This property at 107 Harris Rd, East Tāmaki, has been sold by the Oyster Direct Property Fund which is considering selling two Wellington properties as well.
This property at 107 Harris Rd, East Tāmaki, has been sold by the Oyster Direct Property Fund which is considering selling two Wellington properties as well.
One of New Zealand’s largest commercial property and fund managers, Oyster Group, has suspended withdrawals from a $1 billion-plus scheme and is selling properties to cope with rising interest rates and suffered a drop in the value of units.
While returns on funds deposited with major trading banks are uplately, the value of units owned by investors in the Oyster Direct Property Fund fell, company information showed.
Oyster, which says it has a 20-year track record, will not pay out investors directly, although it says they can sell via Syndex, the online platform for the private capital markets for investing, divesting and capital raising in fractionally owned structures.
All up, the wider Oyster business says it manages schemes which own 34 properties valued at $1.9b and leased to 389 tenants.
The Oyster fund which suspended withdrawals owns a national real estate portfolio and people paid a minimum of $10,000 in 2016 to buy in.
“The fund’s redemption facility remains suspended to allow the fund to maintain appropriate working capital,” the latest product disclosure statement says.
Mark Schiele, group chief executive, said Oyster wasn’t the only one selling: “Appropriate divestments are playing a part in the management strategy of many listed and unlisted funds to reduce the impact of higher borrowing costs in the current environment.”
Cutting bank debt and coping with higher borrowing costs resulted in it last month selling 107 Harris Rd, East Tamaki, for $10.9 million: “On settlement, the net sale proceeds will be applied to the repayment of the fund’s debt to reduce the impact of the higher borrowing costs.”
Other properties it might sell are valued at $30.7m: Wellington’s 6 Hurring Pl ($16.2m) and 12 Newlands Rd ($14.5m), both in Newlands, the quarterly update said.
Discussions continue with interested parties and further clarity will be sought on those two properties early this year, Oyster said.
“To reduce bank debt and borrowing costs for the fund, selected directly owned properties are being marketed for sale,” the updated product disclosure statement said.
Holdings in property investment vehicles might also be sold, Oyster said, indicating it could quit much larger schemes.
But the fund signalled that selling in such a high-interest rate environment was challenging: “While the divestment strategy remains a key focus for the fund, current market conditions are impacting successful and timely divestments,” investors were told, in what one said was a worrying combination of circumstances.
The Millennium Centre is at Ellerslie near the Penrose onramp.
One investor said he had been getting far more than the current 3 cents a unit after he bought in around 2016 and he is annoyed at what he sees as poor performance.
The fund directly owns properties valued at $89.2m but holds a further $1.06b of what it calls “property investment vehicles”, resulting in $1b+ total investments.
Schiele said inflationary pressures and high interest rates had affected distributions from commercial property locally and globally. In response to these economic conditions, Oyster fund was paying 3 cents per unit annually since January “to ensure it retains working capital to meet its needs and service higher borrowing costs”.
The highest-value property vehicle is the $273m Millennium Centre, 600-604 Great South Rd, Penrose. Two years ago, the Herald reported Oyster trying to sell Central Park, with offices for more than 2000 people spread across 4.8ha, an 11-building, $200m+ campus-style site.
In 2018, Oyster and global investment firm KKR said they had settled the Central Park purchase for $209m. Schiele said then that the acquisition was consistent with his firm’s strategy of partnering with appropriate capital at different points in the property cycle and adding value through asset management expertise.
Another valuable property in the Oyster Direct Property Fund is Cider POS - 4 Williamson Ave, Ponsonby, valued at $110.5m, the area’s Cider building, home to various businesses including publisher Stuff.
Sharp decline lately: units in the Oyster Direct Property Fund. Image/ Oyster Group
Bank loans to the fund are on an interest-only basis via ASB Bank, Oyster said. By December they were “an effective all-in interest rate of 7.73 per cent. Interest rates remain at their highest since the fund’s inception and the floating rate is resulting in high borrowing costs”, Oyster said.
The fund repaid $545,000 of its loans to cut costs.
Since it started, the fund’s average annual total return has been 8.33 per cent after fees but before tax, Oyster calculated.
Investors who wanted to escape the fund could do so via an external business: the Syndex trading platform that allowed units to be traded between willing buyers and willing sellers, Oyster said.
Units were at $1.30 by last March but by December had sunk to $1.17. Just over 379,000 units were sold via a trading platform by the December 31 quarter. No units were sold in any of last year’s three other quarters.
Oyster Direct Property Fund top 10 tenants
Government 17.4 per cent;
Kathmandu 11.8 per cent;
Mitre 10 (New Zealand) 7.6 per cent;
City Fitness 6.1 per cent;
Westland Dairy Company 6 per cent;
General Distributors (Countdown) 5.6 per cent;
ASB Bank 3.6 per cent;
VIP Plastic Packaging (NZ) 3.6 per cent;
Cardinal Logistics 3.2 per cent;
Hellers 2 per cent.
A chart showed a $10,000 investment in the fund was worth just over $20,000 early last year but had fallen to $16,344 by December.
Oyster said the fund’s portfolio maintained strong occupancy levels and was well-leased to a diversified range of good tenants from the public and private sectors.
“We believe the current management strategy remains the most responsible course of action for investors,” the business said.
The Herald has reported two years ago how Williams Corporation had changed the terms of $152.4m investor funds from six-monthly withdrawals to annual withdrawals.
Du Val Group suspended cash distributions from its mortgage and build-to-rent and opportunities funds.
The Financial Markets Authority says property syndicates are often advertised as giving regular income with attractive returns.
But such structures can be complex, there are risks, returns are only estimates and investors might struggle to retrieve their initial investment.
“We strongly advise getting financial advice ahead of investing in a property syndicate,” the FMA says, specifically naming interest rate changes as a key risk.
Anne Gibson has been the Herald’s property editor for 24 years, has won many awards, written books and covered property extensively here and overseas.
