Hobson's choice for Waltus investors

By Chris Hutching

Friday 16th November 2001

Waltus directors have been briefing investment advisers around the country about an offer to investors to shore up a troubled syndication that owns one of Auckland's top properties, the KPMG Centre.

Waltus spokesman Brendan Hodge said yesterday that an $8 million contributory note offer is underwritten by Waltus Property Finance and "sub-underwritten" by financial advisers.

The money will be used to refinance the property after Commonwealth Bank declined to roll over a $26 million loan but gave a repayment extension until the end of this month. Waltus directors are negotiating with another bank for the balance of the refinancing package.

They are also negotiating with KPMG to secure the future of the building when the key lease runs out in 2005. Rents are above-market and KPMG is understood to be relaxed about its position.

The financing problem has arisen because of falling property valuations and some analysts say Waltus paid too much for it when it was purchased for the Waltus Prime Properties syndicate in 1997 and syndicated it in May 1998. Latest valuations suggest it is worth $42.273 million.

Waltus was caught out during the Asian crisis as were other property trusts that came to the market at about the same time with overly optimistic rental forecasts.

The CBA $24.6 million debt is part of the total $34.9 million of Prime Properties' secured debt with the balance owed to syndicate equity holders.

The new $8 million contributory mortgage offer will rank behind bank debt but ahead of equity holders.

According to an investment adviser, many equity holders in Prime Properties are viewing the contributory mortgage offer as a way of shoring up their investment while also receiving a 10% yield with maturity at four years. An initial $5000 equity investment in the syndicate would now be worth about $1800.

The new contributory mortgage offered attractive returns compared to fixed interest-type investments. At the same time, Waltus might struggle to sell the idea to investors who had noted the troubles afflicting its property syndications, according to the adviser. If adequate funding cannot be obtained the building will be sold.

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