Archive | Southern Capital

Lynwalsh at 92.3% of Southern Capital

Published 1 April 2007

Lynwalsh Holdings Ltd took its stake in Southern Capital Ltd over the compulsory acquisition threshold on Friday, increasing its interest from 74.5% to 92.3%.

Lynwalsh is a private company owned 50:50 by the SD & MA McKinlay Family Trust (through Essex Castle Ltd) & the TD Scott No.2 Trust, and will delist Sothern Capital.

The takeover offer followed a decision by Southern Capital to return capital to shareholders after selling its Hirequip business at the end of 2006.

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Attribution: Company statement, story written by Bob Dey for this website.

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Hirequip gets conditional sale agreement on hire business

Published 29 November 2006

Listed hire company Hirequip NZ Ltd has agreed the conditional sale of its equipment hire & related businesses to PES Finance Ltd, a subsidiary of Pacific Equipment Solutions Ltd (companies associated with Nikko Principal Investments Ltd).

The purchase price payable under the transaction is $165 million, on a cash & debt-free basis, with the ability for Hirequip to receive up to $7.5 million more, contingent upon the earnings of the business through to 30 June 2007. This earn-out adjustment will be calculated on the ebita of the hire business to 30 June 2007 and apportioned on a straight-line basis on ebita above $16.7 million up to $18.56 million, which is the business’ budgeted ebita for this period.

Hirequip chairman Graeme Wong said the hire business didn’t achieve revenue or ebit budget for the first 4 months of this year, although both were ahead of 2006 results.

The transaction requires the approval of the board of Nikko Principal Investments Japan Ltd, and the investment committee of Nikko Principal Investments Ltd, by Tuesday 12 December, Overseas Investment Office consent and Hirequip shareholder approval at a meeting in Dunedin on Monday 18 December.

Settlement is scheduled for Wednesday 20 December. Hirequip will then move to distribute funds held, with the first distribution targeted for February 2007.

With respect to Hirequip’s “legacy assets,” Mr Wong said the company had sold its interest in Tasman Farms Ltd for $9.6 million and reached agreement with the purchaser of its interest in the land for the proposed Pegasus Bay township to accept $14 million in cash now, rather than wait for the eventual completion & sale of the developed lots at an unknown date in the future.

The Tasman Farms transaction has settled and settlement on Pegasus is expected soon.

Once the hire business is sold, Hirequip’s legacy assets will comprise:

its interests in the last remaining part of the subdivision at Omaha Beach, north of Auckland
a portfolio of minority interests in biotechnology stocks, including Blis Technologies,  Botry-Zen & Pharma-Zen
a 22.6% interest in Clifford Bay Marine Farms Ltd – a proposed 460ha mussel farm at Clifford Bay, Marlborough, and
the leasehold & freehold interests in Hirequip sites owned by Hirequip Property Ltd and leased back to Hirequip Ltd, one of the companies being acquired by PES Finance.

The Hirequip board’s current assessment of the net asset value of Hirequip is between $1.18-1.24/share, depending on the earn-out adjustment & realisation of the legacy assets.

The company expects to send its information memorandum to shareholders on Friday 1 December.

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Attribution: Company release, story written by Bob Dey for this website.

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Environment Court approves Pegasus Bay project

Update, 19 February 2002: Environment Canterbury decides not to appeal

Environment Canterbury (Canterbury’s regional council) has decided not to appeal the Environment Court’s ruling that paved the way for Southern Capital Ltd’s Pegasus Bay town project.

“The absence of an appeal means that we can get to work now implementing the judgment, which requires the Pegasus Bay plan to be incorporated into both the transitional & proposed versions of the Waimakariri district plan,” Southern Capital investment director Michael O’Connor said.

Southern Capital slams Environment Canterbury, RMA process

Southern Capital Ltd has won Environment Court approval for its Pegasus Bay township 20km north of Christchurch — and has recommended that everybody responsible for the Resource Management Act look at this case for the way it shows flaws in the act.

The development is by Pegasus Bay Town Ltd, a subsidiary of listed investment company Southern Capital. The proposed town will occupy 338ha immediately north-east of Woodend.

Southern Capital’s investment director, Michael O’Connor, said development would take place over the next 20 years and the new town would eventually have 1800 dwellings and a population of 5000. The built-out value is estimated at $130 million.

He said the Environment Court required the Waimakariri District Council to bring the Pegasus Bay town zone into both its transitional & proposed district plans.

Two years of siteworks

“We anticipate that site work will commence once subdivision consents are gained later this year and take some two years to complete. These include a 12ha lake some 3m deep, so involve major earthmoving & landscaping.”

Mr O’Connor said the ruling was an important breakthrough for Southern Capital and its shareholders, who had had to wait four years for planning approval.

“However, legislators & officials responsible for the Resource Management Act should look to this case, as it exemplifies the flaws in the current act that enable the planning process to become protracted & expensive, thereby discouraging investment.

“This decision has finally cleared the way for the development to take place, a development which was first conceived in 1997 and which has been tied up by the Resource Management consent process since mid-1998.”

Project approved at all hearings

The Pegasus Bay application went to local body hearings in 1998 & 1999, each before independent commissioners who found in favour of the company’s development plan, and then to a four-week Environment Court hearing before Judge Treadwell, referred to the court by Environment Canterbury (the Canterbury regional council).

Mr O’Connor said the Environment Court decision was significant for a number of reasons.

“This decision overturns the hierarchy of development advanced by the regional council’s witnesses, which is to concentrate growth on existing centres.

“This approach received a major setback late last year when Judge Jackson, presiding in the Environment Court, rejected Environment Canterbury’s submission that several proposed developments in Christchurch City should be knocked out on the grounds of inconsistency with its principal planning document, the regional policy statement.

“The judge found that these proposed developments should not be disallowed in aggregate and, instead, each has to be considered on its own merits.”

Decision doesn’t support existing regional policy statement

Mr O’Connor said Judge Treadwell’s Pegasus decision was a further setback for the regional council’s preferred hierarchy of urban development. The judge described the regional policy statement as “almost totally lacking in meaningful directives to district councils in respect of the location of settlements and/or the expansion of existing settlements in & about Christchurch and within the Canterbury region.

“It is certainly not for this court to try & make the regional policy statement more directive than it presently is, particularly having regard to the fact that the neutering provisions were inserted in the plan with the consent of the regional council following references from affected district councils.”

Judge Treadwell also commented on the long delay brought about by Environment Canterbury’s stance when he addressed the issue of costs: “A huge amount of public money & private money has been spent in obtaining what is effectively a third opinion.

“Subject to submissions to the contrary, we [the court] intend to award costs and, having regard to that observation, the award should be more liberal than would normally be the case when considering costs against public authorities.”

Southern Capital specialises in property & equity investments in New Zealand. It is the major shareholder in Omaha Beach Ltd, the company doubling the size of Omaha, out to the east coast from Warkworth north of Auckland, with a 600-lot beachfront residential development.

It also has a 460ha marine farming application at Clifford Bay, Marlborough, and owns the Canterbury Supa Centa at Belfast, Canterbury, a proposed motorway service area near Kaiapoi, and the Villa del Lago serviced apartment development in Queenstown.

Other Southern Capital interests are shareholdings in biotech companies Blis Technologies, A2 Corp, Botry-Zen and Pharma-Zen.

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Southern Capital raises profit 1000%

$6.1 million profit from wide range of developments

Southern Capital Ltd increased profit for the December half by 1033%, from $542,000 to $6.142 million, on revenue up 552%, from $1.87 million to $12.2 million.

Pretax operating surplus rose from $215,000 to $6.7 million

Earnings/share rose from 0.7c to 7.9c.

Executive chairman Graeme Wong said value had been created by several means — in existing investment exposure, emerging from the reduction in risk of projects (due either to milestones achieved or cash being received by the company), and new deals.

Windfall at Tasman Agriculture

At Tasman Agriculture, Southern Capital bought 21.75% of the company on 15 June 2001 for about $16 million. On 14 November it got $17.5 million from Tasman Agriculture’s liquidation, plus 14.6 million shares (21.75%) in a new company, Tasman Farms Ltd, which now holds all the Tasmanian farming interests previously held within Tasman Agriculture.

Mr Wong said that after getting more than its money back, Southern Capital had new equity worth between $6.4-9 million.

“We believe that Tasman Farms’ book value [the higher figure, at 61c/share] is conservative even given the recent fall in dairy commodity prices on the world markets. The dairy farms are held at around $A6500/ha and this compares with the recent sale of Tasman Agriculture’s South Island farms at $NZ17,000-$18,000/ha.

“Our accounting for this transaction is worthy of comment. In the past we have not revalued any assets. However, in this case our residual investment would have had a cost of less than zero (in fact negative $1.4m) because more than our original investment has been returned to us.

“Our shares in Tasman Farms are now being carried at 44c/share. At this price, substantial upside potential exists for this investment, notwithstanding cyclical moves in dairy prices.

“Tasman Farms also runs an extensive sheep & beef grazing operation through its investment in The Van Diemen’s Land Co.”

Titles issued at Omaha

At the 42.2%-owned Omaha South development, section titles have been issued within the last 2 weeks on Stage 1b (105 lots) contained within Neighbourhood 4 (N4). Around 20% of these by value have been sold.

“The 9-hole golfcourse extension is nearly finished and all that remains is to finish the grassing of fairways &
tees. Stage 1 of the wastewater treatment plant is nearly complete with new filtration plant, aerators, screen & irrigation tank commissioned in February.

“Sales have been progressing well and over $7 million of unconditional contracts have been written in the 3 months December-February.

“Marketing on the beachfront sections within N2 and N3 has commenced and once minimum targets have been reached we will commence development of these lots.

“Resource consents for this stage will be obtained on a non-notified basis.”

Canterbury Supa Centa under construction

In Christchurch, stage 2 construction of the 30%-owned Canterbury Supa Centa is under way. Woolworths will occupy the key tenancy. Mr Wong said several other tenants had been identified & should be signed up by June.

One Queenstown project done, another being evaluated

In Queenstown, work on the 100%-owned Frankton Rd apartment project was completed in December, and all units have been sold & settled. Southern Capital is now evaluating options for a 1-acre (4000m²) Vancouver Drive site on Queenstown Hill.

On to practicality at Pegasus Bay

At the Pegasus Bay town centre near Woodend, just north of Christchurch, Environment Canterbury said it wouldn’t appeal the Environment Court ruling that the Waimakariri district plan should provide for the Pegasus Bay town by changing the zoning of Southern Capitals 341ha from rural to a special town zone.

“We now are working through with Waimakariri District Council the practicalities of integrating the plan change into both the transitional & proposed district plans, each of which is written in a substantially different form.

“Concurrently, we are advancing on several fronts to develop the staging plan, from which will be prepared the necessary subdivision & related resource consents, and identify development funding options (including the possibility of introducing an equity partner).”

Change of plan may affect motorway access

Transit NZ is considering whether to approve ingress & egress to the motorway if roading improvements that were associated with the company’s full employment park proposal are no longer to be built under the motorway-service-area-only scenario.

Mr Wong said the other affected public authorities, the district council and Environment Canterbury, wouldn’t decide whether they supported just having the service area until they knew Transit’s position.

41ha Goldsworthy Bay subdivision

At the 41ha Goldsworthy Bay project on the Matakana coast north of Auckland, where Southern Capital has a 50% interest, settlement was completed in December. Non-notified approval for a countryside-living subdivision is being sought for the elevated site.

Non-property interests

Mr Wong said the application by 22.6%-owned Clifford Bay Marine Farms Ltd was safe from the Government’s moratorium on new marine farms because it had already been heard & decided on.
Southern Capital will participate pro-rata and underwrite the issue for new research.

The 50%-owned Lake Grassmere hatchery has ceased operations because of an organism affecting spat production, but Mr Wong said the site had value as a potential base for Clifford Bay Marine Farms’ operations.

Southern Capital also has a 10.1% stake in biotech companies Blis Technologies Ltd and A2 Corp.

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Southern Capital sells last of CBD portfolio

Flight Centre sold for $7.8 million, $5 million below 1997 cost

Southern Capital Ltd has sold the 19-storey Flight Centre on Emily Place, Auckland, for $7.8 million. It’s received the deposit, with settlement on the balance due next week.

The building was the last to be sold from the CBD NZ Ltd property portfolio, which Southern Capital inherited when it reverse-listed through a merger with CBD in 1999.

Southern Capital executive chairman Graeme Wong said the sale left Southern Capital’s balance sheet in a rock solid position — equity exceeding $53 million on market capitalisation, $4 million of cash as a war chest & no debt.

The building has been for sale throughout Southern Capital’s ownership. Mr Wong said it was being sold at the most bouyant time in the Auckland market, but over the 3 years the lease profile had only deteriorated.

“We believe we can do better things with the capital released from this sale, even though it will result in an accounting loss of about $1.6 million.”

CBD NZ floated in mid-1997 with a portfolio of 3 properties, 1 on Albert St and the other 2 on the fringes. The Flight Centre, then called the Jetset Centre, cost $12.9 million at a yield of 8.7%.

The Gosling Chapman Centre, on the corner of Albert & Wyndham Sts, cost CBD $16.48 million and was sold to a US investor in 2000 for $10.25 million. Dominion Funds Ltd bought the DDB Pinnacle building on Greys Ave in 1999 for $8.55 million, compared to CBD’s book value of $10.8 million.

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Judge awards $650,000 costs against regional council over Pegasus Bay

Southern Capital says process delayed project by 2 years

Environment Court judge William Treadwell has ordered the Canterbury Regional Council to pay listed investment company Southern Capital costs of nearly $600,000 over the council’s opposition to the company’s Pegasus Bay development north of Christchurch.

The judge ordered the council to pay Southern Capital $597,802 following a series of protracted Resource Management Act hearings dating back to 1998. Southern Capital had applied to the court for costs of $731,064. The court also awarded $50,000 to Waimakariri District Council, which had sought $97,367.

Southern Capital investment director Michael O’Connor understands the previous highest Environment Court costs award was just $50,000.

But he said the victory was a hollow one: “While this decision vindicates Southern Capital’s claims about unfair
treatment at the hands of the Canterbury Regional Council, the whole process of having to go to the Environment Court in the 1st place delayed the Pegasus Bay Town development by about 2 years. The award of costs still is only a little over half of what we actually spent defending the case. Moreover, we have obtained no recovery of the substantial holding costs incurred through this delay.”

Mr O’Connor said 2 important consequences flowed from the Environment Court decision in terms of how regional councils deal with resource management matters.

“Firstly, councillors themselves need to examine their own governance procedures to ensure their staff are acting within delegated authority and keep councillors appropriately informed as to the implications of their actions.

“Secondly, this decision underscores the importance of decisions made at the local authority level, where resource management applications are dealt with first.”

Southern Capital got consent to start building its Pegasus Bay project in January 2002 after spending 4 years tied up in the consent process.

The proposed 338ha Pegasus Bay township near Woodend, 15 minutes north of Christchurch, will be developed over the next 20 years and will eventually provide 1800 homes for an estimated 5000 people. The development is conservatively estimated to be worth $130 million on completion.

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Southern Capital plans change into Hirequip

Property & biotech businesses would be sold – company lays out its position

Southern Capital Ltd is planning a career change, from a strong property interest & investment in a portfolio of biotechnology stocks, into hire equipment.

City property investor CBD NZ Ltd, listed with a portfolio of 3 central Auckland office blocks in 1997, was taken over in mid-1999 by Southern Capital, which sold the remaining 2 buildings and took the company into several speculative projects.

The new move will give the SD & MA McKinlay Family Trust 26.7% of Southern Capital in return for selling the company the remaining 50% of Hire Equipment Group Ltd.

The trust will take 29.8 million Southern Capital shares at 60c/share for the $17.9 million purchase, which is conditional on various consents being satisfied by 16 May. Southern Capital already owns 50% of Hirequip, which it bought last year from GS Private Equity Pty Ltd.

Stuart McKinlay & Trevor Scott, of Dunedin, will join Southern Capital’s board.

Southern Capital executive chairman Graeme Wong said the company would focus on building a diversified equipment hire group with allied activities associated with & complementing the ownership & hire of assets.

PricewaterhouseCoopers has been hired to produce an independent appraisal report on the new transaction.

Disposal may take time

“The purchase accordingly represents a change in direction for Southern Capital from a diversified investment company focussing on capital growth to a company with sustainable operating cashflows & earnings.

“The current remaining investment assets of Southern Capital will be reviewed & disposed of as & when they reach maturity or suitable opportunities present themselves. This may take some time. It is envisaged that ultimately the head office will be moved to Dunedin.”

Approval of the deal will result in a name change to Hirequip.

The Commerce Commission last week cleared Southern Capital to acquire the Hirepool business from Owens Group Ltd, but Southern Capital said this didn’t indicate any commitment to buy the Hirepool business.

Southern Capital’s land development assets include interests in the 117ha top-end subdivision at Omaha Beach, north of Auckland, the 338ha new town site of Pegasus Bay, north of Christchurch, and the 7.7ha Canterbury Supa Centa at Belfast in Christchurch.

2 Environment Court hearings

The company is awaiting the Environment Court’s judgment on its application to rezone 45ha in the Waimakariri district for a commercial development. The judgment is due at the end of April. The Environment Court will also hear the appeal of an associate company’s coastal permit for a 460ha mussel farm at Clifford Bay, Marlborough, in the week beginning 24 March.

Southern Capital’s portfolio of biotechnology stocks includes BLIS Technologies (10.47%), A2 Corporation (8.88%), Botry-Zen (4.27%) and Pharma-Zen (5.63%). It also owns 21.75% of Tasmanian dairy farmer, Tasman Farms Ltd, which is quoted on the NZ unlisted securities facility.

The new Hirequip (ex Southern Capital) would continue to add value to its existing portfolio of property and stocks before their disposal, Mr Wong said.

Hirequip is New Zealand’s only nationwide general & specialist equipment hire company, with 37 branches. It was established in Dunedin in the mid-50s as Dunedin Hire Service and was sold to the McKinlay interests in 1969. It bought Projex in September 2000 and now has revenue exceeding $50 million/year.

For the December half Hirequip reported earnings before interest, tax, depreciation & amortisation (ebitda) of $8.2 million on $24.4 million of sales, ebit of $4.9 million & net profit of $4 million before tax & interest on shareholder advances.

Omaha Beach

Stage 3 development of the 42.2% owned Omaha Beach subdivision is complete and titles will be delivered for settlement against sales contracts in April. $65m of property has been sold, with titles on $26 million still to be delivered. April settlements on stage 3 account for more than $17m of the contracted future settlements.

Stages 1 & 2 had an estimated value of $52.1 million, sales total $42.3 million and $3.1 million remains to settle. Stage 3 had an estimated value of $32.9 million, and $17.6 million had been sold, still to settle.

The undeveloped balance is worth an estimated $52.9 million, of which $5.2 million had been sold, also still to settle. The total value was $137.9 million, of which $65.1 million was sold & $25.9 million still to settle.

Mr Wong said the 1st beachfront sections were settled in June 2001 at around $600,000 each. 1 of these was advertised recently with a $950,000 asking price and sold for $10,000 more.

He said most of the major infrastructure required for the development was in place and the marginal cost of developing sections had fallen to quite low levels. The major earthworks for the whole site are complete, the golfcourse extension was finished and in use and stage 1 of the wastewater treatment upgrade is operational.

Mr Wong said a medium-density development was being considered on an area that included the remainder of the beachfront. Preliminary plans had been prepared for the development of 62 high-value apartments, 32 of which would have unimpeded beach access. Decisions on the next development stages would be made within a few weeks.

Long-term development projects

Appeals against the Waimakariri employment park & motorway service area were heard in the Environment Court in January, with a 3-month wait for a decision expected.

At Pegasus Bay, Southern Capital got a costs judgment for just under $600,000 against Environment Canterbury, which has been appealed. No hearing date has been fixed.

Mr Wong said the Christchurch residential market had been going from strength to strength, “which we believe has substantially improved the value of our rezoned but undeveloped land at Pegasus Bay.

“Significantly, we are aware of sizable zoned but undeveloped blocks of residential land transacting at figures which imply values between $35,500-49,000/lot.

“Moreover, recent decisions of the Environment Court have taken somewhere between 150-190ha out of Christchurch City’s potential supply of residential land. In our 2002 annual report we noted that the development had been independently valued at $19.47 million in March 2002. As of today we would expect a material uplift on this value.”

The company expects earthworks resource consent soon for an 11-unit development on the remaining property in Vancouver Drive, Queenstown. The rest of the development complies.

The 50% owned Goldsworthy Bay block bought in December 2001 has been subdivided into 9 countryside living blocks of 1.28-4.05ha, 5 sold subject to titles issuing, all above the budget, & a 16ha future-urban block.

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Southern Capital cuts loss to $1.4m

Another loss, but company positive about prospects

Southern Capital Ltd cut its annual loss from $7 million last year to $1.5 million before tax and $1.4 million after tax in the year to June, on revenue more than doubled at $6.8 million.

In its first year as a listed company after taking over CBD New Zealand, Southern Capital sold one of CBD’s remaining assets, the Gosling Chapman Centre in Auckland and has the other, the Flight Centre on Emily Place, Auckland, for sale.

“We now have a higher quality tenant mix and a better lease maturity than when inherited. We have in place a plan to re-lease the floors that come vacant over the next 12 months and feel comfortable that the building’s value will not diminish below book value,” the company said in its statement to the stock exchange today.

CBD was used for its listing. But despite wanting out of CBD’s assets, Southern Capital’s directors are happy that “some of the company’s resources have been diverted to shorter-term entrepreneurial property transactions and equity investments” because they have been to good effect. “This has established our credentials and we anticipate maintaining this balance of activities in the future.”

The diversion, and resulting balance, came because Southern Capital was concerned at committing too many resources to projects requiring rezoning of land.

“As a value-adding strategy, rezoning of land (and seaspace in the case of Clifford Bay) can be very lucrative. However it is a very intensive process that consumes management as well as financial resources… Any new projects are unlikely to require a plan change. Rather, we would prefer to pursue resource consent applications within existing district or city plans, being easier to achieve.”

At the Omaha South subdivision north of Auckland, Wharehine Construction has been awarded the contract to construct the first two neighbourhoods totalling 289 building sites (but not the houses to go on them). Titles should be available for settlement in mid-2001.

Unlike most companies, whose directors experience and express total depression at a downward trend in the economy, Southern Capital’s board gets positively chirpy at the opportunities that open up.

“The investment business is unlike a normal business with a defined product or service because the research and development of new projects is largely opportunistic.

“As long as we are not a forced seller of any assets, weak markets provide good buying opportunities. With no debt on our balance sheet, Southern Capital is in good shape to take advantage of these opportunities, and whilst the Flight Centre building is for sale, we are under no pressure to accept a price less than its true value.”

Apart from its property involvement, Southern Capital has investments in A2 Corporation, a biotech company with international patents pending, EstarOnline, which has busied itself with further development after its proposed listing swas aborted, and Blis Technologies, which has just opened trading on the exchange’s unlisted market.

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Omaha contributes to Southern Capital turnaround

Pegasus hearing to start soon

Southern Capital Ltd reported a $1.33 million profit for the June 2001 year ($1.39 million loss last year), with a significant part of it coming from $28 million of Omaha Beach presales being recognised on settlement.

The Canterbury Supa Centa has received resource consent for a supermarket, adding materially to potential site traffic, which in turn would attract smaller more specialised tenants.

Southern Capital bought 21.7% of Tasman Agriculture Ltd, settling two weeks before balance date. At the current $1.75/share, the deal has produced a $9 million paper profit.

Titles for stage 1A of the Omaha subdivision were issued, enabling settlement on 81 sections out of 116 developed. Almost all bank debt, which financed the original purchase price, planning costs & development, has been repaid, leaving the project development company in a strong position to consider further development options for the balance of the land.

Hearing of the company’s Pegasus Bay town application by the Environment court will start in October, with Environment Canterbury the principal objector.

The group still owns the Flight Centre building in Emily Place, Auckland, the last asset it acquired by taking over CBD NZ Ltd. The managed apartment development at Frankton Rd, Queenstown, is nearing completion. Presales equating to 75% of total likely sales value have largely derisked the project.

Southern Capital also has strong interests in non-property businesses.

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