Big chance for small investors
Syndication offers $ 50,000 shares in Manukau property, writes Colin Taylor
SMALLER investors are being offered the opportunity to acquire a freehold title interest in a prime Manukau industrial investment property with a long lease to one of New Zealand’s largest media companies, APN.
Augusta Funds Management has launched a proportionate ownership scheme for the property at 587 Great South Rd, Manukau City and has appointed Mike Houlker and David Gubb, of Bayleys Real Estate, to market 169 individual title interests at $50,000 each.
Subscribers can apply for more than one title.
Under a proportionate ownership scheme, each investor acquires a beneficial interest in the registered freehold title to the property which they can later sell.
This also enables investors to take advantage of depreciation allowances for tax purposes.
Augusta will manage the scheme and provide subscribers with an itemised list of assets to enable maximum depreciation to be claimed.
Augusta has been involved in several proportionate ownership schemes during the past five years, although managing director Mark Francis says the market has been relatively subdued over the last two years or so because of a combination of higher borrowing costs and lower yields.
‘‘What we’ve seen over the last six months or so has been a big change in the dynamics of the commercial and industrial property market with income yields increasing and interest rates starting to come down.
‘‘ This is resulting in the reemergence of a positive yield gap where income returns from property exceed borrowing costs and is making these proportional schemes more attractive to smaller investors.
It has meant that with this APN offering we are projecting an initial annual return of 10 per cent for investors.’’
Augusta has secured prime bank funding for half the property acquisition cost of $15.6 million.
The balance of the purchase price will come from subscriptions secured from investors.
Francis says a prudent degree of gearing at a competitive interest rate is a key element in making proportionate ownership work for investors.
‘‘It increases the return on equity for investors to a level that makes it attractive for them. In this case, it means we can offer a double-digit return on a property investment with a long lease to one of New Zealand’s largest public companies.’’
APN Print NZ has a 12-year lease over the 13,312sqmindustrial building and its 3.46ha until 2018, with three rights of renewal for a further 20 years.
The total rental income of the property is $1.455 million plus GST and all outgoings. The rent is reviewed every three years to the lesser of CPI or 3 per cent compounded per annum, with a review to market at the renewal of the lease in 2018.
The lease is guaranteed by APN News and Media , which has listing on the New Zealand and Australian stock exchanges and a current market capitalisation of about A$1.5 billion ($1.71 billion).
APN publishes 23 daily and more than 100 non-daily newspapers in Australasia, including this country’s larg- est metropolitan daily, The New Zealand Herald, as well as several regional and community newspapers and magazines.
APN is also Australasia’s largest radio broadcaster and a major player in the outdoor advertising sector.
APN utilises the Great South Rd premises as a print facility, producing national and local publications and advertising material. The building has an extensive tenant fit-out, including air-conditioning, a sprinkler system, compressed air system, humidity control and suspended ceilings.
The property has been fully main- tained with a roof upgrade in 2006 and various refurbishments and upgrades by APN, which formerly owned the property.
Houlker says a ‘‘triple net’’ lease structure means all costs associated with the building, including structural repair, are borne by the tenant. ‘‘This is particularly significant as most building owners provide for at least some repairs and maintenance every year — with this property there is no need to.’’
He says the large site has ample room for expansion if APN is interested in the future.
Great South Rd is a major arterial route and Houlker says the property benefits from easy access to the Southern Motorway ( SH1) via the Te Irirangi Drive or Manukau motorway interchanges and also to the South Western Motorway (SH20) and Auckland International Airport via Puhinui Rd.
He says the area is a sought after location for commercial and light industrial users.
Houlker says the APN offering has generated substantial interest from investors, and that Bayleys has built up a database over many years of investors interested in this type of product which offers access to the higher yields that large commercial and industrial properties provide, without having to outlay millions of dollars.
‘‘However, it has been hard for promoters of these schemes to secure properties of the calibre of the APN offering in more recent times because they were being snapped up by larger institutional investors.
‘‘With these companies having largely stopped buying and with yields now at more attractive levels and borrowing costs coming down, we are likely to see more syndication offerings coming back on to the market.
‘‘However, to be successful, shared property ownership schemes require a combination of a well-located building and a long lease to a strong tenant, and the schemes also need to be wellstructured and managed,’’ he said.
FOR SALE: An aerial view of the APN building at 587 Great South Rd, Manukau City (top) and interior (right).