Paramount Property Trust, the new sharemarket float, has similarities to CBD New Zealand Limited (now called Southern Capital).
In 1997 CBD bought three commercial properties in Auckland for $39.7 million or $2510 per lettable square metre.
The prospectus was extremely optimistic with continual references to high-quality buildings, good locations, close to 100
per cent occupancy, a broad spread of tenants and high carparking ratios.
The company was listed on May 13, 1997, with just 5000 shares trading at the $1.00 issue price, the only time the company's shares traded that high.
CBD failed to meet its prospectus forecasts and 15 months after listing its shareprice had declined to 59c.
The Asian crisis, overbuilding in Auckland, lack of institutional support and its small size were all blamed for CBD's problems. In 1999 the company merged with Southern Capital and its three buildings have since been sold for $26.6 million or $1680 per lettable square metre.
This represented a loss of $13.1 million on the original purchase price.
Paramount is buying two buildings from Symphony Group for $57.3 million or $3690 per lettable square metre.
That is 120 per cent more, on a square metre basis, than CBD/Southern Capital realised for the sale of its properties.
Paramount will argue that its two buildings, AGC Building in the Viaduct Harbour precinct and Ericsson House in Carlton Gore Rd, have more carparks and generate more income, but it is not known what level of upfront incentives, if any, have been given to tenants to achieve this rental income.
The Symphony-promoted entity also has more retail space, 17 per cent compared with CBD's 4 per cent, but AGC Building is on leasehold land and will be subject to a rent review on January 1, 2005.
Paramount is buying the 5310 square metre Carlton Gore Rd property for $3920 per lettable square metre whereas CBD/Southern Capital sold its remaining 4961 square metre property for $1570 per lettable square metre just six months ago.
The new trust has indicated it will buy further properties from Symphony.
As Paramount is already highly geared unit holders will be asked to contribute additional equity.
This will have a negative impact on the trust's unit price as the new listing is too small to attract major institutional support.
Paramount Property Trust is an extremely unattractive issue.
Investors should be able to obtain far better value from entities already listed on the NZSE.
* bgaynor@xtra.co.nz
