Unhappy Urbus investors may find opposition to Waltus buy too hard

By Christine Nikiel

Friday 25th October 2002

Shareholder dissent could stymie Urbus Properties' plan to buy the assets of nine Waltus syndicates for $157 million.

The property investor announced late last week it wanted to buy 16 properties owned by seven Waltus Syndicate companies and two Waltus Syndicate special partnerships for $157 million.

A disgruntled group of shareholders is expected to oppose the plan but they may find it difficult.

Shareholders failed to stop Urbus' management company Waltus from going ahead with a plan in 2000 the merger of 27 Waltus properties.

The High Court and the Court of Appeal rejected shareholder calls for a minority buy-out.

Market experts suggested Urbus' latest proposal benefited syndicate investors more than existing shareholders.

Urbus would pay for the properties partly in cash and partly with third-ranked unsecured convertible notes in Urbus, one expert said.

That meant the cash received by the Waltus syndicates would almost entirely be used to repay those syndicates with bank debt.

This raised the issue of what one of the convertible notes would be worth in five years the earliest it could be converted.

Urbus has said the notes would be converted 1:1 into Urbus shares as long as they were above 92c at the time of conversion.

If not, Urbus can defer the conversion for up to another three years without the noteholder having any say in the matter.

But Urbus retains the right to redeem those convertible notes at any time if the Urbus share price remains below 92c.

That had the potential to disadvantage the new noteholders should there be the potential for any capital growth in the value of Urbus shares even if the market price at the time did not reflect that value, one expert said. The noteholders had no say over that cash redemption right being exercised by Urbus, he said.

The Urbus share price has hovered between 65c and 70c, with a recent peak of 80c.

Urbus is on the unlisted securities market, which may mean it gets less attention from investors.

But like Dominion Funds, which last week also announced a proposal to merge property companies into one, Urbus is looking to consolidate ahead of most lease expiries, with an average five-year lease period left on most properties.

But one of the Waltus companies, Myriad Properties, has two properties with leases expiring next year (the State Insurance Building in Hamilton and Myriad's building in Onehunga which housed gardening company Yates and secured a one-year lease with Five Star Distributions earlier this year) and one still to negotiate a lease (The Warehouse in Taupo).

If the proposal goes ahead the combined portfolio would increase Urbus' assets to about $390 million.

Bank debt and convertible notes would fund the acquisitions, Urbus said.

The properties involved include 139 The Terrace in Wellington, the Albany Power Centre, Fortus Properties, IAG Properties, Logistics Properties, Manhattan Properties, Myriad Properties, Fleet Properties & Co and Lakeside Properties & Co.

Urbus this week announced an unaudited after- tax operating profit of $8,204,000 for the six months to September 30, 2002. This was a slight increase for the same period last year.

Urbus also announced an interim dividend of 3.62cps with an imputation credit of 0.88cps, giving a gross dividend of 4.50cps for the six months.

This equated to an annual pre-tax return of 9cps, which the company said was in line with the previous year's interim dividend and equated to an 11.25% return on its latest share price of 80c.

Investors will be briefed on the new proposal at meetings around the country running from October 31 to November 12.

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