Offer Summary
+ 6.6%* projected cash return paid monthly
+ Five fully tenanted Daycare Centres
+ Run by experienced Daycare operators with 10–15 year leases
+ Strategically located portfolio of properties
+ $50,000 minimum investment for wholesale/eligible investors
+ The offer has been fully underwritten
+ Total property value of $15,550,000
*Projected pre-tax return for full one year period. Details on how the return will be calculated, and the risk associated with the investment and return, are set out in the Information Memorandum
A Portfolio of Fully Tenanted Daycare Centres
Silverdale
Purchase Price: $7,054,000
Valuation: $7,100,000
Title: Freehold
Land: 1992 m2 & 1/2 share of 1345 m2
Total Floor Area: 600 sqm
Lease Details: Initial lease term of 15 years from 30 November 2019
Operator: The tenant operates 5 daycare centres and has been in the industry for 8+ years
Tuakau
Purchase Price: $2,000,000
Valuation: $2,000,000
Title: Freehold
Land: 995m2
Total Floor Area: 355 sqm
Lease Details: Initial lease term of 12 years from 1 February 2020
Operator: The tenant has been in the industry 7 years and operates another daycare centre under the Learning Castle brand
Pokeno
Purchase Price: $3,000,000
Valuation: $3,050,000
Title: Freehold
Land: 1940 m2
Total Floor Area: 316 sqm
Lease Details: Initial lease term 15 years from 19 October 2018
Operator: The tenant operates another daycare centre in Whitianga
Papatoetoe
Purchase Price - $1,800,000
Valuation - $1,950,000
Title - Freehold
Land - 814 m2
Total Floor Area - 316 sqm
Lease Details - Initial lease term 12 years from 1 April 2020
Operator - The tenant operates 5 daycare centres (4 in Auckland and 1 in Hamilton) and has been in the industry for 8+ years. The operator and his partner are both qualified educators.
Dunedin
Purchase Price - $1,450,000
Valuation - $1,450,000
Title - Freehold
Land - 1,138 m2
Total Floor Area - 453 sqm
Lease Details - Initial lease term 10 years from 29 September 2017
Operator - The tenant operates another 8 daycare centres and a consulting company that focusses upon the daycare sector
Offers will be restricted to “Wholesale Investors” under clauses 3(2) and 3(3) of Schedule 1 to the Financial Markets Conduct Act 2013 (or to any other person to whom an exclusion applies under Schedule 1 of that Act). Preliminary indications of interest are being sought at this stage and no indication of interest will involve an obligation or a commitment to participate in the Offer.
Early Childcare Market
The Daycare market is a significant and growing business sector.
This is largely driven through changes in our population, demographics and the way we live and work. Two working parents in a family unit and many solo parent households, has made childcare an integral part of modern family life. Parents’ expectations of education and the standards of facilities available, ensure quality premises and good business practices.
Since 2008, the proportion of children enrolled in Daycare has risen significantly from 93.6% to 96.6%. Time spent in Daycare has increased from 13.5 hours to 21.7 hours a week. Public funding for the sector is reliable and secure. The government committed an additional $396.9 million in the 2018 budget to fund the Daycare care for an extra 14,000 children by 2019/2020, with a stated objective of 98% of children attending Daycare.
Risks
Investments in syndicated commercial and industrial property does carry risk. Prospective investors must determine whether the investment is appropriate having regard to their own investment objectives and financial situation. Investors are encouraged to seek independent financial, tax and legal advice on these matters.
The Offeror and General Partner considers that the most significant risk factors that could affect the value of a Limited Partnership interest are:
+ Loss of rental income: A default by any tenant in paying rent and outgoings may affect forecast returns.
+ Re-leasing: Costs may be incurred in any future re-leasing of the property and failure to re-lease will likely affect its value.
+ Interest rate and bank risk: Interest rate movements are unable to be accurately predicted and an increase in interest rates may affect returns and bank covenant compliance.
+ Capital expenditure risk: Capital expenditure for the property may be more than budgeted.
No warranty or representation is made in respect of whether the revenue, expenses, or any capital appreciation in the future will be achieved. Actual results are likely to be different to the forecasts since anticipated events frequently do not occur as expected and the variation may be significant. Accordingly, Erskine + Owen, its shareholders, directors, employees, advisors or agents nor any other person can provide any assurance with respect to such information.
Population growth is also a key factor in the Daycare market. There are 4,596 providers of Daycare services in New Zealand today and this has been growing at an average rate of 152 per annum, mirroring the growth in population. As population increases, so too does the demand for Daycare centres. Recent sales of Daycare properties have been strong.
The Daycare property sector is regarded as more secure than other property asset classes, due in part to the Ministry of Education childcare registration being linked to a Daycare property. Landlords are favourable to this business sector and typically offer long term lease profiles.
The value of a childcare business is closely linked to the physical property it operates from. The resource consent for childcare use and the Ministry of Education registration is included in the valuation.
Building obsolescence in Daycare centre properties is low and minimal. Most Daycare businesses operate from the same premises long term.
Daycare is a growth market and a sector with little risk of obsolescence. Population growth, dual income families and strong legislation around childcare are all contributors. Auckland has had significant growth in the number of Daycare centres in recent years due to demand outstripping supply.
