Unlisted Pacific Property Fund seeks to raise $15 mln in share sale

Monday 18th July 2016

Pacific Property Fund, an unlisted commercial property fund established three years ago, is seeking to raise $15 million selling shares to buy two Auckland properties and fund the construction of a new warehouse in Tauranga in a move that would double the size of the fund to $46.2 million from about $23 million.

Pacific currently owns three sites, an industrial property in Wiri in Auckland, a site leased to Tui Products at Mount Maunganui and a large industrial property in Te Rapa, Hamilton. It is proposing to purchase 114 Dominion Road in Mount Eden and 6 Alderman Drive in Henderson. It says $1.7 million of the funds raised will be used to build a 1,500 square metre warehouse for dry storage of goods by Tui Garden Products at the Mount Maunganui site.

The Mount Eden site is leased to five tenants including the Bank of Baroda while Alderman Drive is home to tenants including the Ministry of Justice, Housing New Zealand and NZ Family Planning.

In a statement, Pacific Property Fund director Denis McMahon said the offer "is in line with Pacific Property’s investment strategy to acquire well-located, income-producing properties leased to strong tenants on long leases."

Shares are being sold at a price of $1, with a minimum investment of $20,000 and multiples of $10,000 thereafter. The offer opened on July 14 and has a closing date of Aug. 24. It can be extended to Sept. 21. The minimum amount Pacific is looking to raise is $14 million and the maximum is $15 million.

It's the third fundraising Pacific has undertaken in three years. It raised $6.32 million in 2014 and $6.5 million in 2015.

The company is targeting a dividend to investors of 7.5 percent for the full-year to the end of March 2018.

All of the sites will be managed by Property Management Group, which is the trading name of Property Managers Ltd. Pacific Property Fund will pay an annual asset fee of 0.5 percent and a fee of 1.5 percent on gross rental from the properties. It will also receive a 1 percent acquisition fee if the purchase of the two Auckland properties goes ahead, a disposal fee of 1 percent if any properties are sold and a project management fee of 5 percent on any construction or property refurbishment that costs more than $100,000.

The prospectus estimates that Property Management Group will be paid $229,944 in 2017 and $293,533 in 2018.

The two directors of Pacific Property Fund, Denis McMahon and Philip Tushingham, are also shareholders in Property Management Group. Denis McMahon holds 49.6 percent and Philip Tushingham holds 18.2 percent.

The prospectus states that they do not currently receive directors fees from the Property Management Group but will receive them in the future. Both will also receive a payment of $30,000 a year for their services as directors of the Pacific Property Fund, having not received a payment in the last financial year.

McMahon and Tushingham also hold interests in the investment syndicates that are the vendors of the two Auckland properties. The D&S McMahon Family Trust, of which McMahon is a trustee owns 0.95 percent of shares in the syndicate that owns the Dominion Road site and 0.83 percent in the Alderman Drive site. The Philip Tushingham Trust, of which Philip Tushingham is a trustee, owns 1.67 percent of the Alderman Drive site.

The two Auckland properties are also currently managed by the Property Management Group. The prospectus states that some of the members of the syndicates which own the two sites in Auckland are already shareholders in the Pacific Property Fund, while some will become shareholders as a result of the offer.

Shares in Pacific Property Fund are unlisted which means there is no established market for trading the securities. The offer document states that "from time-to-time" Property Management Group will assist in facilitating the transfer of shares by matching buyers and sellers. It does not currently charge a fee for this however it reserves the right to charge a "reasonable" fee for this service in the future.

BusinessDesk.co.nz

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