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Kiwi Property to buy 50% of Tainui's The Base mall for $192.5M, offers $197.5M for the rest

Friday 8th April 2016

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Kiwi Property Group, New Zealand's biggest listed property investor by market value, has agreed to buy 50 percent of Hamilton's The Base shopping centre from Tainui Group Holdings for $192.5 million and offered $197.5 million for the balance.

The cash and shares proposal values the shopping mall at Te Rapa at $390 million. Waikato-Tainui will consider the offer for the remaining half share in coming weeks, Kiwi Property said in a statement. The purchase of the initial 50 percent stake includes about 6.7 hectares of vacant land suitable for development, it said.

Under the terms of the deal, Kiwi Property will buy a half stake in the 120-year ground lease over the land, for which rents are prepaid, while Tainui will retain freehold title. If Tainui elects not to accept the offer for the remaining half stake, it can still require Kiwi Property to buy it between 2018 and 2021 based on an independent valuation, the company said.

If Tainui does accept the offer for its remaining stake, Kiwi Property would pay $122.5 million in cash and issue 54.3 million in new shares at $1.38 apiece, a discount to the last traded price of $1.465. Settlement would be May 31.

Kiwi Property will fund the acquisition via a new bank facility, which would increase its gearing to 34 percent. Its ratio was 30.3 percent at Sept. 30, 2015.

“Although the acquisition of The Base will be initially funded through bank debt, we expect to reduce gearing following the sale of a number of non-core assets over the next two years as part of our ongoing asset recycling programme,” chief executive Chris Gudgeon said.

While the acquisition of the initial half stake is unconditional, buying the rest will depend on the decision of Tainui's tribal parliament and the tribe's executive committee. The offer closes on May 17.

Gudgeon said The Base has "a positive retail sales outlook and strong underlying demographics". The site including the vacant land was within New Zealand's "golden triangle" of economic and residential growth between Auckland, Hamilton and Tauranga which was expected to account for much of the nation's population growth over the next two decades, he said.

Kiwi Property "will seek to drive further value by actively managing the centre’s retail mix and by pursuing further value-adding opportunities," he said. "Passing rentals are estimated to be approximately 3.1 percent below market, with vacancy around 4 percent."

The deal comes four months after Kiwi Property announced the sale of the southern part of its recently developed downtown Hamilton Centre Place South shopping centre to an undisclosed local buyer for $46.7 million, a 3 percent discount to its book value.

Kiwi Property shares have gained about 15 percent in the past 12 months, matching the NZX 50 Index's gain.

Tainui Group Holdings, the investment arm of the Waikato tribe, flagged the sale of a half stake in The Base last August, saying it would use the funds to repay debt and for other investments.

The underlying 30 hectare site, which was taken prior to World War II for use as the Te Rapa Air Force Base and returned to the tribe in 1995, would remain in Tainui ownership, it said at the time.

Deutsche Craigs, CBRE and Bell Gully advised Tainui on the deal, which had attracted strong local and overseas interests, said Tainui Group chief executive Chris Joblin. 


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