Asset sales allow Southern Capital to pay off debt

By Chris Hutching

Friday 10th November 2000

Settlements from property sales allowed Southern Capital to repay a $10.8 million ANZ bank loan after its June 2000 balance date when it reported a $1.3 million loss.

After its first year as a listed company, Southern Capital is a considerably different entity to the one floated in 1998.

In 1998 broker BT Alex Brown was forecasting an after-tax profit of $6.6 million from Southern Capital's property developments - the Christchurch Supa Centa, Omaha Beach near Auckland, the Pegasus Bay township and Waimakariri Employment Park - for the current financial year.

Those developments were considered so promising at the time that two founding directors and shareholders with 10% stakes, Howard Paterson and Phil Burmester, were each paid $500,000 in a five-year restraint of trade arrangement.

The second $500,000 potentially payable to each remains in the books as a $1 million contingent liability. But the chances of it being paid out look some way off.

They will receive the remainder only when planning applications are finalised and if shareholder funds of those developments exceed $20 million.

Two years later the 30%-owned Supa Centa is under construction and at Omaha Beach (42% owned) the bulldozers begin subdivision work in summer.

The other two projects and a resource application involving 23%-owned Clifford Bay Mussels have become snared in lengthy resource management hearings.

The changes in direction that were uncharted in 1998 included last year's reverse Stock Exchange listing via CBD Properties and subsequent disposal of 63 Albert St, Auckland one of its two office buildings, for $10 million, representing a $3.8 million loss.

This was offset by two fortuitous property deals involving a farm bought from Ngai Tahu and flicked on to a landfill company in Canterbury, gleaning a $2.5 million profit. The other was the sale of Orere Pt, on the Firth of Thames, for a $1.8 million profit.

The second ex-CBD Auckland office property, the Flight Centre at 48 Emily Place, is earmarked for sale while remaining space is leased out.

Forecasts for an entrepreneurial company like Southern Capital have a limited use.

Wildcard investments introduced during the year by founder director Mr Paterson include A2 Corporation, Blis Technologies and, more recently, CG Surgical.

Southern Capital subscribed to 6.2 million shares or 15.7% of Blis which is trading at just under $1 a share.

The Blis share value has not been written into the accounts.

Similarly the shares in A2 are trading at around $2.50 compared with a book cost of 2c share.

They have buoyed Southern Capital's share price, which remains relatively stable at around 80c.

The biotechnology companies may deliver more results quicker than some Southern Capital property ventures, except perhaps Omaha Beach where a close associate of the directors, John Darby, is involved in managing the project.

Managing director Graeme Wong said "76% by value" of the Omaha Beach stage one development had sold, with $595,000 beachfront properties reselling at $750,000.

Going forward into the current financial year, Southern Capital has low debt and plenty of possibilities arising from the diverse interests of its directors.

But analysts are unlikely to rely too much on attempts at forecasting for this unpredictable company.

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