A new $170 million South Island industrial property fund has been launched, opening an offer to professional investors in June and closing the first round of that yesterday.
FortHill Property takes its name from a landmark near Milton, about 40 minutes south of Dunedin and the company owns a collection of 11 industrial buildings in Christchurch and Dunedin.
It is forecasting 6.5 per cent to 7 per cent annual returns, almost double trading bank term deposits which is chiefs say is one of the reasons it was formed.
The high returns are also an indicator of higher risk and one professional investor said he had examined the offer and had some issues.
"The underlying assets are ok but it's Christchurch property heavy. So there's plenty of potential for new supply to compete with it.
"The fees are full. The return assumes relatively high levels of gearing versus the listed property securities. The Stewart family are in control so investors need to be comfortable with that."
Nick Maier, the fund's general manager, said the company would make further offers as it bought more properties.
The first offer closed yesterday, he said, but further offers were planned. Shares in the initial offer will be issued to investors around October 31, he said.
FortHill Property in the meantime is wholly owned by solicitor Cameron Murphy of Invercargill, the Companies Office shows. Maier said but that would change once the shares were issued.
Wealthy South Island individuals were buying shares, he said, rather than Auckland-headquartered institutional investors and FortHill is not a syndicator but a company.
NZ corporates turn to bond market as tighter banking rules loom
All the properties in the fund were developed by Milton-headquartered builder and developer Calder Stewart Group, he said. Its owners, the Stewart family, own 30 per of FortHill Property, Maier said. That is not the Stewart family of Christchurch who were involved in the plastics industry.
Annual FortHill returns are forecast to be 6.5 per cent to 7 per cent, with dividends paid quarterly, he said. The weighted average lease term of the 11 buildings is 12.6 years. Often lease terms on investment offerings are nearer eight to 10 years.
Chairman Karl Smith said the properties were rented to national or international tenants including Waste Management, Fletcher, Penske, AB Equipment, and Komatsu.
FortHill plans to buy more properties in the next year.
"We are pleased to have established FortHill Property with the first acquisitions from Calder Stewart and strong investor support. Our acquisition pipeline is looking excellent for 2020 and we expect to add new properties to the portfolio in the new year," Smith said.
Maier is the son of Sherry and Auckland businessman Sandy Maier, former chairman of South Canterbury Finance and appointed by the Government to try to save it.
Nick Maier said he had left Auckland and moved to Christchurch to work for Calder Stewart and there was "quite some Mainland pride" in the new business.
Smith said: "With bank rates at all-time lows, we particularly noticed investor appetite for strong returns and long lease terms and expect further interest from long term investors."
Mainstream trading bank term deposit rates are mostly below 3 per cent: for example, Westpac is today offering 2.7 per cent for five-years.
The professional investor said the full schedule of fees being charged by the manager wre at the upper end, compared to what investors would pay in some other wholesale unlisted funds and listed real estate funds, "but probably below what people would have to pay if they tried to do this themselves".
Maier said professional advice was supplied by Chapman Tripp and PwC and the business was "middle of the road on management fees and structures".