St Laurence to Launch a Princes Wharf Bond Offer
St Laurence to Launch a Princes Wharf Hotel Bond Offer
St Laurence, the Wellington based investment and finance group, will shortly offer investors a fixed interest Bond paying 10.25 percent per annum for three years and secured by way of a second mortgage over the Hilton Hotel building on Auckland’s Princes Wharf.
The proceeds of the $9.5 million offer will be applied towards the acquisition of the title to the Hilton Hotel building for $51 million. The balance of the property transaction will be funded by $15 million of equity and a mortgage of up to $28 million from the ASB Bank.
The property comprising the 5-star, 166-room boutique hotel will be purchased fully leased to Princes Wharf Hotel Limited at a base rental of $4 million per annum.
St Laurence’s Managing Director Kevin Podmore said, “We regard this as an extraordinary investment opportunity providing a very competitive return with minimal downside given that the Bonds are secured over a proven hotel operation with considerable growth potential.”
The Bonds will have an issue price of $5,000 and investors will be able to list for sale their Bonds at anytime on a secondary market provided by St Laurence.
Interest will be paid quarterly and St Laurence will reserve the right to extend the term of the investment for a further two years at an interest rate which will be the higher of either 11.25 percent per annum or equivalent to a four percent margin over the two year government stock rate as at 28 February 2008.
In September last year, St Laurence offered investors an interest in the property through a proportionate ownership scheme with a projected cash return of 9.25 percent plus tax benefits, which was withdrawn when the response failed to meet expectations.
“The complexity of the proportionate ownership scheme, particularly in relation to the leasehold nature of the property, the variable rate of return and the timing of that offer coinciding with increasing interest rates were sufficient to ensure that the market’s response didn’t reach our expectations, Mr Podmore said.
“However we said when we withdrew the earlier offer that we believed the Hotel represented a quality investment opportunity and that we’d find a way to make the most of that opportunity. The Bonds offer makes the investment a reality and overcomes the factors that stood in the way of the earlier proposal.”
Hilton International Co. will continue to operate the hotel under a hotel management agreement which runs for 15 years from the opening date of 1 June 2001, with a right of extension of 5 years by mutual agreement.
Hilton International is one of the leading international hotel operators and the Hotel on Princes Wharf has won numerous international awards. It was voted Best New Zealand CBD Hotel 2004 for the second year running and is rated by Condé Nast Traveler Magazine as one of the top 500 hotels in the world and one of the top 10 best hotels on the Pacific Rim. The hotel has consistently out-performed its peers in terms of average occupancy and daily rates.
The building lease rental comprises a base rent component that is fixed at $4 million per annum, payable monthly, plus a profit share component. The hotel operator is also responsible for most of the buildings outgoings, other than capital expenditure.
Mr Podmore said; “We anticipate that this Bond offer will prove attractive to investors and not only because of the competitive interest rate of 10.25 per cent. Investors are afforded security by a low loan to value ratio of only 72 percent and a base rental payment of $4 million per annum from the hotel operator which is equivalent to 1.25 times the interest on the debt.”
The offer is expected to open in late January and close on 28 February.