Property chiefs set to raise $405m

Goodman Property Trust's John Dakin. Photo / Richard Robinson

Big property investment and development businesses are seeking to raise $405 million in three separate deals and already $150 million has been allocated.

NZX-listed Goodman Property Group and Kiwi Income Property Trust are raising $275 million between them while about-to-list DNZ Property Group wants $130 million.

The biggest deal is Goodman's $150 million bond issue, which has succeeded three weeks before closing.

Craig Tyson, ING NZ investment manager, said there was no pattern to the three deals and all were sparked by different issues.

He praised the Goodman deal which he said was simply extending the duration of funding and paying down bank debt.

The Kiwi deal was equity-rising for a new property development. "We don't know details yet but can't see how it will stack up," he said.

DNZ's listing was a move to pay down debt and provide liquidity to existing investors, Tyson said.

John Dakin, chief executive of Goodman's manager, said yesterday his business had commitments from brokers to raise $150 million. Goodman wants the money so it can diversify its debt instruments and extend the terms of its borrowings.

The bond issue prospectus shows Goodman citing the deal as a prudent move to widen debt spread. Goodman has bank facilities in place to the tune of $630 million, of which it had drawn $403.4 million by September 30.

Dakin said the trust wanted to extend the weighted average duration of the debt profile and establish a new debt platform.

The bonds will pay 7.75 per cent annually and mature on June 10, 2015.

An initial $100 million was sought with the ability to raise a further $50 million but Dakin said the deal succeeded weeks before it closed on December 10.

"The high level of demand means the entire offer of $150 million has been allocated to NZX participants and institutional investors," he said yesterday.

First NZ Capital Securities, ANZ and Craigs Investment Partners are lead managers on that issue.

The second deal is by DNZ which is about to start issuing shares on Monday. It is seeking $130 million in an initial public offering on the NZX, fully underwritten by Goldman Sachs JBWere.

The IPO deal is a straight share issue, expanding the existing shareholder base of about 8000 investors who are mainly Money Managers' clients who bought into syndicates in the old Dominion Funds. DNZ needs the money to slice back its gearing which is above 40 per cent and the highest in the sector for property businesses.

In a more controversial deal, Kiwi this month launched a mandatory convertible notes offer worth $125 million, seeking money to develop a big new Viaduct Harbour office block.

Some have criticised it for seeking money at what is perceived to be an extremely expensive margin to expand the amount of floorspace under management so it can grow its fees.

Kiwi is offering 8.95 per cent annually fixed up until the notes' conversion date on December 20, 2014.

But professional investors have estimated fees and other payments due on this offer mean Kiwi is really raising the money at closer to 10 per cent.

"In actual fact the cost of the capital is at least 9.75 per cent.

"It's hard to see how a development will stack up against this cost of funding, especially when you add the management fee," one investor said.

Another institutional investor cited Kiwi's Sylvia Park shopping mall at Mt Wellington as an example of an asset which was expensive to develop yet continued to decline in value.

Kiwi is offering to pay quarterly interest payments on the notes which are unsecured subordinated debt instruments.

It wants the $125 million partly to reduce net bank debt but also for a new investment opportunity.

"The most advanced opportunity presently being investigated is the development of new head office premises in Central Auckland for a strong investment-grade rated corporate entity.

"Total development cost is estimated to be in the region of $120 million to $130 million," Kiwi said in its notes offer document.

Goldman Sachs JBWere, Craigs Investment Partners and Forsyth Barr are arrangers, lead managers and organisers of Kiwi's deal.

Fund-Raisers

Goodman Property Trust: Issuing $150 million bonds.
DNZ Property Fund: Issuing $130 million shares.
Kiwi Income Property Trust: Issuing $125 million notes.