Friday 10th October 2003
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At 85Ac, the offer is at around the level the shares were trading following AGP's $A397 million sale of its properties at George St, Sydney, which at least allowed independent appraiser KPMG Corporate Finance to call it "reasonable."
But AGP's asset backing (NTA) is about $A1.10 a share, of which $A250 million, or 75%, is cash, so KPMG ruled it "not fair."
At last call Trans Tasman had 65.8% and dropped its 75% acceptance condition, indicating it acknowledged it might not even get that far.
It also said it might use the 3% a year "creep" provisions to steadily up its stake to the 90% compulsory acquisition level.
But from 75% that would take five years. A new, higher bid closer to or at AGP's NTA is far more likely.
That, according to UBS Warburg, would be a good thing. Even if it paid the value of the NTA, Trans Tasman would still be a simpler beast with a lower cost structure and a modest debt to assets ratio of 15%.
UBS says it will also make little difference to earnings. It estimates earnings at 4.1c a share under the current offer and 3.8c if Trans Tasman pays NTA.
The offer has at least got one tormentor off AGP's back. Guinness Peat Group has accepted for its 7.5%.
But GPG is still on Trans Tasman's share register. So is one John Powell, who has been making a nuisance of himself for no easily discernible reason.
Powell assembled the requisite 5% of votes and has had two resolutions added to the agenda at Trans Tasman's special shareholders meeting on October 22.
The meeting was called to approve the AGP offer. Powell's first resolution calls for AGP's cash to be returned to AGP's shareholders, including Trans Tasman.
The second calls for Trans Tasman to return the cash it gets from AGP to its own shareholders.
As Jesse Lu's SEA Holdings holds 55% of the shares and as it is, according to Trans Tasman, entitled to vote, the resolutions are in any case a lost cause.
Powell's calls appear to be rooted in the belief Trans Tasman is still a dog and that neither its board nor AGP's can be trusted to do the right thing with the George St cash.
That's a judgment many a long-suffering shareholder from the old RJI days will have sympathy with, as evidenced by Powell's command of 5% of Trans Tasman's votes.
But that view fails to acknowledge that Trans Tasman, which looked near death three years ago, is at last beginning to come right.
The ludicrously high debt levels that followed the merger of RJI with Seabil NZ $651 million in 1999 have been whittled down to a comfortable $337 million in December last year and will fall further if the AGP takeover goes through. In fact, given property investment is all about leverage, it's doubtful Trans Tasman needs AGP's cash at all.
This has been done by selling off steadily the rubbish inherited from RJI, mostly at a loss. That has reduced revenues and suppressed earnings over the past few years but the earnings stream is now of much higher quality.
At the June half-year Trans Tasman booked a $7.2 million profit compared with an $8.4 million loss the previous year.
One factor was the absence of losses on property sales, which cost $10.7 million in the 2002 half year.
Another was a $13 million reduction in expenses, to $21 million.
The major items there were a cut in the interest bill, which fell by $6.6 million to $14.6 million, and a $4.5 million fall in property operating expenses to $2.1 million.
UBS calculates, after taking account of $30 million of non-yielding assets, the earnings yield on Trans Tasman's portfolio is now about 10%. UBS rates the shares a "buy."
Favourable analyst coverage may rekindle interest from the institutions who deserted Trans Tasman many years back.
All of this should assist the gradual recovery of the share price since the beginning of last year. But a few issues are likely to have to play out before any major rerating takes place.
First, the AGP situation has to be resolved as it has a major bearing on Trans Tasman's financial state.
Then investors will have to get their heads around the new financial model, which will generate quantitatively lower but far higher quality earnings from a slimmed-down asset base.
Third, they will have a form a view on the prospects for Trans Tasman creating wealth over and above the ups and downs of the property cycle.
Trans Tasman has a high quality land bank around Auckland's central business district and near its airport and the resources to develop it at a high point in the property market.
The company has more or less sold the 35ha Airpark Business Centre development and has bought a 52ha block next door for a repeat performance.
Resource consents have been sought for a $30 million,10,000sq m office block at the Western Viaduct and an apartment block in Takapuna.
One joker in the pack is the controlling shareholding of Lu, who never bothers to show up for shareholders' meetings. The minority shareholders are probably as irritating to him as he is to them but he's the only one in a position to do something about it.
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