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Augusta Capital looks set to make a healthy wad of cash from its next syndicated property offering

Augusta Capital looks set to make a healthy wad of cash from its next syndicated property offering

Augusta Capital's pending syndication of one of Telecom's head office buildings in Auckland should boost the company's coffers by nearly $2.5 million this year, providing a taste of the lucrative deals it will be looking to set up following its takeover of rival syndicator KCL last year.

The Telecom building on Victoria St in Auckland's CBD is valued at $67 million and it's believed that it will be the biggest property syndication ever offered to the public in this country.

The prospectus for the syndicate, which will be structured as a proportionate ownership scheme, has not yet been approved by the Financial Markets Authority so is not yet available to the public, but it is likely to provide investors a pretax cash return of 8%.

Shareholders in NZX-listed Augusta, which is the parent company of the scheme's promoter and manager Augusta Funds Management, will not be going short either.

Augusta will earn $125,000 a year in scheme management fees, increasing by the greater of the increase in the Consumer Price Index or 3% each year, providing a handy increase to the company's long term revenue stream.

But the big money is in the upfront, one off fees Augusta will earn from the scheme.

Augusta's offeror's fee for bringing the deal together will be $2.02 million and on top of that Augusta is providing a partial underwrite on the offer, which will provide it with a base fee of $875,000.

However Augusta won't get all of that money, because some of it will be paid to Augusta's managing director and largest shareholder Mark Francis and his brother Chris, as a residual payment from the sale of their private company Augusta Funds Management to the listed company in 2012.

Because of an earn out arrangement that was part of that deal, the Francis brothers will receive $535,000 between them.

That leaves $2.36 million in upfront fees for Augusta, equivalent to 17% of the company's entire revenue in the year to March.

Scale play

The ability to be able to put together investment schemes on a much greater scale was one of the benefits Augusta saw when it announced the takeover of KCL, and the Telecom building syndication is the first to give an indication of how lucrative schemes of such size could be for the company.

However Augusta's shareholders won't be the only ones to benefit from this latest scheme.

The scheme is being fully underwritten, which allows Augusta to make an unconditional offer on the property prior to it being sold down to investors in the syndicate.

The offer is being partially underwritten by Augusta itself, with the remainder of the underwrite to be provided by Cypress Capital, Augusta's tenth largest shareholder, which is associated with Mark Francis' father Peter, who in the past has been a major player in the property market.

For providing its partial underwrite of the syndicate, Cypress will receive a base fee of $490,000.

Real estate company Bayleys should also do well out of the deal.

Following the acquisition of KCL, Augusta announced that all future syndications it brought to market would be offered exclusively through Bayleys.

Bayleys will receive a $1,000 brokerage fee for every investor interest it sells down in the syndicate, potentially providing it with $780,000 if the scheme is fully sold down and the underwrite agreements are not needed.

So the syndicate should provide some nice wads of cash for Augusta, the Francis family and Bayleys, which will have to be paid from the capital raised from the syndicate's investors.

But an analysis of the potential risks and benefits of the scheme itself will have to wait until the FMA is finished with the offer documents, allowing them to be released to the public.

See our page on commercial property syndications here.

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3 Comments

My questions are after say 5-7-10 years and you want to get out, i wonder if you get capital gains say on your $50k investment or do you just get your 50k back. The other question I have is do they put up your return as the years progress. So year 1 your 8% year 2 8.2% year 7 10.1% and so on.
I just get the feeling syndicates are good for year 1 (after all they take the risk and set everything up) but do they then reap all the benefits of capital and dividend gains or not pass then through equitably.
Maybe this is documented clearly somewhere?

You are buying an equity (ownership) share. The returns are 'dividend yields'. As an equity holder you share in all the final gains and losses involved. To get out, you would need to sell your share to someone else (and these markets are not very liquid) or the whole building needs to be sold and the company closed. Best to think of these structures as 'mini public companies' that aren't listed.

Thanks for the answer and can anyone confirm if your dividends go up as the rent return goes up. Also do people have experience of when these syndicates wind down do you get a fair share of the pie. What I wish to see is more tranparency on the structure or are you held hostage to a vested interest who wants to squeeze as much money from the venture that you have funded. I think I am asking a fair question here that so far have yielded few answers?