Argosy in $180m Wellington spend-up

The chief executive of Argosy Property is confident the company will raise all of the $100 million in new capital it is targeting to help it purchase two Wellington office buildings.

Trading in the shares of the NZX-listed company were halted this morning as the company signalled its intention to raise the capital from both institutional investors and existing shareholders.

The capital will be used to partly fund the purchase of two Wellington office buildings: the former Ministry of Defence building at 15 Stout Street and NZ Post's headquarters on Waterloo Quay.

Argosy's chief executive, Peter Mence, said the company would pay $33.2m for the Stout Street property and $60m for the NZ Post building, and spend $46.6m and $40m respectively on upgrading the properties.

The full cost of the purchases is almost $180m.

Both buildings have leases, with NZ Post staying put and another government department set to move into the Stout Street office building on a 12-year lease, although Spence said he did not yet know which department that would be.

Mence said having two other Argosy properties - the TSB Tower which houses the Department of Internal Affairs, and the headquarters of Te Puni Kokiri at 143 Lambton Quay - adjoining the Stout Street property would be beneficial for both Argosy and the Government.

The company said in a statement to the NZX this morning that it intended to raise the $100m in two tranches, with $80m in shares offered offered to institutional and other qualified investors and another $20m offered to existing Argosy shareholders.

After completing the transactions and upgrades of the buildings Argosy said its total property portfolio would be 65 properties with a total value of approximately $1.1 billion.

The company said the property acquisitions would have a positive effect on shareholders' earnings per share [EPS], and the weighted average lease term over its whole portfolio would increase from 5.4 years to 6.1 years.

Argosy chairman Mike Smith said both Wellington properties had long-term lease agreements with government agencies in place.

Chief executive Peter Mence said the buildings were being purchased as long term assets, particularly because the Stout Street building adjoined two other Argosy-owned properties.

"Both buildings are compliant with Wellington City Council's earthquake code and involve an upgrade component which we have carefully evaluated through our property due diligence," said Mence.

"The upgrade aspects of each acquisition will add significant value for shareholders, while delivering on our goal of adding value to assets by focusing on providing quality working environments that fulfil tenant aspirations."

The institutional share placement is to be managed by First NZ Capital and is expected to be completed today, with the trading halt lifted soon after.

According to property records, 15 Stout Street was bought for $14m in January 2011 by a company jointly owned by Maurice and Kate Clark. The NZ Post building is currently owned by NZ Post.