Macquarie reveals its hand in related-party deals

Chris Hutching

Saturday 17th April 2004

Macquarie is positioning itself as one of Auckland's key industrial developers by "land-banking" an Otahuhu property that it hopes will rival The Gate industrial park in Penrose, which it also part-owns.

The deal highlights the inter-related structure of the Macquarie group of companies, mostly listed in Australia, where the companies are at various times the developer, the vendor, the buyer, the manager and the investor.

The risks of such inter-related company operations are that the system relies on ever-rising capital values and strong annual rent rises (e.g. 3% a year over 15 years in the case of a recent lease deal). When the market turns, there may also be a domino effect downward for investors in some of the companies.

Macquarie chief executive officer in New Zealand, John Dakin, acknowledged the risks but said he was comfortable that the five-year development plan for the Otahuhu site, with a potential completion value of $NZ130 million, was sound and even in a falling economy the company would have a sufficiently strong relationship with its tenants to weather a storm. Leasing arrangements would be a combination of fixed terms and market-related benchmarks.

The latest Otahuhu deal involves Australian Stock Exchange-listed Macquarie Goodman Industrial Trust developing properties and selling a share in them to New Zealand-listed Macquarie Goodman Property Trust (formerly Colonial Property Trust), under a recently settled co-ownership arrangement.

Both companies are managed by Macquarie Goodman Management, a company headed by Greg Goodman and also listed in Australia. The listed management company holds stakes in the various other Macquarie entities.

In recent months Mr Goodman and his team have bought out the former manager of New Zealand-listed Macquarie Goodman Property Trust (Colonial) and obtained agreement of other unit holders of the trusts for the co-ownership arrangement of the new industrial developments in Auckland.

The first new deal under the arrangement is the 26.5ha Otahuhu railway workshops site that the Macquarie companies will buy for $NZ34.4 million.

Auckland company Willis Bond & Co, involved in other Macquarie deals, is the vendor of the property and will help market it and receive 50% of profits over independent valuations as well as a margin fee.

The property is near the Southern Motorway, Southwestern Motorway, Massey Rd and Great South Rd. Mr Dakin anticipates a yield from the first development stage of more than 9.5%. It would be aimed at tenants seeking 5000sq m to 20,000sq m.

Meanwhile, at The Gate development in Penrose, Macquarie Goodman Industrial plans to develop two new buildings and, on completion, a half share will be sold to the Macquarie Goodman Property Trust for $A5 million ($NZ5.8 million).

The details provided to the Australian Stock Exchange by Macquarie Goodman Industrial this week about The Gate deals were more comprehensive than the announcement designed for New Zealand investors. The Australian statement revealed that the extra capital expenditure on a 5300sq m building for retail tenant, Recall, will be $A4.6 million, with a total project cost of $A5.7 million, resulting in yield on expenditure of 11.7% and yield on total project costs of 9.5%.

A second 4600sq m building for Norman Ellis will require additional capital expenditure of $A3 million and total project costs of $A3.8 million, resulting in yields of 12% and 9.5% respectively.

Recall will take a 15-year lease with annual reviews of 3%, while carpet manufacturer Norman Ellison will lease its building for an initial term of nine years, with an option for a further six years. (Macquarie Goodman Industrial is also developing two other facilities in Sydney and Melbourne for Recall as part of a development deal).

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