Extra features on Brisbane offer
LOCAL PROPERTY syndicators could face increasing competition from across the Tasman, as Australian funds start targeting New Zealand investors.
ASX-listed fund manager Centuria is the latest Australian company to specifically target New Zealand investors, with a new fund being set up to acquire a modern office building in suburban Brisbane.
The Centuria 19 Corporate Drive Fund will be a single asset, closeended, unlisted property fund that might appeal to New Zealand investors who are comfortable with the property syndication model and want some exposure to the Australian market.
Before looking at the relative merits of individual Australian schemes, investors should carefully consider the effects that movements in the exchange rate can have on Australia-based investments and the tax rules that are likely to apply to them.
So ideally, anyone looking at products such as the Centuria Fund should already be experienced at investing into the Australian market or be prepared to obtain expert advice on the implications of such a move.
However, even experienced syndicate investors who are not interested in investing in the Australian market may find it worthwhile to read the offer documents for the 19 Corporate Drive Fund, because it has features some people may consider superior to those offered by many of its New Zealand equivalents.
One of the biggest risks syndicate investors face is a potential lack of liquidity if they want to cash up before their scheme is wound up.
Many New Zealand syndicates do not have a fixed term, so an investor might have difficulty selling their share in a property, particularly if market conditions are unfavourable, which could potentially leave them locked in to an investment they are unhappy with and wanting to quit.
The 19 Corporate Drive Fund has an initial fixed term of six years, after which the property would be sold and the capital returned to investors.
However, the term could be extended by a further two years, by a special resolution, which would need the approval of 75 per cent of investors who cast votes on the matter.
Beyond that, any further extensions would require 100 per cent investor approval.
That arrangement would seem to strike an effective compromise, which recognises that property syndications are generally set up as long-term investments, while limiting the maximum length of time investors could find their money locked in to eight years.
The Centuria Fund also has some interesting terms in relation to the ability of investors to remove the fund’s manager and the costs associated with such a move.
Investors in several property- based funds in this country have found to their dismay that removing their fund manager can be both difficult and expensive, putting them in the disagreeable position of having to pay out a fund manager who they believe has performed poorly.
The voting threshold required to replace the manager of the Centuria fund is only 35 per cent of all units (down from 50 per cent minimum that is required by Australian law) and at least 50 per cent of all votes cast, which means there would be a reasonable chance the manager would be replaced if there was widespread dissatisfaction with its performance among the fund’s investors.
That provision is further enhanced by the lack of a poison pill provision in the Centuria Fund’s management contract, meaning the manager would not receive exit fees if it was removed prior to the fund being wound up.
Some investors may find such a provision preferable to those offered by many New Zealand syndicators. So it will be interesting to see if the entry of Australian fund managers such as Centuria to the New Zealand market has an impact on the way local operators structure future offerings.
Centuria Property Funds chief executive Jason Huljich said there had been a good level of interest from New Zealand investors to the 19 Corporate Drive Fund, so the company was likely to be increasingly active in this market.
The fund’s main attraction is almost certainly the forecast 9.75 per cent gross return it is expected to provide in its first year (exclusive of any capital gains or losses), rising to 10 per cent in year two.
Against those attractive returns, investors have risks to weigh up. The property is relatively new, well located and built to a high standard and the tenants are mainly blue chip multinationals or government agencies, although one of the tenants is in administration (the Australian equivalent of receivership).
Centuria believes over the next five to six years, it will be be able to find new tenants for any space that becomes vacant, and renew leases to existing tenants that want to stay put, on generally more favourable terms than at present.
In support of that outlook, a letter from consultancy firm BIS Shrapnel is included in the fund’s disclosure statement which states: ‘‘The Brisbane office market is in the early stage of a long cyclical upswing that is forecast to reach its peak towards the end of this decade. In the process, both rents and capital values will experience strong growth and underwrite attractive investment returns.’’
The potential fly in the ointment is the letter also points to that growth being underpinned by ‘‘a State economy buoyed by record investment in the resources sector.’’ Since the letter was written on July 24, Australia’s mining boom has come to a screeching halt.
Potential investors will need to consider the effect a downturn in mining could have on Brisbane’s commercial property market.