Super syndication goes to market

5:00 AM Saturday December 5, 2015 Colin Taylor

The Countdown supermarket for syndication at 160 Peachgrove Rd, Hamilton.

A new Countdown supermarket nearing completion in Hamilton with a 15 year lease about to commence is being syndicated by Augusta Funds Management.  

A total of 220 proportional interests of $50,000 each are being offered in a limited partnership which will acquire the 4001 sq m supermarket and 1.8402 hectares of land at 160 Peachgrove Rd, about 3 kms east of Hamilton’s central business district.

Augusta’s managing director Mark Francis says the supermarket will be purchased for $18 million which is below an independent valuation of $19.3 million for the property in its completed state. He says there will be initial establishment costs alongside the purchase price of $1,428,500 for the syndication which is offering investors a projected initial pre tax cash return of 7.5 per cent per annum to bepaid monthly.

The offer is being fully underwritten by NZX listed Augusta Capital Limited and is being marketed by Mike Houlker, Samara Phillips and Sarah Prebble of Bayleys’ syndication division.

“The syndication is already attracting strong interest from investors because of its very long lease to one of New Zealand’s biggest companies,” Houlker says.

 “A new 15-year lease to a tenant of this calibre in a large, new building is virtually impossible to secure on the open market. Certainly, the only opportunity smaller to medium sized investors have of getting access to a property with these attributes is through a shared ownership syndication such as this.”

The long-term lease is to General Distributors Limited, the property holding and operating division of Progressive Enterprises Limited which operates Countdown supermarkets, and franchises Fresh Choice and Super Value supermarkets, throughout New Zealand. 

Houlker says the lease will commence on the property’s settlement date which is expected to be December 22 with six rights of renewal of five years each giving a potential total lease term of 45 years.

The initial rental income will be $1,316,000 per annum plus GST with a five per cent increase in the base rent after five years.

Houlker says the building is one of Countdown’s “new generation” supermarkets and is being constructed to a high standard predominantly of concrete and steel with a seismic rating of at least 100 per cent of New Building Standard (NBS).  He says as part of its due diligence investigations on the property, Augusta  has engaged a project delivery and building consultancy firm to review construction contract documentation and conduct ongoing development monitoring to ensure building is being undertaken and completed in accordance with the relevant resource consents and contracts.

Extensive site landscaping is also being undertaken, with parking for 192 vehicles, along with the protection of a reserve area at the rear of the site known as Caldwell’s Native Bush. Public access to this reserve is being provided as part of the development resource consent.

Phillips says the supermarket fills a gap in the market for a modern supermarket in the Claudelands and Hamilton East area. The immediate area is mostly residential but also includes Waikato University.

There are three schools, including Hamilton Boys High School, on Peachgrove Rd which is a main arterial running north to south.

Phillips says the Waikato Expressway, a major motorway extension is currently being developed and will further benefit the location with a major interchange nearby on Ruakura Rd.

 This is the eighth syndication involving Countdown supermarkets to have been promoted by Augusta and follows offerings throughout the North Island including at the Fraser Cove and Westgate shopping centres in Tauranga and West Auckland; New Plymouth, Huntly and Tokoroa. Within the last three month proportionate shares purchased for $50,000 in the Fraser Cove and Westgate supermarkets have sold for $55,000.

Francis says one of the big attractions of supermarket properties is their generally very long lease terms.  “They provide flexibility to take advantage of peaks in the market to possibly consider selling further down the track while there are still a good number of years to run on the lease for the next owner.”

Progressive Enterprises is owned by Woolworths Limited, an ASX listed Australian company which has a market capitalisation of around AUD$29 billion and a turnover in excess of AUD$60 billion. Neither Progressive Enterprises Limited nor Woolworths Limited guarantees General Distributors Limited’s performance under the terms of the lease.

This is the second of two limited partnership syndications Augusta Funds Management and Bayleys currently have in the market with General Distributors Limited as the tenants. The other is the 29,422 sq m South Island Countdown distribution centre located on a 7.1811 hectare industrial site in Hornby Christchurch which has just under nine years to run on its lease.  Investors are projected to receive an initial pre tax cash return of 8 per cent per annum on this offering.

Augusta Funds Management will manage both syndications, including arranging funding packages, preparation of financial statements and payment of monthly distributions to investors.

Bayleys Property Services will provide day-to-day property and facilities management services while Covenant Trustees Services Limited has been appointed statutory supervisor.

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 Mark Francis of Augusta (Left) Mike Houlker of Bayleys (Centre) and Samara Phillips of Bayleys (right)