AUGUSTA VALUE ADD FUND NO.1 LIMITED

Augusta Funds Management Limited is establishing Augusta Value Add Fund No. 1 Limited (the Fund) to acquire five commercial/industrial properties in prime Auckland locations.

The Fund is being offered to wholesale investors only under the Financial Markets Conduct Act 2013 who will have the opportunity to purchase ordinary shares in the Fund.

The Fund is structured as a closed end fixed term fund whereby all assets are intended to have the value added and the asset sold within 5 years. It is intended that as each asset is realised, the capital and profit attributable to that asset will be returned to investors, so that there is a progressive return of capital and profit over the life of the Fund.

There are 60 million shares to be issued in the Fund at $1.00 each, with Augusta Capital (the NZX-listed parent of Augusta Funds Management) subscribing for at least 6 million shares. The minimum number of shares that an investor may apply for is 200,000 and the maximum number is 11,999,999. The offer is fully underwritten.

The Fund’s objective is to deliver pre-tax returns of 11%-14% pa through acquiring, redeveloping or implementing another value-add strategy (such as re-leasing or re-zoning) and then selling down the five Auckland properties. The properties are either 100% occupied or have rental underwrites from the vendor of the property in place to cover any current shortfall in rental income. The Fund intends to pay a quarterly running yield, initially at the amount of 6% per annum, with the balance of the indicative 11-14% per annum.

BOARD/MANAGEMENT TEAM

The Fund will be overseen by a board of directors that is led by John Bayley as Chairman. As the co-founder of Bayleys Real Estate and the current chairman of Bayley Corporation Limited, John has been actively involved in New Zealand’s real estate industry for more than 40 years. The other Board members are Paul Duffy (Chairman of Augusta Capital and Augusta Funds Management) who has over 35 years experience in the property investment/development industry, including CEO/Managing Director of DNZ Property Fund (now named Stride Property) and Mark Peterson (Director of Augusta Capital and Augusta Funds Management) who has over 35 years experience in the commercial property sector spanning development management, project management & investment management.

The key personnel of the Manager who will have close involvement in managing the Fund and setting and overseeing the execution of the value-add strategy for each property include Mark Francis and Bryce Barnett. Mark is the Managing Director of Augusta which he formed in 2001, and is the largest shareholder in Augusta. Bryce is the Head of Funds Management at Augusta and established and ran KCL Property, which was acquired by Augusta in 2013. Bryce was previously the General Manager of MacDow Properties, a subsidiary of McConnell Dowell.

For further information on Augusta Funds Management’s key personnel see www.augusta.co.nz/our-people/

THE PROPERTIES

The Fund will comprise of the five commercial and industrial properties located in Auckland which have been independently valued as follows:

PORTFOLIO INVESTMENT ENTITY

The Fund is expected to be a portfolio investment entity. The amount of tax you pay in respect of a PIE is based on your prescribed investor rate (PIR), with the maximum PIR being 28%. As the Fund is a PIE, distributions from the Fund (including share repurchases) will not be subject to tax. Further there will be no withholding tax on distributions to non-resident investors. More information on the PIE is set out in the Information Memorandum that is available on request.

RISKS

Investments in financial products such as Shares in the Fund entail some level of risk. You should consider whether the degree of uncertainty about the Fund’s future performance and returns is suitable for you.

The value of Shares in the Fund should reflect the potential returns and the particular risks associated with the Fund’s assets and strategy. The Fund and the Manager considers that the most significant risk factors that could affect the value of the Shares in the Fund are:

• Development and Construction Risk: cost overruns or delays on redevelopments of any of the properties will likely affect the forecast returns;
• Capital Expenditure Risk: capital expenditure for each property may be more than budgeted;
• Loss of rental income: a default by any tenant in paying rental and outgoings may affect the forecast returns;
• Interest rate risk: interest rate movements are unable to be accurately predicted and an increase in interest rates may affect the forecast returns;
• Re-leasing: Re-leasing of particular properties is a key strategy for the Fund. Costs may be incurred in re-leasing a property. Failure to re-lease a property will likely affect its value;
• Failure or delay in sale: the Fund has a fixed term of 5 years. If the Fund approaches that date it may be forced to sell the properties at a lesser value;
• Retention of PIE Status: If the Fund ceases to be a PIE then any dividends paid will be taxable at a higher rate.

OFFER TO WHOLESALE INVESTORS ONLY

NEW ZEALAND

The offer of Shares in the Fund is only open to persons in New Zealand who are “Wholesale Investors” under clause 3 of Schedule 1 of the Financial Markets Conduct Act 2013 (the FMCA). In order to be a Wholesale Investor, potential investors must either:

• Subscribe for a minimum of at least 750,000 Shares at an issue price of $1 per Share.
• Be an “investment business” as defined in clause 37 of Schedule 1 of the FMCA;
• Meet the investment activity criteria in clause 38 of Schedule 1 of the FMCA, which is that:
  • They (or the entities they control) own (or during the previous 2 years owned) financial products of a total value of at least $1million or have carried out transactions to acquire financial products where the total amount payable was at least $1 million; or
  • They, within the last 10 years, have been employed or engaged in an investment business and have, for at least 2 years, participated to a material extent in the investment decisions made by the investment business.
• Be considered to be “large” by clause 39 of Schedule 1 of the FMCA, which requires:
  • The Shareholder and entities controlled by that Shareholder to have net assets exceeding $5 million as at each of the 2 most recently completed financial years; or
  • The Shareholder and entities controlled by that Shareholder to have total consolidated turnover exceeding $5 million in each of the 2 most recently completed financial years.
• Certify themselves as an eligible investor on the basis that they are sufficiently experienced to assess the Offer, their information needs and the adequacy of the information provided and they understand the consequences of the certification.

 

AUSTRALIA

The Information Memorandum and offer of the Shares is only made available in Australia to persons to whom a disclosure document is not required to be given under Division 2 of Part 6D.2 of the Australian Corporations Act 2001 (Cth) (Australian Corporations Act) and who are wholesale clients under the Australian Corporations Act.

The Information Memorandum is not a prospectus or any other form of regulated “disclosure document” for the purposes of Australian law and is not required to, and does not, contain all the information which would be required in a “disclosure document” under Australian law.

The Information Memorandum has not been and will not be lodged or registered with the Australian Securities and Investments Commission, the Australian Securities Exchange Limited (“ASX”) or any other regulatory body or agency in Australia. The Information Memorandum has been prepared without taking account of any person’s investment objectives, financial situation or particular needs. Neither the Company nor the Manager holds an Australian financial services licence that authorises it to provide financial product advice in Australia.

Cooling-off rights do not apply to an investment in the Shares issued under this Information Memorandum.

Resale of Shares within 12 months after the date of issue may require the seller to comply with the disclosure requirements of Division 2 of Part 6D.2 of the Australian Corporations Act.

AUGUSTA FUNDS MANAGEMENT LIMITED

Augusta Funds Management Limited is the manager of the Fund. Augusta Funds Management manages a wide range of properties, including single ownership entities and syndicates in numerous locations throughout New Zealand and Brisbane, Australia.

The Manager’s property schemes and funds (such as the Fund) are structured to provide investors with a high-yielding investment in commercial and/or industrial real estate, while seeking to minimise the administrative and operational burdens of private property ownership. The Manager is responsible for the Fund and property management, including the facilities and property management, preparation of annual financial statements and payment of distributions.

The Manager also arranges funding packages allowing investors to enjoy the terms of the Fund’s funding arrangements, including some interest rate hedging and initial interest-only terms. Details of the bank funding applying to the Fund are set out in the Information Memorandum.

Augusta Funds Management is a wholly-owned subsidiary of Augusta Capital Limited, which is an NZX listed company with a market capitalisation of approximately NZ$84 million as at the date of this Information Memorandum. Augusta Funds Management has assets under management of approximately NZ$1.4 billion. For further information on Augusta see www.augusta.co.nz

MANAGEMENT FEE STRUCTURE AND ALIGNMENT OF MANAGEMENT INCENTIVES

Augusta Funds Management will receive the following fees in respect of the management of the Fund: