A fully occupied freehold shopping centre with 31 tenancies and anchored by a Mitre 10 Mega store on a new 13 year lease is the latest syndication offering to be launched on the market by Augusta Funds Management.
A fully occupied freehold shopping centre with 31 tenancies and anchored by a Mitre 10 Mega store on a new 13 year lease is the latest syndication offering to be launched on the market by Augusta Funds Management.
Augusta has acquired the 21,147sq m Southgate Retail Centre in Takanini, South Auckland for $58.5 million at a 7.47% yield and is offering a total of 686 $50,000 proportionate shares for sale through Bayleys Real Estate. An initial cash return of 8% paid monthly is projected for the scheme’s first full year of operation.1
Augusta managing director Mark Francis says the offering follows the success of the selldown late last year of 780 proportionate shares in one of Spark’s head office buildings in Auckland’s CBD, the biggest syndication that Augusta has undertaken.
“That offering was significantly oversubscribed and indicated to us that there is definitely a market for institutional grade bigger-property syndications.
“Southgate is a different product in that it involves multiple tenancies in a large retail complex with a significant land holding of 4.5 hectares. But it has all the features that we look for in properties we syndicate, which include a strong tenancy profile, a solid, growth location and soundly constructed buildings.”
Mr Francis says one of the Southgate centre’s biggest attractions for Augusta was its long lease expiry profile. It has a weighted average lease expiry of 9.57 years by floor area and 8.45 years by income.
“The property also offers plenty of future flexibility, in that it consists of a standalone freehold title on which Mitre 10 is located plus 26 unit titles, meaning it could be exited by selling down the separate retail units individually, which typically achieve higher prices than a centre as a whole,” he says.
A valuation undertaken last month by Dale Winfield and Liam Rooney of Jones Lang LaSalle Valuation gives the property a market valuation of $61.5 million but considers a sale of the individual units could realise approximately $65.7 million.2
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 purchase 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’ syndication division, with investors able to subscribe for one or more of the $50,000 proportionate shares.
The balance of the purchase price plus costs is being funded by a limited recourse extendable funding facility from ASB Bank, with an initial 24-month term. The loan has an assumed interest rate of 5.4% percent via an interest rate swap agreement for five years fixed at 3.95% plus the bank’s margin. Subsequently, 50% of the debt will be fixed for a further three years at 3.82% plus the bank’s margin. Mr Francis says the funding facility has been structured to reduce the interest rate risk that can impact on investors’ returns.
Mr Houlker says the Southgate Retail Centre is part of a major South Auckland retail hub and is located on a prime corner site on Great South Rd next to the Takinini Shopping Centre, anchored by Countdown, and a Carters building supplies outlet, which the syndication has first right of purchase over. Also beside the property is the Takinini Village, anchored by The Warehouse and Warehouse Stationery.
Mr Houlker says Southgate is also located in a fast-growing residential area with the 84ha Addison master plan residential development being undertaken to the east of the property by McConnell Group.
Southgate Retail Centre was opened in 2003 and its buildings have an A+ Initial Evaluation Procedure (IEP) seismic rating. The shops are located around a large central open air car parking area, with spaces for just under 600 vehicles, and a number also have exposure to Great South Road.
The centre currently has no vacancies and contains a good mix of national and local retailers, says Mr Houlker. Mitre 10 NZ head leases 11,197sq m, just over half of the centre’s net lettable area and accounts for approximately 36% of the property’s income. It will renew its lease for a further 13 years and one month in May and in recognition of this the scheme will reimburse the Mitre 10 store up to $700,000 for the cost of carrying out upgrade works to the premises.
Briscoes is the second largest tenant occupying 1684sq m. There are a further 11 large format stores plus 16 smaller specialty retailers and two ATM leases. Other high-profile tenants include Carls Jnr, now part of the NZX listed Restaurant Brands Group, which leases a standalone building at the Great South Rd entrance to the centre, ANZ Bank, Repco, Bed Bath & Beyond, Baby Factory, Mad Butcher, Pizza Hutt, Liquorland, Fruit World and Subway.3
Mr Houlker says there is an opportunity for rental growth through indexed rent reviews to CPI or CPI plus 2% on a number of the leases, with the majority of the stores also having two-yearly rent reviews to market and there is a turnover rent component on some leases.
The proportionate ownership scheme will be managed by Augusta Funds Management and overseen by Covenant Trustee as statutory supervisor. Bayleys Property Services, which currently has $2.3 billion worth of property under management, will provide day-to-day property and facilities management services.
A copy of the Investment Statement and Abbreviated Valuation Report is available by contacting the selling agents:
< Mike Houlker: Head of Syndication & Investment Products
P: 09 375 8437 / M: 021 945 927
Bayleys Real Estate Limited
Licensed under the REAA 2008
<Samara Phillips: Syndicated Investments Manager
P: 09 375 8490 / M: 021 027 61373
Bayleys Real Estate Limited
Licensed under the REAA 2008
<Sarah Prebble: Syndication & Investment Products
P: 09 375 6825 / M: 027 635 3521
Bayleys Real Estate Limited
Licensed under the REAA 2008
Free Phone: 0800 BAYLEYS (229539)
www.southgateretailinvestment.co.nz
1 Projected pre-tax return for full one year period. The Prospectus contains details of how the return for the investment will be calculated and the risks associated with this investment and return. The projected return is based on the principal assumptions and method of calculation described in the Prospectus. Prospective investors are recommended to seek professional advice from an Authorised Financial Adviser which takes into account their personal circumstances before making an investment decision.
2 The Valuation Report and Abbreviated Valuation Report have been prepared by Dale Winfield and Liam Rooney of Jones Lang LaSalle Limited, Level 16, 188 Quay Street, Auckland. Dale Winfield’s qualifications are BCom(VPM), MPINZ, MRICS and he is a registered valuer. Liam Rooney’s qualifications are BProp.
3 The relevant tenants may be subsidiaries or franchisees of the main operating or parent company in New Zealand. Other than Mitre 10 and Briscoes, the obligations of the tenants are not guaranteed by the parent company/franchisor or any other person.
Neil Prentice writes for Bayleys Real Estate
