Archive | NPT

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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Sale of AA Centre to SkyCity confirmed

Asset Plus Ltd (the former NPT Ltd) has confirmed that SkyCity Entertainment Group Ltd settled its purchase of the AA Centre, on the corner of Victoria & Albert Sts in central Auckland, last Thursday.

Asset Plus chair Bruce Cotterill said the company had applied substantially all of the net proceeds from the $47 million sale price towards debt repayment.

He said SkyCity had retained an amount until recladding works to the stairwell are completed.

The 18-storey tower, running from 99 Albert St through to Federal St, has office space above ground-floor retail & basement parking, and net lettable area of 12,205m². It’s unit-titled, and Asset Plus owned most of it. Asset Plus had the building on its books at $40.85 million.

SkyCity said when the acquisition was announced last October the deal was consistent with its intention to consolidate control over its Auckland precinct as part of the Auckland masterplanning it’s undertaken.

Earlier story:
15 October 2017: SkyCity buys AA Centre to consolidate precinct control

Attribution: Asset Plus release.

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NPT to become Asset Plus

NZX-listed property investor NPT Ltd will change its name to Asset Plus Ltd next Friday, 29 June. Its NZX ticker code will change to APL.

NPT chair Bruce Cotterill said on Friday the company would formally launch the new brand on Thursday and would also release its annual report on Friday.

Earlier stories:
30 May 2018: NPT scores miserable result, adopts Augusta strategy of repositioning assets
27 March 2018: Augusta settles NPT management rights payment
21 March 2018: 
Francis talks about a livelier future for NPT

Attribution: Company release.

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NPT scores miserable result, adopts Augusta strategy of repositioning assets

NPT Ltd, which has struggled to gain either critical mass or momentum since its inception as a listed trust in 1994, reported a miserable annual result yesterday, as shareholders’ funds again declined.

The answer is to adopt the more aggressive style of its new manager & 18.85% shareholder, Augusta Capital Ltd: buy properties to reposition, redevelop & lease – and sell rather than remain a passive investor.

Once its $47 million sale of the AA Centre to SkyCity Entertainment Group Ltd settles in July, NPT will be down to a portfolio of just 3 properties worth a combined $124.6 million – the Eastgate shopping centre in Christchurch, 22 Stoddard Rd retail centre in Mt Roskill, Auckland, and Heinz Wattie’s national distribution centre in Hastings. The company sold Print Place in Christchurch in March for $8.25 million – 25% less than its $11 million carrying value.

Augusta also started life as a small portfolio owner and was destined to stay that way unless it changed its strategy. It’s sold down all but the remaining 2 parts of the Finance Centre in Auckland (scheduled to settle on 1 April 2019), and now manages $1.85 billion of assets held by syndicates & NPT.

Without the $4.5 million sale of its management rights to Augusta, right on balance date, NPT would have struggled to make a profit. Including those management rights, its net profit after tax was $3.095 million – $22,000 more than in 2017.

NPT chair Bruce Cotterill said in the company’s annual results announcement yesterday revaluations had reduced net tangible assets by $2.95 million ($1.65 million last year). In both 2017 & 2018, NPT paid out about $5.8 million in dividends. Shareholders’ funds have dropped by $5.5 million in 2 years, and just under $20 million in the last 3 years, to $114.3 million.

Mr Cotterill, appointed independent chair in April 2017 when Augusta staved off Kiwi Property Group Ltd’s bid for control, said operating earnings for the 12 months to March 2018 were consistent with the previous year, but revaluations & the $2.97 million loss on disposal of assets had reduced net tangible assets by 2.3%.

“We are confident that the position of the existing portfolio is now sustainable & positioned for value add-related growth moving forward.

“With Augusta, the board have now identified a defined value-add strategy in which the company will seek to acquire properties with the potential to reposition, redevelop & lease; all with the aim of creating future value. The future strategy differentiates NPT from the sector and provides a framework for relative outperformance,” he said.

Other points from the annual result:

  • Net operating income after tax, down 1.4% to $5.8 million ($5.88 million)
  • Adjusted funds from operations up 4.1% to $6.15 million ($5.9 million)
  • Gearing (loan:value ratio) 26.6% (33.1%)
  • Net tangible assets/share 70.6c (72.3c)
  • Basic & diluted earnings/share up 1c to $1.91
  • Portfolio occupancy 97.4% (96%) due to higher occupancy at Stoddard Rd and the sale of Print Place
  • Weighted average lease term 4.4 years (4.6 years)
  • An unchanged final quarter dividend of 0.9c/share has been declared; total dividends paid for the year are also unchanged at 3.6c/share; payout ratio is 95% based on adjusted funds from operations of $6.15 million

Earlier stories:
27 March 2018: Augusta settles NPT management rights payment
21 March 2018: Francis talks about a livelier future for NPT
20 December 2017: NPT accepts 25% cut to sell Christchurch property
15 October 2017: SkyCity buys AA Centre to consolidate precinct control
28 August 2017: Cotterill sees opportunity for NPT as tenants quit

Attribution: Company release, presentation, annual report.

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Augusta settles NPT management rights payment

Augusta Capital Ltd settled its acquisition of NPT Ltd’s management rights at the close of business on Monday and has taken over from internal management.

The vote by NPT shareholders a week earlier (excluding Augusta, which holds 18.85%) to switch to external management by Augusta was 96.71% in favour.

The price for the management contract was set at $4.5 million, based on 3.8 times the fees that would be paid to Augusta as manager. The contract can be ended after 5 years.

NPT chair Bruce Cotterill said Tony Osborne ceased to be NPT’s chief executive immediately, and that Augusta managing director Mark Francis, chief operating officer Guy French-Wright & chief financial officer Simon Woollams were considered to be senior managers of NPT.

NPT’s registered office will move to Augusta’s office at 30 Gaunt St (above Bayleys in the Wynyard Quarter) from Thursday 5 April.

Earlier story:
21 March 2018: Francis talks about a livelier future for NPT

Attribution: Company release.

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Francis talks about a livelier future for NPT

The vote by NPT shareholders to switch to external management by Augusta Capital Ltd was clear on Monday: 96.71% in favour.

Augusta, NPT’s largest shareholder, couldn’t vote its 18.85% stake because it was a related party. But the support of other shareholders means Augusta’s $1.7 billion of assets under management have grown by just under 10%, to $1.85 billion.

Investors in NPT shares (and the units before that) have had a lot of “what next?” moments, but it remained a small & stumbling NZX-listed property investor. As Augusta managing director Mark Francis told the special meeting to approve externalising management, Augusta has a clear interest in growing the asset base & improving performance, but taking over NPT wasn’t an option for it.

After selling its Print Place industrial property in Christchurch for $8.25 million (compared to the book value of $11 million) in December, and the AA Centre on the corner of Albert & Victoria Sts in central Auckland to SkyCity Entertainment Group Ltd last October for $47 million (settlement scheduled for July), NPT will have a $128 million portfolio of 3 properties and 2 cheques that will reduce its liabilities to about $10 million.

Investors in NPT can expect its assets to be massaged & turned over, a considerable advance from hold & hope. That’s the strategy Augusta has adopted for the syndicates it manages – previously single-asset holds, in some cases switched into a multi-asset fund, in other cases revamped & re-leased.

The Augusta model

Mr Francis told the NPT shareholders: “We’ve identified opportunities for multiple-asset funds which can be listed. The industrial fund will launch (after Easter) with about $115 million of assets, but we intend to double that.”

It will be followed by a tourism fund, based on assets under scrutiny in Queenstown & Auckland.

“Residential is another space we’ve identified. We’re seeing a lot of traction in Australia & the US. Residential is now the second biggest asset class in America.”

As for the commercial & industrial funds in New Zealand, Mr Francis said: “What most of the funds are about is yield. We felt we had underperforming assets which could be repositioned.”

Augusta’s Value Add Fund No 1 was designed with a different mandate from standard syndicates, owning a portfolio of assets, 4 now sold, the 5th under negotiation and the 6th providing returns within Augusta’s target range of an 11-14% internal rate of return.

“It is a space Augusta has a lot of strength in. The way the market has been over the last few years, yields compressing, it’s been harder & harder to find assets, hence the value-add space.”

Mr Francis said the NPT deal plus “a few things we have in the pipeline” would see Augusta’s funds under management approaching $2 billion.

Objectives

For both Augusta & NPT, he set these objectives: “We’re looking to assets that are unloved but can perform. At NPT, our over-arching objective is to close the NTA gap.

“It’s scale, not at any cost but on the right terms, and to benefit ourselves.”

He said NPT needed “a reimagined name/brand to support the growth strategy and eradicate legacy issues relating to poor performance: We’re all about the future. That’s how we see our strength and believe we can add a lot of value.”

At the shareholder meeting, the question of the NPT board’s decision to sell Print Place well under previous annual valuations was one for chair Bruce Cotterill, who said that even before Christchurch’s earthquakes it had proved hard to lease.

“We made the decision, in December we would have been down to one tenant. It’s in the wrong place, it’s got a lot more office space than industrial needs. We worked extensively on a leasing programme and it came to nothing.”

Mr Cotterill said NPT got 3 offers for Print Place, all within $250,000 of each other: “We picked the second best, which we thought had the best chance of getting there, and it became the best offer (after a slight raise).”

One shareholder raised a question about the Augusta proposal compared to what shareholders might have got had they accepted Kiwi Property Group Ltd’s management proposal last year, but both Mr Cotterill said the Kiwi offer wasn’t on the table now, while director Carol Campbell said you couldn’t go back to consider an offer shareholders had rejected.

Mr Cotterill, appointed independent chair in April 2017 when Augusta staved off Kiwi’s bid for control, told shareholders: “This board over the last year has looked at a lot of major options, including acquisition of a portfolio, (but) it’s very hard to reposition a company at the top of the cycle. The view we formed is that we need the arms & legs that a management company can provide.”

Augusta will pay $4.5 million for the management contract, which can be ended after 5 years. Mr Cotterill said the price was based on 3.8 times the fees that would be paid to Augusta as manager.

He said the next step for NPT would be “to sit down with Guy (Guy French-Wright, Augusta chief operating officer) & his team, look at what the opportunities are that they think we should be investing in. That will be the focus over the next 2-3 months.

“If it’s not supported, we’ll have to come up with our own plan forward.”

Earlier stories:
2 March 2018: NPT sets meeting date on externalising management
9 February 2018: Augusta & NPT reach agreement on management, shareholder vote to seal it
20 December 2017: NPT accepts 25% cut to sell Christchurch property
6 December 2017: Augusta fund sells NZ Post building
15 October 2017: SkyCity buys AA Centre to consolidate precinct control
4 September 2017: Augusta shareholders get insight into workings of a fast-moving asset manager in an oft-pedestrian sector
28 August 2017: Cotterill sees opportunity for NPT as tenants quit
21 April 2017: 
Augusta wins fight for NPT
27 September 2016: 
Augusta buys 9% of NPT

Attribution: NPT meeting, releases.

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NPT sets meeting date on externalising management

NPT Ltd has called a meeting for Monday 19 March for shareholders to vote on a proposal to externalise management to Augusta Capital Ltd subsidiary Augusta Funds Management Ltd. The NPT board unanimously supports the proposal.

Augusta said that if NPT shareholders approve the transactions, it would settle acquisition of the management rights on 26 March and assume responsibility for the management of NPT from that date.

NPT Ltd, special meeting on externalising management to Augusta Funds Management Ltd, Monday 19 March at 2pm, Link Market Services Ltd, Deloitte Centre, 80 Queen St

Link: NPT notice of meeting

Earlier story:
9 February 2018: Augusta & NPT reach agreement on management, shareholder vote to seal it

Attribution: Company releases.

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Augusta & NPT reach agreement on management, shareholder vote to seal it

Augusta Capital Ltd said today it had entered into a binding agreement with NPT Ltd to acquire the rights to manage NPT on an exclusive basis.

It’s conditional on the approval of NPT shareholders at a meeting expected to be held in the second half of March. Augusta, which holds 18.85% of NPT, won’t be voting because it’s classified as a related party.

Mark Francis.

Augusta managing director Mark Francis said: “There has been no change to the key terms previously notified when the non-binding agreement was entered into. These include:

  • Augusta will pay $4.5 million to NPT to acquire the management
  • The management fees to be paid to Augusta under the management agreement include a base management fee of 0.5%/year on up to $500 million of assets under management and 0.4% on assets under management over $500 million, and
  • Property management, performance, leasing, acquisition & development management fees are also payable.

“Augusta expects the management agreement will initially increase Augusta’s recurring base management fee income by about $900,000 based on NPT’s current balance sheet. Augusta considers the remainder of the terms of the management agreement are best-in-class compared to similar management agreements. Importantly, Augusta’s interests are firmly aligned with NPT shareholders’ through its 18.85% shareholding.”

Mr Francis said Augusta had proposed – and NPT had accepted – a “yield plus growth” investment strategy for NPT, which Augusta believed would strongly differentiate NPT from other investment options in the listed property sector and suited the current low-yield environment.

“Augusta has a track record of identifying & adding value to assets. The strategy would see Augusta tasked with repositioning the existing portfolio of assets as well as identifying assets for acquisition which it believes have strong yield & growth opportunities.”

Cotterill adds an out

Bruce Cotterill.

NPT chair Bruce Cotterill said: “Substantial progress has been made since it was announced last year that an agreement in principle had been reached. Since then, the NPT board has worked through a robust process to evaluate the proposal and negotiate the detailed terms. The board is satisfied that the proposal is in the best interests of all NPT shareholders in the context of its current market position & preferred strategy.”

The independent directors of NPT commissioned KordaMentha to prepare an appraisal report, which concluded that the transaction was fair to all shareholders.

“The NPT board therefore intends to recommend that shareholders vote in favour of the resolution to proceed with the externalisation of management. Further detail regarding the basis for this recommendation will be set out in the notice of meeting.”

Mr Cotterill added one key term of the agreement that Mr Francis didn’t highlight: The management agreement may be discontinued after a minimum period of 5 years, under certain circumstances. Discontinuance would require shareholder approval & the payment of a fee calculated by an agreed formula, outlined in the management agreement.

Mr Cotterill added that the NPT board believed the key benefits to NPT of proceeding with the externalisation of management included:

  • immediate cost savings in corporate overheads
  • access to Augusta’s substantial resources & expertise across all of the key areas of property management – well beyond what NPT could reasonably afford itself based on its current size & market position
  • benefits associated with Augusta’s market breadth & depth, which is likely to result in access to more investment opportunities more quickly and therefore more rapid progress against the strategy & goals of the NPT board, and
  • demonstrated success in creating & applying growth strategies and a vested interest in the success of NPT as its current largest shareholder.

Attribution: Company releases.

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NPT accepts 25% cut to sell Christchurch property

NZX-listed property investor NPT Ltd said yesterday it had accepted an offer from a private investor to buy its Print Place, Christchurch, industrial property for 25% less than its carrying value.

Chair Bruce Cotterill said the NPT board had agreed this property no longer fitted with its preferred strategy and therefore should be sold.

Although the company had achieved higher than average yields on it, “this location & type of commercial property is no longer in strong demand. The property is now experiencing tenancy vacancies and requires substantial capital investment.”

NPT got 3 offers through a tender campaign, and Mr Cotterill said an $8.25 million offer from a South Island investor was deemed most attractive based on a number of factors, including having the fewest conditions attached.

“Although the offer is below the current carrying value of $11 million, it is the view of the NPT board that the sale price achieved allows the company to arrest ongoing losses and to reinvest capital into opportunities which offer better long-term value growth.”

Attribution: Company release.

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Augusta & NPT reach broad agreement on portfolio management

Augusta Capital Ltd has entered into a non-binding agreement with NPT Ltd to manage NPT’s property portfolio.

The non-binding portfolio management agreement, announced yesterday, is subject to due diligence by both parties, negotiation of the terms of the management agreement and the approval of NPT shareholders.

The portfolio is a thin one. NPT has agreed to sell to SkyCity Entertainment Group Ltd its interest in the AA Centre, which runs from Albert St to SkyCity’s front door on Federal St in downtown Auckland. Settlement is scheduled for next July.

The listed property investor has 4 other assets – the Heinz Wattie national distribution centre in Hastings, the Eastgate mall & Print Place in Christchurch, and the 22 Stoddard Rd shopping centre in Mt Roskill, Auckland.

NPT shareholders voted in April to hand the company’s management contract to Augusta, defeating a proposal for Kiwi Property Group Ltd to take over. Augusta lifted its NPT stake to 18.85% before the meeting, and won the vote with the support of associates.

This time round, Augusta won’t be allowed to vote because it’s a related party. Approval will be by an ordinary resolution, requiring over 50% support.

Under the proposal, Augusta will pay NPT $4.5 million to buy the management rights.

Bruce Cotterill.

NPT chair Bruce Cotterill said other key terms included:

  • The agreement will be for no less than 5 years (unless terminated by either party for cause) and thereafter will continue until NPT exercises its right to discontinue, which would require a resolution of shareholders, and
  • The fees charged under the management agreement will be in line with sector benchmarks.

Mr Cotterill commented: “Importantly, the NPT board considers that the proposed investment strategy outlined by Augusta is closely aligned with its views on the preferred way forward for NPT.

“We anticipate the process to move from agreement in principle to finalised documents that can be put before shareholders for consideration could take about 6-10 weeks, although the Christmas period may interrupt that process.”

Francis says agreement “best in class”

Mark Francis.

Augusta managing director Mark Francis said Augusta “considers that the remaining key terms, including management fees & termination rights, are best in class compared to other external management agreements in the New Zealand listed property sector”.

He said the 2 companies would work towards agreeing the full terms of the management agreement so NPT can call the shareholder meeting as quickly as possible.

Mr Francis believed externalising management would be accretive to NPT’s earnings: “Augusta has proposed a ‘yield plus growth’ investment strategy for NPT, which Augusta believes will strongly differentiate NPT from other investment options in the listed property sector and suits the current low-yield environment.

“Augusta has a track record of identifying & adding value to assets. The strategy would see Augusta tasked with repositioning the existing portfolio of assets as well as identifying assets for acquisition which it believes have strong yield & growth opportunities.

“If approved, the externalisation would increase Augusta’s recurring management fee income by about $900,000/year, based on NPT’s current balance sheet. Further details will be available once a binding agreement is entered into and a notice of meeting issued by NPT to its shareholders.”

Links: NPT
Augusta Capital

Earlier stories:
15 October 2017: SkyCity buys AA Centre to consolidate precinct control
28 August 2017: Cotterill sees opportunity for NPT as tenants quit
21 April 2017: Augusta wins fight for NPT
27 September 2016: Augusta buys 9% of NPT

Attribution: NPT & Augusta releases.

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