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Snouts in troughs was probably the cynical first reaction to the spectacular deal ASX-listed Centuria Capital is getting from the $45 million Augusta capital raising.
Those snouts mucking in could well be the case but, viewed from a different vantage, the situation could also be simply a measure of how much the world has changed in a few short weeks due to the coronavirus crisis.
There is no doubt this was a rescue mission – as Augusta chief executive Mark Francis put it on a call to investors and analysts on Monday: "You couldn't have written a script that would have affected us more."
It certainly is a juicy deal for Centuria; in late January, it was prepared to pay $2 per share to take over Augusta, valuing it at $180m. Now it's getting a 25 per cent stake at 55 cents a share.
BusinessDesk understands the story Augusta and its advisers have been telling is that, without Centuria coming in as a cornerstone shareholder, the deep discount the issue was made at would have been even greater.
But the available evidence on that is mixed; some institutions were adamant that they would have demanded a lower price to support the issue without Centuria but others have said they would have been willing to pay more.
BusinessDesk understands the price range being discussed before Centuria came in at the last minute was 55 cents to 65 cents.
Augusta's largest institutional investor, ANZ Investments NZ, which owns 13 per cent of Augusta, was disappointed it went at the lower end of the range, its head of Australasian property securities, Craig Tyson, said.
"I think it's a good business that's fallen on hard times. Covid happened at the worst possible time for it," Tyson said.
Augusta shares closed last week at 80 cents ahead of Monday's announcement of the capital raising, but that was an already heavily discounted price. They began this year at $1.50 and reached a high of $2.19 on February 20.
When the shares began trading again after the placement part of the capital raising, the price was at that same 80 cent level, although they ended the week at 72 cents.
What everybody does agree on is that having Centuria on the register as a cornerstone investor will boost Augusta's prospects because of its deeper pockets.
Many of the institutions with shares in Augusta also own shares in Centuria, and so are familiar with it. And it's a much larger company with a current market capitalisation of almost A$785m ($835.8m).
Centuria shares haven't been trashed as badly as Augusta's and are currently down 28 per cent year to date compared to Augusta's 43 per cent decline.
While this is Centuria's first venture outside Australia, its joint chief executives are well-known in New Zealand, Jason Huljich through his family, and John McBain because he used to work for former property syndicator Waltus, based in Sydney.
The Waltus syndicates ran into trouble in the late 1990s, were forced to freeze redemptions as property values fell, and were then amalgamated into a single listed vehicle, which was later taken over by what is now Argosy Property.
Another Waltus connection came in Augusta's rough ride because Argosy was the seller of a property, the Albany Lifestyle Centre, one of two properties that were to have made up the syndicated Augusta Property Fund.
That transaction was cancelled in April, with Augusta forfeiting the $4.525m deposit.
The coronavirus crisis left Augusta stranded mid-deal on three separate deals. Not only did all three come unstuck, but Augusta also missed out on the fees they would have generated and those deals gobbled up a lot of sunk costs.
For example, Augusta had been set to pocket upfront fees of $3.83m from the Augusta Property Fund, only some of the $8.81m establishment costs.
Augusta has negotiated a deferred settlement date on the other property that was to have been part of the Augusta Property Fund, the Anglesea Medical Centre, until September 30, although the price remains unchanged at $55m.
Augusta chief executive Mark Francis has said the Augusta Property Fund had raised most of the $90m sought in that syndication but on March 27 it had to can the project and return all the cash to investors because conditions had changed so significantly, particularly for retail properties such as the Albany Lifestyle Centre, which has Mitre 10 as its anchor tenant and which couldn't function during the nation's lockdown.
Francis is confident his company can still syndicate the Anglesea Medical Centre in time to meet the new settlement date.
"That process is underway and will be in the market shortly," he told BusinessDesk. "Don't forget we have already essentially syndicated it once and have given all the equity raised back to investors – many or most of whom still want to invest in it."
Of course, that investor appetite will depend on the interest rate Augusta can offer but that shouldn't be too high a hurdle at a time when wholesale swap rates are below 1 per cent and only the riskiest term deposits offer more than 2.7 per cent interest.
The Augusta Property Fund had been offering a 5.75 per cent cash return for the years ending March 2021 and 2022, plus a forecast 0.17 per cent a year from one-off special distributions from underwriting income – the fund would have underwritten other Augusta syndicates.
Presumably, the rents won't have changed at the Hamilton centre, which houses medical specialists and health-related business such as Bay Audiology, dentists and a radiology service, types of operations that are traditionally resilient in an economic downturn.
It's clear Augusta can't just buy the medical centre itself without raising even more capital – it will have net cash of $11m after the capital raising, only 20 per cent of the centre's price tag.
However, Augusta has managed to cap any losses on the medical centre at its $2.75m deposit plus a maximum $1.74m.
One of the other two deals that had to be cancelled was the planned launch of a specialist tourism fund – clearly, with New Zealand's borders closed for the foreseeable future, the short-term outlook for tourism is dire, although the proposed widening of New Zealand's bubble to include Australia as well as domestic tourism should help.
Francis said Augusta has spent about $8m in the past six months on the tourism properties that were to have made up the tourism fund.
Those properties include a new Radisson hotel in Queenstown and the Jucy Snooze hotel in Auckland.
The third deal to fall over was the $100m rights issue planned by NZX-listed Asset Plus. It scrapped the capital raising on March 18, just eight days after announcing it, "in light of the current volatility of capital markets" caused by the coronavirus pandemic. Augusta owns 18.85 per cent of Asset Plus as well as being its manager.
Asset Plus later advised the market the value of its property portfolio had been slashed to $141.8m by external valuers Colliers, CBRE, Savills and JLL Valuation from the draft $160.7m put in front of investors when the rights issue was launched.
"When it doesn’t perform, everybody notices. When it does perform, nobody notices.”