Augusta Funds Management is planning to make a public offering that will allow smaller investors to share in the ownership of a new premium grade Auckland commercial property which has fast growing accounting software company Xero as its anchor tenant.
Xero has taken a long-term lease over more than half of the net lettable space in the striking office building developed by Mansons TCLM Ltd at 96 St Georges Bay Rd, Parnell.
Augusta has unconditionally agreed to purchase the building with a total net lettable floor area of just over 11,000sq m and its freehold 3846sq m site for $116 million.
Augusta is aiming to raise $68.5m of investors' equity to facilitate the acquisition through the offering of 1370 individual interests of $50,000 in the Augusta St Georges Bay Rd Property Trust, that will then own the property.
A $53.5m loan from Westpac, with interest rates fixed for four years, will cover the balance of the purchase price and establishment costs.
Mike Houlker, Samara Phillips and Sarah Prebble, of Bayleys Investment Products and Syndications division, will be the sole selling agents for the offering which is expected to provide investors with an initial forecast annual pre-tax return of 7 per cent, paid monthly.
"This newly-built commercial property comprises four levels of high quality office accommodation and three ground floor retail premises along with two levels of basement parking for 177 cars," says Mark Francis, Augusta's managing director.
"An impressive central atrium allows natural light to stream into and throughout the building; while the well-designed floor plates provide long-term flexibility to vary tenancy sizes.
"The building has been constructed to a five Green Star rating by Mansons, which has built more certified Green Star office premises than any other developer in New Zealand. Mansons also stands behind its work and provides a 10-year expenditure and defects warranty giving investors peace of mind that there will be no unforeseen capital expenditure."
Xero is leasing 6005sq m on two levels of the building on a 12-year lease with rights of renewal through until 2042. Fit-out works are scheduled to commence next month with all of the company's 650 Auckland employees expected to move into the building in November.
Founded in 2006 in Wellington, ASX listed Xero is one of the fastest growing 'software as a service' companies globally with nearly 1.4m subscribers and a market capitalisation of A$6 billion (NZ$6.56b). It develops cloud-based accounting software for small and medium-sized businesses and employs more than 2000 people across 20 international offices.
"Xero is one of New Zealand's great global success stories and is considered a leader in Australasian and United Kingdom cloud accounting markets," Francis says. "It is among an increasing array of high calibre tenants now occupying buildings that Augusta manages."
Houlker says additional comfort for investors comes from the fact that the rental on Xero's lease is secured by a bank guarantee for $13.5m plus GST which will gradually reduce to nil over the initial 12-year term of the lease.
The other major tenants of 96 St Georges Bay Rd are Harrison Grierson and Independent Liquor (NZ) Limited. Both have an initial lease term of 10 years.
Harrison Grierson will occupy the 2866sq m top floor of the building and its lease has a bank guarantee of $6m which will also gradually reduce to nil over its initial lease term. Established 130 years ago, it is widely recognised as one of the leading engineering and design consultancies in New Zealand. It operates throughout Australasia and the Pacific Rim and employs 350 people.
Independent Liquor is leasing 1381sq m on Level 1. It is the main New Zealand operating subsidiary of giant multinational Asahi Group Holdings Limited, which is listed on the Tokyo Stock Exchange. Asahi does not guarantee Independent Liquor's lease. Independent Liquor's most recently publicly available financial statements note that the company had a profit of $23.42m for the year ended December 31, 2017.
Houlker says Mansons has agreed to underwrite the rental on the remaining vacant 421sq m of office space on Level One and ground floor retail space of 146sq m not yet leased, for nine years or until tenanted.
Phillips says the St Georges Bay Rd building, located on the corner with Garfield St, is close to the Auckland CBD and Parnell retail/entertainment hub and train station, with excellent links to the motorway system.
"St Georges Bay Rd is undergoing a major transformation with Mansons constructing a six Green Star rated head office building next door to this building along with recently completed developments housing a range of retail and food outlets along St Georges Bay Rd and Faraday St."
Houlker says the Augusta St Georges Bay Rd Property Trust offering will be fully underwritten and will register to be a portfolio investment entity (PIE). The amount of tax paid will be based on a subscriber's prescribed investor rate (PIR) up to a maximum of 28 per cent.
The trust will be managed by Augusta Funds Management, a wholly-owned subsidiary of NZX listed Augusta Capital Limited which has about $1.85b of assets under management. Day-to-day facilities and property management services for the building will be provided by Bayleys Property Services Limited.
Augusta Funds Management is anticipating registering a Product Disclosure Statement for the offering within the next week which will be made in accordance with the Financial Markets Conduct Act.
This will provide details on how the forecast pre-tax return is calculated and the risks associated with the investment.
No money is currently being sought, and no units in the trust can be applied for or acquired at present.