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Investors with as little as $50,000 are being offered a stake in one of the buildings that comprises Spark New Zealand's (Telecom’s) head office complex in central Auckland in one of the biggest single property syndications undertaken in New Zealand.
A total of 780 $50,000 proportionate interests totalling $39 million are being offered for sale by Augusta Funds Management [NZX: AUG] in a 7495sq m building at Spark (Telecom) Place, on the corner of Victoria St and Dock St in Auckland’s CBD, which will provide investors with a projected initial income return of 8% for the first full year ending March 31, 2016.
The syndication follows Augusta’s entering into an unconditional agreement to buy Building C, one of four buildings in the Spark (Telecom) Place complex, for $65,186,117, in a sale brokered by Paul Hain of Bayleys’ Auckland office.
The building, which is fully leased to Spark (Telecom) New Zealand on a 10-year lease from June 1, 2014 with two rights of renewal of six years each, sold at a 7.25% yield on its current net annual rental income of $4,725,993.
The syndication is being structured along the same lines as other recent successful Augusta offerings, as a proportionate property ownership scheme, with the opportunity to buy a beneficial interest in a proportion of the registered freehold unit title in the property.
The offering is being marketed by Mike Houlker, Samara Phillips and Sarah Pebble of Bayleys Real Estate, with investors able to subscribe for one or more of the $50,000 proportionate shares. The balance of the purchase price is being funded by an extendable loan facility from ASB Bank, with an initial 36-month term.
Mr Houlker says the building being syndicated forms part of a premium grade campus style office development that was purposebuilt by Mansons TCLM for Spark (Telecom) New Zealand and completed in 2010.
Three of the buildings in the development are leased by Telecom New Zealand, now Spark New Zealand Trading, with Television New Zealand now leasing the remaining building. A unit title subdivision of the development was completed in June, which has created separate freehold unit titles for each of the four buildings.
“Spark (Telecom) Place is one of the most modern and highly specified office building complexes in New Zealand and has achieved 5 Star office design and built certifications from the New Zealand Green Building Council,” Mr Houlker says.
“Building C is located in a high-profile corner position in a growth CBD location where there has been substantial office development activity in recent times, with Mansons also currently building a 18,600sq m office complex across the road and Fonterra’s new head office on Fanshawe St currently under construction. There are a number of other big name tenants located in the surrounding area, such as TVNZ, Oracle, Vodafone, KPMG, Microsoft, NZI and Kiwibank.”
Spark (Telecom's) lease, which includes underground parking for 73 cars, runs until May 31, 2024, with rights of renewal until May 31, 2036. The lease has built in rental growth, with fixed annual increases of 3% a year for the initial 10-year term. The next increase, due in November 2014, will increase the building’s annual net rental income to $4,867,000.
Mr Houlker says another attractive feature of the offering is that Mansons TCLM is providing a capital and defects warranty for the initial term of the lease until May 31, 2024.
The proportionate ownership scheme will be managed by Augusta Funds Management and overseen by Covenant Trustee Ltd as statutory supervisor.
Augusta Funds Management is a wholly-owned subsidiary of NZX listed Augusta Capital Ltd and, following its merger with KCL Property earlier this year, now has close to170 properties valued at approximately $1.17 billion under management, managing director Mark Francis says.
He says Augusta is able to use its group balance sheet to secure properties unconditionally before presenting them to the market for syndication.
“This generally means we are able to acquire assets at better prices and on more favourable terms than other syndicators who can be forced to pay more to essentially ‘buy time’ to raise investor equity before going unconditional on a purchase.”
Mr Francis says it has also meant that assets can sometimes be acquired at below valuation, which is the case with the Spark (Telecom) building, which has recently been valued by Arthur Harris and Jonathan Verbiest of Jones Lang LaSalle at $67,000,000 .
“We also underwrite a large proportion of our offerings which means that we only offer assets to our investors that we would be happy to own ourselves.”