. Most syndicators of the past aimed for a complete selldown.

A second is to lift its working capital to support the launch of new initiatives, including funding property deposits & initial fund establishment costs. It’s already done this, and has both backed its investments by taking up a share of underwriting and used its resources to secure investments without having to rely on the subsequent selldown.

A third is the intention to list funds, such as its industrial property fund. That’s a feature of creating a portfolio platform – syndicates (which are distinctly different from the buy-&-hold investments of the past; these ones increasingly have potential for additional development or other remodelling and are likely to be sold before the syndication term is up), investments in other listed entities, the first of those being Asset Plus Ltd (the former NPT Ltd), the new listed funds, new ventures into tourism & residential, and portfolios for wholesale & institutional investors.

And a fourth is to take its approach to Australia, where its investments so far have been in Queensland.

Guy French-Wright, who was development manager for a Melbourne-based wholesale property fund manager, Quintessential Equity, before coming to Auckland for 18 months as Augusta’s chief operating officer, is returning to Melbourne with a role, in Augusta chief executive Mark Francis’s words, “of being our eyes & ears to invest throughout Australia”.

Mr French-Wright worked in Melbourne for 15 years before his Auckland stint, including 5 years with Salta Properties leading commercial development and another 5 years at Mirvac as commercial development director.

66% jump in directors’ fees explained

At the annual meeting, shareholders approved a 66% increase in the pool for directors’ fees, from $334,000 to $553,000/year, with only a 2.45% vote against. Company chair Paul Duffy said the fees had been stable since 2014 and commented that, after he joined the board in 2015, “it’s not wise to come on and immediately increase the fees”.

Mr Duffy said the fees set now were “market or slightly under. I give you a commitment that we won’t increase fees for 2 years”.

That said, he also made a couple of points about the listed property sector and the search for suitable directors. In a comparison with much of the listed property sector, he commented that “we’re not just a rent collector, we’re a fund manager” and returned to the topic later, saying the typical approach was for “the management to deliver basically a fait accompli, and look what happens. That’s what happened to Fletcher Challenge [in its new guise as Fletcher Building Ltd, where the board didn’t have the backgrounds or expertise to see through what was being presented to it].”

After proposing this fee increase, Mr Duffy said he’d discussed it with the Shareholders Association, corporate investors & some smaller shareholders.

“We’re not a normal property company. We’re not just a rent collector, we’re a fund manager. We’re probably more suited to the investment category (on the NZX), and the directors’ role is much more than I had at DNZ (now Stride).”

Mr Duffy said Augusta, now almost completely out of direct property investment (its final payment from sale of the Finance Centre in Auckland is scheduled for next year), managed over 60 syndicates & funds. Parent company directors played a role in every one, especially on due diligence – and Augusta has turned syndication from the buy-&-hold model to the buy-improve-&-trade model.

Mr Duffy said getting the right remuneration was important in attracting the right board candidates. At the lower board fees of the last 4 years, “I wasn’t getting the right traction, the right people,” he said.

Directors also get fees for conducting due diligence – a maximum $10,000, mostly $5000. Mr Duffy said he’s given the Shareholders Association a commitment that he’d monitor those fees.

Renamed NPT part of a growing platform

Listed company NPT Ltd, renamed Asset Plus Ltd, in which Augusta holds an 18.85% stake, has become part of Augusta’s portfolio platform, alongside its industrial property fund, which it would also like to list in due course.

Augusta managing director Mark Francis said Asset Plus was “essentially a debt-free company holding 3 assets” – the Eastgate shopping centre in Christchurch, Heinz Wattie national distribution centre in Hastings and 22 Stoddard Rd shopping centre in Mt Roskill, Auckland – and its first investment under Augusta management needed to be “a good one, the right one”.

Another Augusta fund, the Value Add Fund No 1, was created in 2016 for wholesale investors. It’s sold 4 of its 5 properties, leaving what is now called Hangar 54, at the corner of Cook & Nelson Sts in Auckland, looking for tenants following asbestos removal.

The fund has returned 72.75% of its equity to shareholders and is debt-free, and Augusta is discussing Hangar 54’s sale with a buyer.

“We intended an internal return on assets of 11-14%,” Mr Francis said. “It was set up as a 5-year fund and will be rounded out after 3 years.”

Links:
Augusta Capital
Asset Plus

Attribution: Augusta annual meeting, annual report, website.

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Augusta registers St Georges Bay Rd syndication offer

Augusta Capital Ltd has registered the product disclosure statement for its offering of $68.5 million of equity in a new single asset fund which will acquire 96 St Georges Bay Rd, at the foot of Parnell.

Augusta managing director Mark Francis said today the company expected the offer to open on Wednesday 18 July, once the Financial Markets Authority’s waiting period has ended, and close on Tuesday 18 September. Settlement is now expected to occur on Friday 28 September.

The $68.5 million to be raised is fully underwritten. Augusta Capital has underwritten $24.5 million and third parties the balance. Augusta will receive underwriting & offeror fees under the offer, as well as an ongoing management fee once the single asset fund is established.

96 St Georges Bay Rd is a brand-new 5-level A grade office building developed by Mansons TCLM Ltd. The fund will acquire the 11,083m² building for $116 million. On a 10.89-year weighted average lease expiry, the initial yield would be 6.47%.

Mansons has signed up Xero Ltd for 2 floors, and Independent Liquor (NZ) Ltd & Harrison Grierson Group Ltd for one floor each. A small amount of level 1 & the ground-floor retail, which have no tenant signed, will be leased by Mansons for a 9-year term

A copy of the product disclosure statement is available on the Disclose register at https://disclose-register.companiesoffice.govt.nz/ by searching “Augusta St Georges Bay Road Property Trust” under “search offers”.

Earlier story:
6 May 2018: Augusta single-asset fund to buy new Mansons Parnell building

Attribution: Company release.

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Augusta industrial fund closes oversubscribed

Augusta Capital Ltd confirmed yesterday that the Augusta Industrial Fund closed oversubscribed with $75 million raised.

Managing director Mark Francis said the acquisition of the initial properties in the portfolio was to be settled later in the day.

As part of the capital raising, Augusta Capital has subscribed for 7.5 million shares and intends to hold a 10% stake as a long-term investment.

Mr Francis said a limited number of investors were reinvesting their funds from other Augusta-managed properties which have sold and would settle in the next month. As a result, Augusta will hold a limited number of shares for the next 2 weeks and then transfer to those investors.

He also said Augusta had received a large number of applications at the close.

The initial portfolio consists of 12 Brick St, Henderson; 862 Great South Rd, Penrose; 20 Paisley Place, Mt Wellington; and The Hub, Seaview, Wellington.

Together, that initial portfolio will have the following key features:

  • a weighted average lease term to expiry of 8.7 years
  • 100% occupancy
  • a diversified mix of 15 tenants, and
  • a 60% weighting to the Auckland industrial market.

Augusta will receive establishment & underwriting fees in connection with the offer as well as ongoing management fees consistent with the NPT Ltd management agreement, which Augusta entered in March.

Image above: 862 Great South Rd, Penrose, back on to Auckland’s Southern Motorway. The area marked in green will be redeveloped.

Earlier stories:
25 May 2018: Transformation hits Augusta bottom line, but confident company lifts dividend
1 May 2018: Augusta industrial fund set to open next week
27 March 2018: Augusta settles NPT management rights payment
12 March 2018: Augusta gets agreement to add 4th building to industrial fund
2 March 2018: Augusta delays industrial fund launch to get fourth property in

Attribution: Company release.

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Transformation hits Augusta bottom line, but confident company lifts dividend

Augusta Capital Ltd continued its transformation in the year to March from being a direct property investor towards its aim of becoming New Zealand’s leading & most diversified property funds management specialist.

One impact was the 80% drop in revaluation gains to $799,000 ($4.12 million the previous year). Those gains are unrealised, but are a handy prop for company results as the market rises.

Key points from the financial year to March:

  • Total assets under management grew 10% ($168 million) to $1.85 billion – 99 properties
  • Total comprehensive income for the year, net of tax, fell 60% to $3.2 million ($8 million) due to lower investment property revaluation gains & the deferral of the Augusta Industrial Fund launch date
  • 14% reduction in adjusted funds from operations (non-GAAP measure) to $5.8 million, equating to 6.6c/share (7.7c/share).
  • Exit of 2 Finance Centre assets – 2 remaining properties settle on 1 April 2019
  • 3 new single-asset funds launched, raising $125 million of equity
  • 23% growth in recurring annualised base management fees, which are now $6.96 million
  • New funding structure executed, which is now aligned to the company’s future strategic direction
  • Net assets/share reduced to 96c (98c), primarily driven by the writedown in value of NPT shares
  • Basic & diluted earnings/share fell 60% to 3.67c (9.15c)
  • Increased stake in NPT to 18.85% and then secured the NPT management contract
  • Invested in specialist talent to support business growth & new fund initiatives
  • 4th quarter dividend of 1.5c/share, supported by the increase in recurring earnings.

Reflects transformation stage, says Duffy

Augusta chair Paul Duffy said the result reflected the nature of a business in the late stages of a significant transformation: “The total comprehensive income after-tax result is also symptomatic of the fact Augusta is progressively selling down all directly held properties from which the company’s revenues have historically been derived. The result should reflect the bottom of a transition cycle to establishing a more resilient earnings profile from a greater pool of Australasian-based property funds.

“The board believes this is a tipping point in terms of transitioning Augusta’s earnings. The volatility we’re seeing here has been well signalled previously, but the recurring annualised earnings continue to grow. 2 new funds have also been added to the managed portfolio, as well as 3 new single-asset vehicles.”

Managing director Mark Francis said the total comprehensive income after-tax & AFFO performance was impacted by the deferral of the Augusta Industrial Fund launch as a fourth asset was secured and more time was taken to allow for the capital raising. The income derived from establishing the fund will be recorded on settlement, expected to be 15 June.

“The prior year also reflected valuation gains at the Finance Centre based on the contracted sale terms, and the remaining assets are held at similar values this year net of transaction costs.

“The long-term growth fundamentals are encouraging. The resilience being built into Augusta’s earnings is critical to the future of the business.

“Encouragingly, we realised just over 10% growth in funds under management during the period under review. The pipeline has been created and we are actively pursuing a number of investment opportunities in the Australian market too.”

Rental income reduced due to the sale of Augusta House in July but this was offset by income derived from warehousing the Hub asset for the Augusta Industrial Fund.

Funds management

Mr Francis said: “The income benefits derived from the progress made this year will be realised in future income years. Momentum has continued with 2 new funds added to the managed portfolio, broadening our product offerings.

“Often in the funds management industry costs are incurred before the wealth is created for both the investor & manager. Corporate costs increased as we sought the necessary capability to grow & source new opportunities.”

Investment asset income of $1.77 million was realised from positions taken in the Augusta Value Add Fund No 1 Ltd (Value Add Fund) & NPT Ltd: “This income replaced the loss of rental income from the Finance Centre divestment. Income derived from capital investments & commitments was stronger in the 2018 financial year through active use of the balance sheet, at the same time maintaining capability to facilitate new deals.”

Balance sheet transformation

Augusta now has a new funding structure consisting of 3 facilities aligned to the new balance sheet – property, investment & funds management (working capital). It can also source further funding for warehousing of assets or underwriting of offers.

Following the divestment of the Finance Centre, capital will be released to grow the funds management business, and will include:

  • Acquisition or launch of new fund management initiatives
  • Warehoused assets – prior to the transfer to a managed fund
  • Underwriting capability in respect to new offerings or capital raises, and
  • The ability to invest in new products or investments which Augusta manages to create an alignment of interests.

Group gearing was 31.2% of gross asset value (26.6%).

Dividend

The board resolved today to pay a fourth quarter cash dividend of 1.5c/share, up from 1.375c in the December quarter. It’s fully imputed with credits of 0.583c/share attached. Dividends for the full year total 5.625c/share (5.5c/share in 2017). The dividend pay-out ratio was 85% (71%). The board expects the 2018-19 dividend to be 6c/share, up 9.1%.

Outlook

Mr Francis said earnings would reflect the strong start to the 2019 financial year, based on the current pipeline of opportunities: “The challenge remains in sourcing compelling product for our investors, but Augusta is as well placed as anyone to do this. Current market conditions remain buoyant, with deals continuing to be transacted at historically low yields.

Near-term strategic operating priorities include:

  • Settlement of the Augusta Industrial Fund on 15 June
  • Launch of the 96 St Georges Bay Rd offer, which will be a single asset vehicle
  • Launch of further investment funds, details to come
  • Identifying further capital sources & distribution channels
  • Further expansion into Australia, and
  • The sale of the final 2 assets of the Finance Centre transaction will be complete in April 2019, providing further balance sheet capability.

Attribution: Company release.

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Augusta single-asset fund to buy new Mansons Parnell building

An Augusta single-asset fund will syndicate ownership of a new office building which Mansons TCLM Ltd is 2 months from completing at 96 St Georges Bay Rd, at the foot of Parnell.

Augusta Capital Ltd said on Friday its subsidiary, Augusta Funds Management Ltd, had entered into an unconditional agreement to acquire the 5-level A grade office building. Under the agreement, an Augusta fund will ultimately acquire the 11,083m² property for $116 million, which represents a 6.47% initial yield based on a 10.89-year weighted average lease expiry.

Mansons expects to reach practical completion in July and has signed up Xero Ltd for 2 floors, and Independent Liquor (NZ) Ltd & Harrison Grierson Group Ltd for one floor each. A small amount of level 1 & the ground-floor retail, which have no tenant signed, will be leased by Mansons for a 9-year term.

Augusta Funds Management intends to raise the required $68.5 million of investor equity in $50,000 units through the new fund before the forecast 30 August settlement date, subject to practical completion having occurred. Augusta Capital will underwrite $24.5 million of the equity-raising and will also receive offeror fees. The balance has been underwritten by third parties.

Augusta expects to open the offer at the end of June.

Attribution: Company release.

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