Tag Archives | Augusta Capital

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 wants syndicate approval to add third property to new industrial fund

Augusta Capital Ltd said on Monday it had made a conditional offer to the investors in one of its syndicated properties for its new industrial fund to acquire that property. The offer is subject to an investor vote. If successful, this would be the third & final property in the initial portfolio for the launch of the new fund.

Augusta manages the syndicated property at 12 Brick St, Henderson, and portfolio & syndication management subsidiary Augusta Funds Management Ltd has sent a notice of meeting to the investors in that property requesting approval for a sale to the new fund.

Augusta managing director Mark Francis said: “It is a relatively new industrial property constructed in 2009, with a long-term lease of at least 10 years remaining to D&H Steel Construction Ltd – and potentially a further 5 years if the tenant does not exercise the break right it has at 10 years.”

Augusta has scheduled the investor vote for Friday next week, 2 February. The sale would be conditional on sufficient capital being raised under the public offering for the new fund and the existing tenant waiving its right of first refusal.

Mr Francis said if the sale is approved, the new fund will be launched with 3 properties in its initial portfolio – 862 Great South Rd, Penrose; The Hub, Wellington; & 12 Brick St.

That portfolio has a current valuation of $87.85 million, 14 tenants and a weighted average lease term of 7.2 years. Mr Francis expected occupancy to be 99% on settlement.

He expects the initial equity to be raised by the new fund to be between $58-60 million. As previously announced, Augusta will underwrite between $33-35 million of that equity raising and intends to subscribe for at least a 10% stake in the new fund and maintain that holding long-term.

Augusta is preparing a product disclosure statement for the fund, which it expects to be registered in mid-February. Settlement of the acquisition of the initial portfolio is intended to occur on 29 March.

Attribution: Company release.

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Augusta closes Mercury HQ syndication 34% short, underwrites balance

Augusta Funds Management Ltd closed its $83.5 million syndication of Mercury Energy Ltd’s new headquarters in Newmarket 34% short on Friday, but subscribed for the balance itself and expects to reduce the shortfall to 26% by the end of July.

Augusta is funding its own underwrite with an ASB Bank debt facility.

Managing director Mark Francis said the $83.5 million target for the 33 Broadway, Newmarket, syndication was Augusta’s largest capital-raising and drew $61.8 million of applications.

Of that total:

  • Applicants for $55.15 million had completed all anti-money laundering requirements before the closing
  • Applications for a further $2.4 million were complete but funds hadn’t been received by Friday. Mr Francis said Augusta would transfer units to these investors on Monday, immediately reducing the underwrite by $2.4 million
  • A further $4.25 million of applications were from investors who either needed to complete final anti-money laundering requirements or didn’t have funds available until July. Mr Francis said Augusta would subscribe for these units and transfer as funds became available.

Accordingly, Mr Francis said, Augusta subscribed on Friday for $28.35 million of units funded by the debt facility, reducing this to $25.95 million on Monday and anticipating a reduction to no more than $21.7 million by the end of July.

“Those units remain available for sale and inquiry remains strong,” he said.

Earlier stories:
28 March 2017: Augusta unconditional as second tenant signed for Broadway development
20 February 2017: Augusta launches Mercury syndication
22 December 2016:  Augusta takes new step in syndication

Attribution: Company release.

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Augusta wins fight for NPT

Augusta Capital Ltd – kept at bay for 8 months by former NPT Ltd chair Sir John Anderson – won control of the smaller NZX-listed property company today.

Shareholders voted 54.87% against the NPT board’s preference for Kiwi Property Group Ltd to sell 2 properties to NPT and become a cornerstone shareholder, then supported the ousting of 2 directors and appointment of 3 Augusta nominees.

Mr Sewell joined the NPT only last year and replaced Sir John as chair on 17 March.

If anybody was swayed at today’s meeting, it would have been by a handful of figures produced by Salt Funds Management Ltd managing director Matt Goodson, who turned around appearances on returns from competing Kiwi & Augusta proposals, and by both a persuasive address and subsequent pointed interjections from Augusta managing director Mark Francis.

Augusta didn’t have a proposal before today’s meeting. It made one last August when it bought 9.26% of NPT – raised to 18.85% 2 weeks ago – but, for the meeting, only put up resolutions to oust Mr Sewell & Jim Sherwin and install Augusta chair Paul Duffy and 2 independents, Allen Bollard & Bruce Cotterill. Carol Campbell was the one existing director whose position wasn’t questioned.

Both Augusta & Kiwi had proposed buying NPT’s management contract, on very different terms. Augusta’s buyout wasn’t up for a vote today, but the board vote means it can be put in place.

Attribution: Meeting, company release.

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An unlikely twist could still derail NPT’s Kiwi deal

NPT Ltd shareholders can replace 2 of their 3 directors with Augusta Capital Ltd nominees at a special meeting called for 21 April, but won’t have the opportunity to vote on Augusta’s proposals for changing their company because Augusta has withdrawn it.

The NPT board has recommended a proposal from Kiwi Property Group Ltd, under which Kiwi would become a 19.9% cornerstone shareholder through the issue of $48 million of new shares and would sell 2 buildings to NPT. That proposal will require NPT to borrow $87 million and raise $94 million from shareholders through a pro rata entitlement offer.

The notice of meeting, sent out yesterday, contains a 2-part resolution authorising the $230 million purchase of the Majestic Centre in Wellington & North City shopping centre in Porirua, and authorising the issue of shares to Kiwi.

The remaining resolutions are to remove directors Tony Sewell & Jim Sherwin, leaving Carol Campbell as the one remaining member from the existing board, and appointing Augusta nominees Allen Bollard, Bruce Cotterill & Paul Duffy.

Tony Sewell.

Mr Sewell, former chief executive of Ngai Tahu Property Ltd, joined the NPT board last August and replaced Sir John Anderson as chair on 17 March. Sir John had headed the board for 6 years.

Mr Duffy, former DNZ Property Fund Ltd (now Stride Property Ltd) chief executive & executive director, joined Augusta’s board last November and took over chairing it in December.

Assuming support for the Kiwi deal, those board changes would be an off-the-wall extreme. NPT’s board saw this as a proposal in Augusta’s own interests.

Management contract offers

Augusta Capital Ltd bought 9.26% of NPT last September and proposed injecting 3 properties worth $327 million into the company, buying out the management contract for $3.5 million and, because of the NPT board’s resistance, replacing the 3 directors.

In December, Kiwi came to the NPT board’s rescue with a proposal to inject 2 of its properties, becoming a cornerstone shareholder, also buying out the management contract, but leaving the NPT board intact for the moment though with a succession plan.

The management contract buyout will cost Kiwi $6 million. Either party can terminate the management agreement after 5 years on payment of a termination fee to Kiwi.

In yesterday’s meeting announcement, Mr Sewell said externalising management wasn’t the NPT board’s preferred position, because the company only internalised it in 2010, but it was an integral part of Kiwi’s proposal: “After taking into account the benefits that a strategic partnership with Kiwi Property is expected to provide to NPT, the appointment of Kiwi Property as manager of NPT & its property portfolio on the terms negotiated with Kiwi Property is acceptable to the board, particularly as the management agreement includes the right for NPT to terminate.”

Mr Sewell said NPT & Kiwi had finalised terms and entered into conditional agreements to give effect to the proposal. Mr Sewell said: “The NPT board supports the Kiwi Property proposal, which it considers to be a transformational transaction that would reposition NPT with the scale & resources to best serve its shareholders’ interests into the future, and unanimously recommends shareholders vote in favour of the proposal.”

Mr Sewell said the Kiwi deal was expected to increase NPT dividends for the March 2018 year by 7%, pro forma.

He said the terms of the entitlement offer hadn’t been determined yet, but expected NPT would send an offer document to shareholders in late April.

Assessment of Augusta proposal

Although the Augusta proposal is no longer before shareholders, NPT included an assessment of it in its notice of meeting.

The NPT board said the Augusta proposal:

  • would result in a significant decline in NPT’s earnings & dividends relative to its projected earnings & dividends on a standalone basis (this compares to an expected increase in earnings & the level of dividends for the 2018 financial year under the Kiwi proposal relative to NPT on a standalone basis)
  • was highly reliant on an increase in NPT’s gearing position (total debt:total assets) to a level higher than under the Kiwi proposal in order to achieve any enhancement in earnings or dividends for shareholders compared to the expected position for NPT for the next financial year, and
  • the properties to be acquired under the Augusta proposal are lowrise Auckland office buildings with the majority of the rent received from single tenants. The board was concerned that the low yields offered by the buildings did not take into account longer-term tenancy risks and provided NPT with no real options in the event of increases in interest rates
  • NPT would be insufficiently compensated for selling effectively perpetual management rights to Augusta. The payment proposed by Augusta was the lowest under the proposals NPT received
  • there is potential development risk associated with the Augusta proposal, with construction of one of the 3 properties to be acquired having only just started (this property would represent about 28% of the NPT portfolio by value post-transaction on a pro forma basis)
  • the properties to be acquired under the terms of the Augusta proposal were not owned by Augusta and Augusta did not necessarily have direct control over them, thereby introducing significant transaction uncertainty relative to the Kiwi proposal, and
  • the amount of additional debt & equity capital required by NPT under the Augusta proposal was significantly more than under the Kiwi proposal. There would therefore have been substantially greater execution risk under the Augusta proposal.

NPT has called the special meeting for Friday 21 April (11am at Link Market Services Ltd, Deloitte Centre, 80 Queen St).

Kiwi weighs in with support for deal

Kiwi Property also stated its own view yesterday on how the 2 listed companies would progress their relationship. Kiwi chief executive Chris Gudgeon said: “The partnership proposal will align the interests of the 2 listed property companies and provide a clear pathway to grow value for both companies. The proposal has the potential to deliver NPT shareholders with an immediate lift in earnings and increases NPT’s scale & relevance, positioning the company to grow & prosper.

“Our proposed management agreement with NPT is best in class and offers NPT shareholders an ability to terminate the agreement without cause, if they should ever deem this to be in the best interests of the company, at some point in the future.

“Kiwi Property’s interests will be aligned with NPT shareholders’ through its 19.9% shareholding in NPT and we will be strongly motivated under the terms of the management agreement to perform for NPT shareholders.”

Kiwi chair Mark Ford said: “This partnership proposal is a logical opportunity to create further value for our shareholders by using our existing property & funds management platform to generate additional management fee income.

“We will retain an interest in North City shopping centre & the Majestic Centre through our shareholding in NPT, and the proposal also serves to release capital which we can use to fund our planned expansion of Sylvia Park shopping centre.

“If we receive the support of NPT shareholders to our proposal, we can help drive NPT’s future investment performance by using our specialist management capabilities to intensively manage their assets and by seeking investment opportunities that create further value for NPT shareholders.”

Earlier stories:
27 March 2017: Kiwi proposal for NPT finalised “in next few days”
6 March 2017: NPT works through detail of Kiwi bid
12 January 2017: Augusta drops court action but NPT meeting likely delayed
8 January 2017: NPT interim report shows company treading water
14 December 2016: Kiwi proposal for NPT revealed
2 December 2016: Augusta gets February court date while NPT continues with meeting plan
23 November 2016: Lack of revaluations halves NPT profit
4 November 2016: NPT considering more than just Augusta’s proposal
31 October 2016: 
Fourth era for NPT a hard option to combat
27 September 2016: Augusta buys 9% of NPT

Attribution: NPT & Kiwi releases, proposal documents.

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NPT sticks to its programme as Augusta goes to court

Augusta Capital Ltd has filed proceedings in the High Court seeking orders requiring NPT Ltd to call a meeting of its shareholders earlier than next February.

Augusta bought 9.26% of NPT Ltd from the Accident Compensation Corp at the end of September and put a proposal to NPT at the end of October. It wanted NPT to buy a portfolio of 3 unidentified properties valued at $329 million, it wanted to buy NPT’s management contract, and it wanted to help NPT grow its portfolio to improve returns. When NPT’s 3-man board baulked, Augusta asked for its proposal to go to shareholders and for the NPT board to be replaced.

The NPT board said in response it had already been considering other proposals “close to the date Augusta presented its proposal” and wanted to give due consideration to all of them. It engaged independent financial advisor Northington Partners Ltd to assess all proposals, said it would set a meeting date in January and expected that meeting to be in February.

On Monday, the NPT board said it had received 3 substantive proposals apart from Augusta’s.

NPT chair Sir John Anderson said its timetable was fair & reasonable, taking the Christmas break into account: “The board is concerned that Augusta is trying to play a fast game in an attempt to hurry the process in its own interests. Shareholders & interested parties should consider Augusta’s likely motives in trying to effect board changes to result in its own nominees holding the majority of board seats immediately ahead of consideration of its own proposal under which it would sell properties to NPT and assume management control of the company.

“The board remains open to Augusta’s proposal and wishes to assess that proposal and all other proposals through a robust process, and will keep shareholders regularly updated.”

Earlier stories:
16 November 2016: NPT calls in Northington to weigh up options
4 November 2016: NPT considering more than just Augusta’s proposal
31 October 2016: Fourth era for NPT a hard option to combat
27 September 2016: Augusta buys 9% of NPT

Attribution: Company release.

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Augusta marks up successes but net profit falls

Mark Francis.

Mark Francis.

Augusta Capital Ltd managing director Mark Francis said yesterday the exit from ownership of the Finance Centre buildings was transformational, but 2 other deals underpinned its success in the September half-year.

One was the launch of its first wholesale fund and the other was its largest equity-raising.

However, net profit after tax fell 28%, from $7.24 million to $5.23 million, primarily due to higher current tax expense, recognising transaction costs associated with future property disposals and fair value loss on investments.

“The confirmed exit of the Finance Centre is a transformational deal that sets Augusta clearly on the path of property funds management,” Mr Francis said in the release on the half-year result.

Augusta lifted distributable profit (a non-GAAP disclosure which represents underlying financial performance) by 50%, from $2.66 million in the September 2015 half to $4 million, and the funds management side of the business increased its return from $1.27 million to $2.78 million, driven by one-off deal fees & strong growth in recurring management fees.

Partially offsetting those gains, the return from the investment property portfolio fell 13%, from $1.37 million to $1.19 million, following divestment of 7 City Rd in August 2015 and higher tax expense due to a lower depreciation claim.

The company completed 3 new syndications and established the Value Add Fund No 1, which in total generated $4.75 million of gross offeror’s & underwriting fees, as well as creating a further $1.1 million of ongoing gross annual management fees.

The Finance Centre is subject to an unconditional sale agreement for $96 million. Sale of the 4 titles will be staged between December 2016-April 2019. Auusta recognised a $3.2 million revaluation gain and $1.4 million of transactional costs relating to the sale. The fair value of the Finance Centre at 30 September was $92.3 million. Settlement of Augusta House has been held up due to a delay in obtaining new titles.

The property held for sale at 31 March, 16 Kitchener St, was sold to the Value Add Fund No 1 on 1 April at carrying value of $16.5 million.

Mr Francis said Augusta’s current tax obligation was $1 million higher due to the strong performance, and also because no depreciation could be claimed on Augusta House (19 Victoria St West), increasing tax expense by $140,000.

Augusta confirmed on 1 July that the loss of PIE (portfolio investment entity) status became effective as a result of the continuing success & growth in value of the funds management business

Mr Francis said the group would continue with its dividend policy of paying 75-80% of full-year net profit after tax (excluding capital gains or losses, realised or unrealised).
The company’s weighted average lease term decreased from 6.3 years to 5.7 years and portfolio occupancy was steady on 97%.

Augusta bought 9.26% of NPT Ltd on 30 September for $10.95 million, at 73c/share, and has since marked the value of that stake down by $685,000 to $10.27 million, or 68.5c/share. Augusta put a proposal to NPT’s board to increase its portfolio to $500 million with the injection of 3 unnamed properties worth $327 million, and is pushing for the shareholder meeting on its proposal to be brought forward from February, which is when the NPT board intends to hold it.

Augusta completed 3 property syndications during the half-year – Building A Graham St, Ashburton Central and Quinns Hill Rd – and established the Value Add Fund No 1. It also sold 8 properties.

The group now manages 135 property vehicles valued at $1.51 billion. That figure will rise to $1.6 billion when syndication of Building B Graham St settles next Wednesday, 30 November.

Net asset backing rose from 94c/share in March to 97c on revaluation of the Finance Centre. Based on the March PWC valuation of the funds management business, Mr Francis said the indicative net asset value/share was in the range of $1.11-1.18/share.

Attribution: Company release.

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Augusta settles Southgate purchase with 36% of syndication unsold

Augusta Funds Management Ltd said on Friday its parent, Augusta Capital Ltd, had subscribed for $12.45 million (36.3%) of the $34.3 million of equity sought in its Southgate Takanini Shopping Centre syndication.

Managing director Mark Francis said the company subscription was made under its underwrite and those units remained available for sale. They are accretive to the company’s earnings while it holds them.

Augusta announced its $58.5 million purchase of the centre from Retail Holdings Ltd (now Urban Partners Ltd) subsidiaries in December and settled last Thursday. The 21,000m² retail centre is fully occupied.

Augusta’s syndication offer was fully underwritten, including $23 million by Augusta Capital, and the balance was funded through new debt facilities.

Attribution: Company release.

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Augusta buys one building in Telecom complex to syndicate

Augusta Capital Ltd has entered an unconditional agreement to buy Mansons’ Telecom Place building C at 167 Victoria St West for $65 million, with the intention of offering $50,000 syndication units.

Mansons Holdings Ltd put buildings A & C on the market last week after going close with a couple of attempts to sell the complex of 4 buildings offmarket.

Augusta said the lease was being varied to provide a 10-year lease to Telecom NZ Ltd until 31 May 2024, with 3% annual rent increments starting on 1 November 2014. Mansons agreed to provide a 10-year capex guarantee, effectively making the lease triple net for its initial term.

Augusta Funds Management intends to syndicate the building before the scheduled 1 October settlement date, seeking $39 million of investor equity in $50,000 units, fully underwritten. Parent company Augusta Capital will underwrite $25 million and the balance will be funded through new debt facilities. The offer is expected to open in mid-July.

Mansons completed the 4-building complex in 2010. The 2 buildings for sale are both A grade with 5 green star ratings, 100% leased to Telecom for 10 years with 2 6-year rights of renewal, and with the 10-year vendor defects & capex warranty.

Building A has a 7944m² floor area, 78 parking spaces, storage & signage rights, net rent at 1 November of $5.177 million/year.

Building C has a 7495m² floor area, 76 parking spaces, storage & signage rights, net rent at 1 November of $4.867 million/year.

Attribution: Company release.

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