KEY POINTS:
Mark Francis' property fund Kermadec yesterday launched its $61.25 million initial public offering promising growth through acquisitions and development.
Francis, director of the fund's manager and son of multimillionaire investor and former Force Corp chief Peter Francis, said: "We have got pretty big aspirations and we believe we have the right structure in place to do that."
The shares will be offered at $1 each mainly to retail investors, although Francis said the fund had obtained support from professional investors as well.
Kermadec will use the proceeds of the float and take on debt to buy a portfolio of mainly second-tier commercial and industrial properties in Auckland, Palmerston North and Hamilton. The properties will be acquired for $96.39 million. This is $3.56 million lower than the sum of the most recent independent valuations of these properties.
The shares will offer a dividend yield of 8.65 per cent. Although this was attractive relative to the wider property sector, which offers about 7.3 per cent, it also reflected the additional risks of a lower-quality portfolio and the smaller size of the fund relative to its peers.
Francis said the yield and the discount on the value of the properties was appropriate given these risks and the need to attract investor interest. He hoped the share price would quickly rise on listing to approach the portfolio's independent valuation.
Francis said that, for the moment at least, Kermadec would focus on the second tier of properties which still offered the prospect of decent returns despite the additional risks.
Meanwhile, ABN Amro analyst Mark Lister said the price of the shares seemed reasonable but it was not an offer that he was getting excited about. He also said the yield might not be sufficiently attractive to differentiate the firm from similar property funds.
The portfolio has a weighted average lease term of 5.94 years and an income stream.
Kermadec
* Seeking $61.25 million.
* The proceeds will be spent on a portfolio of second-tier commercial and industrial properties in Auckland, Palmerston North and Hamilton.
* Offer opened yesterday and closes on December 6.
* Quotation on the NZX on December 11.
