Southgate swings open for syndication

5:00 AM Saturday March 14, 2015 Colin Taylor

The Southgate Retail Centre at 228-230 Great South Rd, Takanini.

Augusta Funds Management is launching a new syndication following its purchase of Southgate Retail Centre in Takanini for $58.5 million.

The scheme will be financed through the offer to subscribers comprising 686 proportionate individual shares of $50,000 to raise $34.3 million and he balance will be made up by an ASB Bank loan.

Subscribers are projected to receive an initial 8 per cent pre-tax cash return to be paid monthly.

Located on a high profile corner site at 228-230 Great South Rd, Takanini, Southgate Retail Centre is 29 kms south of the Auckland CBD via the State Highway One motorway.

“The modern fully occupied freehold shopping centre with 31 tenants is anchored by Mitre 10 Mega on a new 13 year lease,” says Mike Houlker, head of syndications for Bayleys who is marketing the offer with colleagues Samara Phillips and Sarah Prebble.

Other well-known brand name tenants include Briscoes, Carls Jr, Bed Bath and Beyond, Repco, ANZ Bank, Video Ezy, Mad Butcher, Pizza Hut, Liquorland, Fruit World, Subway, Kiwi Roast and Baby Factory.

Houlker says the shopping centre occupies a total land area of 4.5 hectares and has open parking for 592 vehicles.

He says the offer will close at 5 pm on April 24 but Augusta reserves the right to close the offer at any time prior to that date or to extend the offer by up to 25 working days without prior notice to subscribers.

“Settlement for the purchase of Southgate Retail Centre is currently scheduled for 30 April 30,” Houlker says. 

Mark Francis, managing director of Augusta, says each subscriber in the scheme, called Takanini Nominees Joint Venture, will own a proportionate interest in the shopping centre and may

purchase more than one share.

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The Southgate Retail Centre includes Mitre 10 Mega and Briscoes stores. 

“The Southgate Retail Centre was valued by Dale Winfield and Liam Rooney of Jones Lang LaSalle Limited as having a market value of $61.5 million [plus GST if any] as at February 12 this year,” Francis says.

Houlker says Southgate has a gross lettable area of about 21,147 square metres of which Mitre 10 Mega leases 11,197 sq m and Briscoes 1648.1 sq m for a combined area of 12,845.1 sq m or 60.7 per cent of the centre. Eleven other large format retailers rent a further 5899 sq m or 27.9 per cent of the centre and a number of specialty stores take up the remaining 11.4 per cent of the gross lettable space or 2403.3 sq m which includes two bank ATM leases.

The weighted average lease term [WALT] is 9.57 years by floor area and 8.45 years by income,” Houlker says. “There are few property portfolios with a WALT as long as this.”

The general layout of Southgate comprises a standalone Mitre 10 Mega with two retail blocks and a standalone Carl’s Jr store at the centre of the main entrance fronting Great South Rd.

The first retail block encompasses a Repco and an ANZ Bank also with a Great South Road frontage while the remainder of the tenants including Briscoes front the main carpark.

The second block has an angled L-shape layout and has large format tenants fronting the main carpark with specialty tenants fronting Walters and Great South Rds.

“The current annual rent earned by the centre is $4,373,591 plus GST,” Houlker says. “There is the opportunity for rental growth through indexed rent reviews for the anchor Mitre 10 Mega tenancy as well as some other tenants.”

The centre was constructed in 2003 and generally comprises reinforced concrete floor slabs and foundations, precast concrete tilt slabs with aluminium framed glazing and steel framed roofs. The retail units are generally open plan and are all equipped with fire sprinklers and alarms.

Houlker says BGT Structures (Auckland) Limited conducted an initial evaluation procedure (IEP) seismic assessment of Southgate’s buildings which were rated Grade A-plus. “This equates to greater than 100 per cent of the current new building standards.”

Phillips says the syndication scheme has no fixed term. “Southgate Retail Centre can only be sold and the scheme wound up by the passing of a special resolution of subscribers, with one vote attributed to each to proportionate share,” she says. “A special resolution must be passed by a majority of not less than 75 per cent of the proportionate shares voting on the resolution. “In addition, a special resolution may be passed to sell any part of the Southgate Retail Centre.”

Phillips says a subscriber has the right to sell a proportionate share at any time during the term of the scheme. “Augusta Funds Management operates a secondary market facility to enable secondary transfers and has done so for the past 10 years. Bayleys Real Estate has also arranged a significant number of secondary transfers for proportionate shares in syndicates managed by Augusta.”

Francis says the Southgate Retail Centre has all the attributes Augusta looks for in an investment property. “It is significant land holding in a solid and expanding location with a list of national brand name tenants, quality construction and long term leases with an opportunity for rental growth.

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A Carl’s Jr store stands at the main entrance of Southgate Retail Centre fronting Great South Rd.

“It offers extremely good flexibility and options for the future should investors wish to reconsider the longer term investment strategy, in that it consists of a standalone freehold title occupied by Mitre 10 Mega and 26 unit titles meaning it could be exited by selling down separate retail units individually which typically achieve higher prices than a centre as a whole.”

Francis says the recent Jones Lang LaSalle Valuation Report considers a sale of the individual units could realise around $65.7 million.

“Assets of this calibre are rarely available for direct investment and it comes with our highest recommendation,” he says.

Augusta Funds Management is a wholly-owned subsidiary of Augusta Capital Limited, which is an NZX listed company with a market capitalisation of around $85 million. The company started out in 2001 as a property syndicator with a single industrial property in Hamilton and is now one of New Zealand’s largest property fund managers with about $1.2 billion in commercial real estate vested in 170 properties throughout the country.

While Augusta will be responsible for the scheme and overall property management, preparation of annual financial statements and payment of monthly distributions, Bayleys Property Services (BPS) will provide day-to-day facilities and property management services for the Southgate Retail Centre. BPS currently has $2.3 billion worth of property under management.

Phillips says the syndication offer will be fully underwritten by Augusta Capital Limited as the parent company and Cypress Capital Limited which means the syndication is certain to go ahead.

“The scheme will be overseen by Covenant Trustee Services Limited as statutory supervisor,” she says.

Subscriptions for the proportionate shares must be completed on an application form that will be included with an investment statement.

Phillips says prospective subscribers are encouraged to carefully review the investment statement and the abbreviated Jones Lang LaSalle valuation report that will be provided to inquirers.

The completed and signed application forms must be forwarded to the offices of Chapman Tripp and subscriptions will not be received unless they are accompanied by a completed and signed application form. Once processed, subscription monies will be deposited in Chapman Tripp’s trust account.

Phillips says Southgate benefits from its location within a fast growing residential area.

“The total population growth for Takanini and its surrounding suburbs was 9.9 per cent between the 2006 census and 2013 census as compared with 8.5 per cent for the greater Auckland region,” she says.

Neighbouring the property is the Takanini shopping centre anchored by a Countdown supermarket along with the Takanini Village anchored by The Warehouse.

“The Southgate Retail Centre occupies the prime corner site between these busy retail areas on the main arterial route of Great South Rd,” Phillips says.

“The area to the east of Southgate comprises the Addison resident development with houses being built around open spaces. This will further increase the market catchment of the Southgate Retail Centre.” 

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From left to right: Mark Francis, managing director of Augusta Funds Management, Mike Houlker, head of syndications for Bayleys and Samara Phillips, syndicated investment manager for Bayleys.