650 Great South Rd, Ellerslie is owned by the company that copped a warning from its auditors. Photo / Maat Consulting
650 Great South Rd, Ellerslie is owned by the company that copped a warning from its auditors. Photo / Maat Consulting
An Auckland property investment company copped an auditor’s warning for borrowings exceeding assets by $13.9 million, breaching its covenants.
Neil Tuffin, a director of Maat Consulting, which is managing the offering of shares in an Ellerslie office block at 650 Great South Rd, said the flag went up whena loan was expiring in May. That had since been resolved with a new loan drawn down, he said.
Major accounting firm BDO tagged the March 31 year accounts of a company 650 Great South Road, which is offering shares in the block, with the red flag: “material uncertainty related to going concern”.
“We draw attention to the going concern section ... which indicates that the company is in breach of the financial reporting covenants in relation to its borrowings. Therefore, the company’s borrowings are on demand, which means its current liabilities exceeded its total assets by $13,908,602 at March 31, 2023,” BDO wrote.
“These events or conditions indicate that a material uncertainty exists that may cast significant doubt on the company’s ability to continue as a going concern.”
The company, 650 Great South Road, made a $2.6m loss for the March 31, 2023 year, a turnaround on last year’s $2.9m profit. That was because a revaluation reversed the previous year’s $1.5m value gain into a $4.6m value loss on the Ellerslie building.
Maat says the property was bought for $31.8m in 2016 and forecast a 9 per cent return. It lists tenants as Unisys NZ - which has since left the building - Fletcher Construction, the Ministry of Health, the Northern Regional Alliance and a Government tenant. The IRD has since left the building.
Tuffin said rising interest rates triggered bank covenant breaches within a number of property syndicates in New Zealand.
“Our investors are fully aware of the need to raise capital to reduce debt. We are also working on leasing available space. The plan to raise capital and the effects are disclosed in the notes to the financial statements,” Tuffin said.
Those accounts were prepared under the assumption the company will be able to repay its debts as they fall due in the normal course of business, he said.
Neil Tuffin of Maat Consulting says he's tried to help investors. Photo / Maat Consulting
“The manager of the company has considered all information available at the date of signing the financial statements and is of the opinion that the company is a going concern based on available liquidity levels and forecast operating cashflows being sufficient to cover future obligations when they fall due. At reporting date, current liabilities exceed current assets by $13,908,602 due to the borrowings from the ASB bank expiring on May 31,” he said.
After that date, the loan was renewed until November 30, with the condition that the net rental coverage not be less than 1.5 times then.
“At the time of renewing the loan, the net rental coverage was 1.21 times and was at 0.93 times at June 30,” Tuffin said.
The management is now marketing vacant ground floor and level one tenancies in the office block “and intends on completing a further capital raise to lower the debt with the ASB”.
“If $5m is repaid to the ASB by November 30 and the current tenants remain in the premises, the net rental coverage will increase to 1.81 times,” Tuffin said.
Investors’ payouts have been cut: “Given the uncertainty of the interest rate rise expected coupled with the exit of IRD, the directors have decided to cease the dividend return for February and March 2023. This will enable $96,500 per month in cash reserves to be accrued over this period,” a letter from Maat investor relations manager Jodi Tuffin said this year.
She said Maat understood that some investors would be feeling concerned.
Neil Tuffin told the Herald today that the Great South Road company was an offer open to retail investors only and subject to the Financial Markets Authority’s scrutiny.
That is the same with 11 properties which Maat has raised capital for, he said.
Areas Unisys and Inland Revenue had leased in the Ellerslie block were being refurbished, Tuffin said. Unisys’ name remains on the building.
Nido was a complete disaster all round. Photo / Michael Craig
Maat is the same business that raised money to fund West Auckland’s now-shut Nido store, planned to be New Zealand’s biggest homeware and furnishing shop. It closed suddenly in 2021 within a few months of opening.
A crippling $41.3m loss for investors in that scheme prompted shareholder advocate CNP Holdings, whose director is Aucklander Craig Priscott, to lodge a legal claim against those who raised money to fund the store.
Many investors bought shares in various businesses, including Central Park Property Investment. That company revealed the court action in notes to the accounts.
In April, CNP Holdings “commenced proceedings against Central Park Property Investment, Maat Consulting, their directors and certain employees, alleging breaches of the Financial Markets Conduct Act 2013 in relation to the Nido development”, said the accounts signed by Tuffin and fellow Maat director Mark Hughson.
But Tuffin said CNP has never owned shares in Central Park Property Investment and that case was without merit.
Anne Gibson has been the Herald’s property editor for 23 years, has won many awards, written books and covered property extensively here and overseas.
