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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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