Down to work within a week of forming partnership

Tauranga-based PMG Property Funds Management has wasted no time in getting down to work with Australia-based listed 360 Capital, which it formed a 50% equity partnership with last week.

Thursday, February 25th 2021, 6:07AM

PMG is about to launch a $66 million capital raise to buy four mainly industrial properties off-market across Christchurch, Wellington, Hamilton and Auckland for $108 million, each individually owned. 360 Capital will underwrite a portion of the capital raise, while extra borrowings will complete the purchases due to be settled next month.

When the deals are completed, the four properties will go into PMG’s Pacific Property Fund Limited bringing the total number of properties in the fund to 20 with 63 tenants. The portfolio is weighted towards the industrial sector.

Investors will be able to buy 20,000 shares at $1.22 each, and 10,000 shares thereafter, for a forecasted gross cash return of 7.35 cents per share, a yield of 6.02% per share, which PMG chief executive Scott McKenzie says more than compares with other funds generally offering 4.5-5.5% yields.

McKenzie says the partnership with 360 Capital is fundamentally to bring further property funds management expertise into PMG’s business as well connections to raise additional capital, particularly institutional capital, and to lift the bar around high-quality property and investment funds. “We have a road map of growth over the coming year and 360 Capital will help execute this.

PMG will have over $650 million in property assets under management after the completion of the offer and acquisition of the four properties, while 360 Capital has $A444 million of assets under management.

When McKenzie started with PMG in 2012 it had $90 million in property syndicates, two other staff and one small Tauranga office. Since then, it has grown to 30 staff and offices in Tauranga, Auckland and Christchurch. “The emphasis now is for PMG to grow in a sustainable manner to $1 billion in funds under management,” McKenzie says.

Although 360 Capital is a listed Australian REIT, PMG sees no reason to list on the New Zealand stock exchange and there are no plans on the horizon for 360 Capital to do a full take-over. Under the partnership, PMG’s brand and day-to-day management will stay the same.

“PMG, from the outset, decided to operate in the unlisted funds space and since 2014 when the company steered away from syndication to funds management because “it is preferable to have portfolios of properties in specific sectors rather than a single property with a single tenant”, investors have had more liquidity to trade on the secondary market.

“We are not interested in growth for growth’s sake. Properties that we will look at buying have to be high quality and fit PMG’s criteria for long-term ownership, further upgrades and possible redevelopment potential.”

PMG does not charge investors upfront fees for buying into its funds. It is paid on performance and the number of rents collected plus a base management fee against the value of the portfolios. “Our income is linked to the performance of the fund.”

During the Covid-19 extended lockdowns, PMG gave tenants rent relief and as a result its own income was cut because of the lower rents collected. “It’s about aligning PMG’s interests with those of the investors and staying close to them. It is one of the reasons why PMG has no interest in listing.”

McKenzie says the unlisted funds are well supported by repeat and new investors from Invercargill to Whangarei. “Seventy percent of new clients are referred from existing investors or contacts in the PMG database and most of PMG’s staff have investments in the funds.

PMG has some funds under management that are PIE ‘s with gross returns from 5-7%.

Tags: PMG property investment