Archive | Augusta Capital

Augusta Industrial Fund offer opens

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.

Ongoing costs

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.”

Listing potential

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.

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Augusta slots new single-asset fund in ahead of tourism fund

Augusta Capital Ltd has delayed the launch of its tourism fund while it raises new capital for its industrial fund and starts a new single-asset fund.

The single-asset fund will hold a mixed-use property in Brisbane. It’s at 255-271 Gympie Rd, Kedron, and comprises 5 office, retail & childcare buildings. The property’s 6 tenancies are all occupied, giving a weighted average lease term of 7.7 years.

Augusta managing director Mark Francis said just before Christmas the new fund would acquire the property for $A21.52 million. Settlement is scheduled for 29 March. Augusta intends to raise $A15.1 million of equity, using a debt facility to fund the balance of the purchase price & establishment costs. Augusta expects to receive an offeror’s fee of about $A700,000. The offer won’t be underwritten and is expected to open in mid-February.

As a result of the timing of this offer and the timing of the Augusta Industrial Fund’s next capital-raising in February-March, Mr Francis said Augusta had determined to delay the establishment of the Augusta Tourism Fund until later in 2019. The 2 properties so far intended to go into it – 54 Cook St in Auckland & 7-19 Man St in Queenstown – will continue to be held on Augusta’s balance sheet until the tourism fund is established.

Earlier stories:
21 December 2018: Augusta Industrial Fund to add 5 properties, seek more investors
3 December 2018: Augusta buys Queenstown site for second tourism fund hotel
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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Augusta Industrial Fund to add 5 properties, seek more investors

Augusta Capital Ltd will re-open the opportunity to invest in the open-ended, unlisted Augusta Industrial Fund Ltd early in 2019.

Augusta bought the first property for the fund in December 2017, added 3 more over the next 6 months and closed its first subscription offer in June 2018 oversubscribed, with $75 million raised.

The NZX-listed promoter & 10% investor in the fund, Augusta Capital, intends to add 5 assets to the portfolio for more tenant & location diversification. The enlarged portfolio is valued at $296 million, has 47 tenants & 99% occupancy.

The fund is managed by Augusta Funds Management Ltd, which has $1.8 billion of assets under management.

A key objective of Augusta Industrial is to deliver sustainable & stable income paid to investors monthly, along with the potential for capital growth.

Earlier stories:
10 December 2018: Augusta Industrial Fund to take over 4 existing Auckland syndicate properties plus one in Christchurch
30 July 2018: Augusta expands its portfolio platform, a different way of managing & seeing property investment
16 June 2018: Augusta industrial fund closes oversubscribed
12 March 2018: Augusta gets agreement to add 4th building to industrial fund
13 December 2017: Augusta buys Wellington property as seed for new industrial fund

Attribution: Company investment notice.

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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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