Markie Mills. PBD have initiated a Capital raising, offering 4 shares to every 1 held, at 1 cent per share. They are issuing 2,375,473,180 shares in an attempt to raise $23.75 M (Of which the Bank will get $12 M now, plus $5 M at the end of year as well as the interest on the outstanding $35 M debt for 12 months!) After Reisley (Gidgigannup) is paid out $1.5M immediatley, and the the Underwriter gets approx. $1.2 M, PBD is left with about $8 M to operate for 12 months. It also has to pay off a further $5.5 M in 12 months. As far as I can see, it has no funds to develop stage 1 of Point Grey and no reliable source of income. The Capital raising appears to be aimed at helping it to 'hang in for longer', but hang in for what?
Whereas FKP appears not to be increasing their proportion of share ownership, I understand they have indicated that they will take up their 29.2% proportional offer. That is approximately 780,000 shares at 1 c for about $7.8M.
Accompanying the information regarding their capital raising, and their latest arrangement with the bank, PBD identify the sale of Oceanique apartments as its primary source of income over the next year(s). They contend that people holding off, hoping for a bargain had the receiver been called in, will now come forward and purchase apartments. There is no doubt that the apartments have spectactular views and are well finished.
I could be wrong, but I think the reluctance to purchase apartments at Oceanique is far more complex than the issue to which PBD is alluding. I can identitfy a number of other factors that, although they may not put off all potential buyers, they would be of concern to some. For me there are 3 big issues. 1. The first relates to the marketability of its isolated setting. Upmarket apartment dwellers may expect a wider range of accessible life-style opportunities and services.(A little bit more cosmopolitan colour and movement. The location can be as quiet as a country morgue.) 2.The issue of stability, and predictability, of the value of your asset should you purchase. There could be some anxiety and issues of trust here. Whilst one company owns so many apartments, they can radically alter the value of groups of neighbouring apartments to stimulate sales. This can be very much to the detriment of the value of the property you have purchased. I would be surprised if those who owned apartments were not devastated, and very angry with PBD, when the company dropped the prices by 40% and also put 8 units on the market at near mortgagee prices of $695,000. These apartments have to compete with single title, quality new homes, also with magnificent views and some with direct water access. (Where there is less chance of been damaged by price fluctuations arising from marketing campaigns). 3. The Company attributed the GFC as a major factor to turning real estate optimism and sales into reluctance and even resistence. In Ross Neumann's words he "never saw it coming !" Although the GFC may be in the past, it has left a lasting legacy of caution and safety. With ongoing problems in Europe, the USA and with even our own mining Industry pausing to take a breath, we appear to be experiencing chronic financial conservatism, particularly in real estate.
There may also be some who remain concerned that very little has changed and worry about the potential impact on them if too many units remain vacant (or that a fire sale could still occur sometime in the future). There are further issues, such as having to compete with other (and in some cases, newer) apartment developments in more vibrant locations such as Perth, Coogee (Fremantle) and even Mandurah. I also understand that over the last 2 years the banks have been reluctant to lend on apartments in Mandurah arising from oversupply and dropping values. Consequently I am not as optimistic as PBD that the sale of Oceanique units will generate enough income to meet their operational obligations, let alone provide funds for development projects. I think we will hear more. I suspect investors are hoping to hold out for a positive outcome re the Marina and channel and then hope for the sale of Point Grey, or raise further capital to develop it.
FKP Price at posting:
$1.00 Sentiment: None Disclosure: Not Held
