Becton turns to investors

Investors in a unit trust that owns the May Holman Centre at 32 St Georges Terrace have been given a stake in the site’s future use by trust manager Becton Investment.

Investors will be asked their views on whether to create a residential development or an A-grade office building when the State Government’s lease expires at the end of 2007.

The building is currently 100 per cent leased to the Department of Housing and Works and houses various Department of Justice agencies, which will relocate to a new court precinct being developed on the corner of Hay and Irwin streets.

The May Holman site was acquired for $23 million in 2000, and was recently valued at $16.25 million. Estimates value the site at $10.2 million at the end of 2007.

Investors have been told that, as a result of the decline in the property’s value, the loan-to-value ratio is too high, and that the financiers require a reduction of debt.

Becton advised investors that distributions to them will be suspended and channelled back into the financier, and that Becton would cease receiving a management fee during this period.

Consequently, the 291 investors who bought into the trust and have an average holding of $43,000 have been asked for their views on what should happen with the site.

A letter to investors from Becton managing director David Hinde highlights two proposals – converting the building into residential apartments, or refurbishing and upgrading the building to an A-grade office building.

Investors were told that both the options had advantages and disadvantages.

“For example, the residential option offers unit holders a potentially higher return upon completion of the development and sales of the apartments. But it also carries a higher level of risk when compared to the option of upgrading existing office space, subject to an appropriate pre-commitment from a suitable tenant,” the letter says.

It also raises the option of selling the property if a ‘sell now’ vote was received by more than 75 per cent of unit holders.

“While this is not Becton Properties’ recommended course of action, if the overwhelming response from unit holders is to divest the property now, then a unit holders meeting would be called,” the letter says.

In October last year, Becton announced it had bought Glenmont Properties. As a result of the acquisition the trust manager was undertaking a review of all assets within the Glenmont portfolio, which included the May Holman centre.

Annual returns to investors have approximately equated to prospectus forecasts for the five years.

In 2004-05 the return was 11.5 per cent compared with the forecast 13.5 per cent, with returns limited in anticipation of a requirement for capital works.

The May Holman centre is a 19-storey office building and was constructed in the late 1960s.

Melbourne-based Becton announced last month that an Australian Stock Exchange listing was being planned through a $50 million capital raising this year, giving the entity a value of about $200 million.

Established in 1976 by Max Beck, Becton has several property related divisions including residential development, construction, retirement development, property funds management, and time-share management.