Property syndicator Maat Consulting has sold about 80% of the shares in its latest syndicated offering, Todd Park Investments Ltd.
The company is seeking to raise $20m from investors to fund the acquisition of a former motor vehicle assembly plant at Porirua, which is now mainly used as a distribution and storage facility by a variety of tenants, including Placemakers, NZ Post, Downer NZ, Mitsubishi Motors NZ and footwear retailer Hannahs.
The syndicate will be structured as an unlisted company which is offering 400 share parcels of $50,000 each and Maat financial adviser Neil Tuffin said there was only around $4 million of shares (80 share parcels) still available.
Although the offer is due to close on September 21, Maat has arranged for a bridging loan of up to $5 million to enable the purchase of the property to be settled ahead of the offer being fully subscribed, although based on the level of investor interest to date the bridging loan may not be required.
Todd Park is likely to appeal to investors such as retirees seeking a regular income stream, with forecast cash distributions equivalent to 9.25% a year (before tax) ,with distributions paid monthly and the company registering as a PIE (Portfolio Investment Entity) for tax purposes.
Some investors would also likely be attracted to its relatively low upfront costs compared to some other recent syndications, giving the company an initial Net Asset Backing of 97 cents for every dollar invested.
That compares favourably to some other recent syndications which have had an initial net asset backing of less than 90 cents per dollar invested.
The higher net asset backing provided by Todd Park should mean that any future capital gains will start flowing to shareholders as an increase in their equity more quickly.
The property is being purchased for $33 million and the company will then replace the roof on the building which is estimated to cost an additional $3 million, and that plus upfront syndicate establishment costs of $1.1 million take the total funds required to $37.1 million, of which $20 million is to be raised from investors taking up shares and $17.1 million via a mortgage from ASB, giving a loan to valuation ratio of 47%.
Todd Park Investments will be subject to all of the normal risks that apply to commercial property investment such as the potential loss of a tenant or tenants at some stage, and market fluctuations in capital values, rents and mortgage interest rates.
And like most syndicates it is a relatively illiquid investment and there is no certainty around when it will be wound up and the capital returned to investors.
There are also a couple of features specific to Todd Park Investments that potential investors should take note of.
Investors will not be able to elect directors of the company, which will have two classes of shares, A and B shares.
Investors will be issued with B shares.
The B shareholders will receive dividends and be able to vote at shareholder meetings, but will not be able to elect directors.
Directors will be appointed by the A shareholders and all of the A shares will be owned by Maat, while an associated company, Maat Commercial Property Management, will manage the property.
That means Maat's embrace on the syndicate will be a particularly strong one.
The other point to note is that the tenants' leases on the property are gross leases which means Todd Park Investments will pay all outgoings such as rates, insurance, maintenance and decoration costs, rather than the tenants.
Gross leases are common for government tenancies, but less so for commercial tenancies.
Although the cost of these outgoings is allowed for in the syndicate's financial forecasts, there is the added risk that the cost of outgoings, in particular rates and insurance, could rise faster than has been anticipated, which could have an effect on future returns.
- Readers can click on this link for an overview which outlines how property syndicates work.
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