Kerr's Torchlight eyes Australian real estate fund amid PGC takeover

Friday 4th November 2011

George Kerr’s Torchlight Fund, a subsidiary of Pyne Gould Corp which specialises in squeezing value from distressed assets, looks likely to win the management contract of an ASX-listed entertainment property fund having secured the target board’s backing.

Unitholders in ING Real Estate Fund (IEF), an investor in pubs and clubs, will vote next month on whether to approve a deal that will give Torchlight subsidiary Bodiam RE the management contract for the fund at no cost to Kerr’s vehicle, the fund’s manager said in a statement to the ASX this week. The deal has been recommended by the independent directors of the fund’s management company.

Torchlight will underwrite a A$15 million rights issue by IEF, raising money to buy the business and operating assets of Icon Hospitality, which is the fund’s biggest tenant and is in receivership. If the purchase doesn’t proceed, the rights issue will be used to meet the fund’s obligation under an option over Icon’s plant and equipment to repay debt.

As part of the deal, the fund’s existing manager, ING Management, has agreed to waive A$8.3 million owed to it in contingent management fees and forgo any future fees during the interim handover period.

ING Management has a review underway on options to internalise the management contract and if IEF unitholders approve the Torchlight deal at their Dec. 5 meeting then Kerr’s vehicle will complete the review, looking to restructure the fund into a listed hotel property owning and operating business.

“The proposal offers a number of benefits to unitholders, including access to new capital to assist IEF in achieving its strategic objectives,” ING Management chairman Michael Coleman said. “Torchlight brings access to experience in unlocking asset value and is strongly aligned to the fund through its existing investment position.”

Torchlight holds 17.6 percent of the IEF’s units.

The proposed board for the Torchlight vehicle would be chaired by Pyne Gould chair Bryan Mogridge, with Deborah Cartwright and Julian Harvard as independent directors. Torchlight’s Russell Naylor would be executive director.

The fund’s units last changed hands at 8 Australian cents apiece on Nov. 1 when the recommendation was made, giving it a market capitalisation of A$48.5 million.

The bid comes against the backdrop of Kerr’s bid to seize control of Torchlight-parent Pyne Gould in what’s been labelled a ‘low-ball’ offer of 33 NZ cents per share.

Kerr and Californian hedge fund Baker Street Capital have support of 37.5 percent of Pyne Gould shareholders, including their own combined stake of about 33 percent, in a deal that would see their Australasian Equity Partners Fund take over and delist financial services company.

Yesterday, Kerr told Pyne Gould shareholders the firm is no longer a high-dividend stock without its Marac lending unit, and needs owners with a long-term investment horizon.

Pyne Gould’s shares were unchanged in trading on the NZX today at 33 cents.

BusinessDesk.co.nz

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