by Rob Hosking
The move is similar to what Urbis (Waltus) and Dominion Funds did with their property syndicates, however this is being done on a voluntary basis.
"We went quite a long way down the track of doing an Urbis but a lot of our investors said they were not interested," St Laurence managing director Kevin Podmore says.
"We got a lot of feedback along the lines that they had gone into a syndicate because they were interested in a particular piece of property and they didn’t like the idea of being forced into investing in something they would not have chosen to invest in."
St Laurence's approach means the investors will have the choice of staying with a particular syndicate or converting their holding into the larger company - St Laurence Property and Finance.
Of the $140 million worth of convertible notes, $97 million would be offered to St Laurence investors while $43 million would be offered to the public.
The public offer would see 25 million convertible notes made available at $1 per note, with over-subcriptions of up to 18 million notes.
The move has been made because St Laurence needs to raise capital to develop some of those properties in the individual syndicates. There was the likelihood that had they gone to existing investors many would have been unwilling to put further capital in.
Some syndicates are also facing lower returns than they have generated in the past.
"Quite a few have leases expiring and uncertainty about returns in the near future. We have been making a 10% return, we are now looking at around an 8% average," says Podmore.
The notes offer will provide investors access to a wider portfolio.
"A lot of our investors are older people and they rely on the cash returns for their retirement income. This will give them greater certainty and, we believe, a greater sustainable return."
The company forecasts a 15% pre-tax return. It plans to limit the gross annual dividend to 9% of total shareholder funds, and the dividend will only be paid after all the interest payments on the property notes.
The balance of the net profits will be retained and note holders will be able to access that when the notes are converted to shares.
There is a potential for conflict of interest, says Podmore, because of the involvement of both himself and director Mike Sullivan in the syndicates. The company has engaged PircewaterhouseCoopers to provide an independent appraisal report, and DTZ will provide a check on the value of each of the syndicate properties.
Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.
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