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Augusta St Georges Bay Road Offer

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  • Augusta St Georges Bay Road Offer

    Augusta have a new commercial property offering with 7.0% forecast returns. $50,000 minimum investment.

    Key Highlights:
    • Xero Limited is the anchor tenant, making this their new Auckland base. They are the market leading cloud accounting software company with 1.386 million subscribers, and ASX listed with a market capitalisation of approximately A$6.31 billion+. They employ approximately 2,000 people across 20 international offices. The lease provides for an initial term of 12 years with rights of renewal until 2042. There is a bank guarantee for $13,500,000 plus GST (which reduces to nil during the initial 12 year term of the lease).
    • Other major tenants, both with initial 10 year leases and making the property their new corporate headquarters are Harrison Grierson – well regarded engineering consultancy established 130 years ago, and Independent Liquor (NZ) Limited – a member of the multi-national Asahi Group Holdings Limited which is listed on the Tokyo Stock Exchange++.
    • The property will be completed prior to settlement (scheduled for 28 September 2018).
    • Constructed by one of New Zealand’s leading property developers – the award winning Mansons TCLM Limited, who will also provide a 10 year capital expenditure warranty+++.
    • Offer is fully underwritten.

    Visit for the PDS.

    My initial thoughts:
    - Return looks pretty good
    - Lease arrangements of good length with good tenants
    - Management and setup fees are high
    - Initial price is slightly higher than the independent valuation
    - May be difficult to exit holing if required

    Does anyone have much experience with commercial property and these types of arrangements? I have no experience in this area but am keen to diversify a percentage of the portfolio into the sector.

  • #2
    Hi Crux

    Full product disclosure with the important small print for this fund still to be issued I think?

    Have a read of this from on the previous Augusta syndication - one point I reckon that is salient is comparing the single property Augusta syndications to other NZX listed property companies

    Whole article at under the property tab.

    Quote -
    Most syndicates also have high set up costs which come directly from the investors' equity, reducing the value of their investment, and 33 Broadway has set up costs of $9.5 million.

    The syndicate is offering 1670 units at $50,000 each, raising a total of $83.5 million from investors, with ASB providing an interest-only first mortgage of just over $68 million to cover the balance of the property's purchase price and the scheme's set up costs.

    The scheme's Product Disclosure Statement (PDS) doesn’t provide an initial net tangible asset backing (NTA) figure, but it forecasts investors' equity to be $75.675 million as at March 31, 2019.

    That suggests that every $50,000 invested would have net asset backing of around $45,300.

    A pre-tax return of 7% a year is nothing to sniff at, and with the major banks currently only offering around 4.3% on five year term deposits, it is understandable that many investors would be prepared to overlook the potential drawbacks of a syndicate for its higher returns.

    However some of the NZX-listed property vehicles may also make an attractive alternative, without some of the drawbacks of a syndicate.

    Goodman Property Trust’s share price at the beginning of this week was providing a gross dividend yield of 6.8% and Argosy Property was providing a gross dividend yield of 7.56%, while Augusta Funds Management’s NZX-listed parent company, Augusta Capital, was providing a gross dividend yield of 7.41%.

    Because Goodman and Argosy are both listed entities, it would be a straight forward matter for investors to sell units/shares in them if they wanted to cash up, and both had NTA’s which were slightly above their share/unit prices. That means their investors wouldn’t be suffering the loss of equity that high set up costs inflict on syndicate investors.

    That may cause some potential investors in 33 Broadway to think its 7% projected return may be a little on the light side.

    Last edited by Crackity; 25-07-18, 12:28 AM.


    • #3
      Thanks for the reply Crackity. Pretty much mirrors my outcomes from the research I did last night.

      You can read all info here (PDS, Valuations, etc): Go to Click 'Search Offers', search 'AUGUSTA ST GEORGES BAY ROAD' and then click 'Documents'.

      A couple of key things:

      - The valuation price is less than the offer price - due to the high establishment fees
      - The valuation is a DCF & Income Capitlisation approach. No NTA.
      - The build costs is ~$10,000/sq.m which seems very high. Would be interesting to know the actual build cost as I suspect it will be much lower than the valuation
      - A major economic downturn could realistically cause breaches to bank covenants. This would lead to a fire sale. I doubt the resale value would see investors getting anything near their original investment back.
      - Listed property has similar returns with the benefit of liquidity and a known NTA.