NZX-listed Asset Plus, with a $112 million market capitalisation, yesterday held a groundbreaking ceremony for a $142m new Auckland project which it won shareholder approval to proceed with.
Its boss showed strong confidence about such a large scheme for the small NZX-listed property business, saying such numbers were irrelevant because once the development was finished, the company would be worth so much more.
Mark Francis, Asset Plus managing director, said iwi representing Tāmaki Makaurau, led a groundbreaking ceremony yesterday with new Auckland Council chief executive Jim Stabback, representatives of Augusta Capital and project partners.
The new building will be 15,900sq m, six levels with two extra basement car parking levels for 224 vehicles, floor plates of a third of a hectare of 3000sq m, be five-star rated and most of it leased for an initial 15 years to Auckland Council as its new northern service hub.
That will bring staff down from Orewa, across from the west and from the city and other northern parts into one central location which the council stipulated had to be near major public transport and amenities. The site at 6-8 Munroe Lane, Albany is near the Northern Busway, shops and up from Oteha Valley Rd.
NZRPG owner and founder Mark Gunton expressed dissatisfaction with the council picking Albany. He wanted it to instead pick his multi-billion dollar Westgate site, indicating that would have been better.
Shareholders voted for the company to go ahead with the project on September 29 and on October 1, Asset Plus completed a fully underwritten capital raise for $60.2m to start the development and it held a shareholder EGM for investors to vote.
Completion is planned for 2023 and the construction contract is let to Australian-headquartered Icon which is now finishing The Pacifica apartments on Gore St and Commerce St in the CBD as well as building a new hotel on the corner of Wyndham and Albert Sts.
Of the comparison between current market capitalisation with the Albany project value, Francis said: "I'm not sure you're looking at it the right way. Once it's done, we're going to add that value of assets. We're creating equity through this development."
Asset Plus released four pages of risks on the project but Francis again expressed confidence: "The risks associated with any public offering - you always have pages."
The company's borrowing will rise from $75m to $130m, with a loan to value ratio of 43 per cent although, Francis said yesterday, that would still be well below the company's limit of 50 per cent.
Risks of unforeseen costs during the project were cited, along with general construction risks.
"If completion is delayed beyond December 16, 2022, then liquidated damages are payable to Auckland Council. Full recovery might not be possible from Icon," the shareholder presentation said.
All that could hit shareholder dividends.
Tenant default, rent relief and abatement were other possible risks, along with property valuation uncertainty and an economic downturn as well as the impact of Covid-19.
Grant Lowe and Arie Dekker, Jarden research analysts, have an "outperform" on Asset Plus, upgrading it from neutral, noting the successful equity raise and saying the company was finalising its bank facility renegotiations "thereby securing the necessary capital to progress its planned Munroe Lane office building".
In research out yesterday, they said now the project's potential was being unlocked by the company, the focus was shifting to Asset Plus's Graham St offices in the CBD which the council is leaving.
"Once Munroe Lane is complete, Asset Plus will have doubled the size of its asset base to
about $300m, but with expected gearing rising to around 43 per cent. APL plans to divest its Stoddard Rd retail centre, which if sold at book value of $38.5mn would see gearing back down to ~35 per cent.
"Asset Plus plans to maintain its dividend at 1.8cps through the Munroe Lane construction with those dividends partly funded through debt. Investor attention now turns to Graham St where a similar funding problem exists and its existing tenant is set to vacate in December 2021.
It started marketing the Graham St block in August and will look to secure pre‐commitments before deciding on its preferred full‐scale redevelopment or a more modest refurbishment.
"Clearly unlocking the Munroe Lane funding is a positive, but Asset Plus remains a company that is trading well below an efficient scale," Lowe and Dekker wrote.
Jarden's 12‐month target price reduced from 39c to 37c.
Securing a tenant for Graham St and addressing the funding gap for redevelopment were now key issues for the business, the analysts said.
Asset Plus is today trading at 31c, down from 64c last December.