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Salt Funds sours further on NPT's Kiwi Property deal

Tuesday 4th April 2017

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Salt Funds Management is even darker on property investor NPT's proposed tie-up with the much larger Kiwi Property Group, releasing a second salvo that labels the deal an "unacceptable transfer of value". 

NPT shareholders will this month vote on a deal to buy two buildings from Kiwi Property for $230 million, raising $93.9 million to partially fund the deal and issuing shares giving Kiwi Property a 19.99 percent stake. The larger property investor would also buy NPT's management contract for $6 million.

Salt Funds managing director Matthew Goodson criticised NPT's adviser Northington Partners for not comparing the final terms of the deal to what was originally proposed, saying Kiwi Property was initially going to pay $53 million for its cornerstone stake, but that was now reduced to $47.9 million, while still receiving the same price for their buildings. The final terms of the deal also mean NPT's earnings per share will only rise 9.7 percent compared to the 16-to-25 percent rate initially proposed, dividends are set to rise at less than 7 percent and transaction costs have increased to $4.4 million from $3.7 million. 

"Salt is surprised that NPT's adviser Northington Partners has not drawn attention to the material differences in KPG's (Kiwi Property) final proposal and has instead set up a 'straw man' to compare against in the form of Augusta's long-withdrawn proposal from mid-2016 when listed property prices and interest rates were at very different levels," Goodson said in his second open letter in a week. "Salt has no issues with KPG's capabilities but this proposal represents an unacceptable transfer of value from NPT shareholders to KPG." 

Salt Funds has owned 16.9 percent of NPT since June 24, 2016, and held 5.3 percent of Kiwi Property as of Jan. 16 this year. Last week Goodson came out in opposition to the Kiwi Property deal, and urged fellow shareholders to reject it. 

His objections were slapped down by NPT chairman Tony Sewell, who said he was disappointed with the public letter, and that it was at odds with independent advice and feedback from major shareholders, among which Sewell counted Salt Funds. 

Shareholders will vote on the proposal on April 21 with the Kiwi Property deal backed by the board. Resolutions put forward by Augusta Capital, which owns 9.3 percent of NPT, to dump the board and install its own directors will also be voted on. 

Salt Funds' Goodson today said a better proposal would be for NPT to externalise its management contract to deal with its lack of scale and put more effort in managing the portfolio in a manner to build value and boost earnings. 

NPT shares fell 0.9 percent to 58.5 cents, above the forecast price the firm would sell shares at in a $100 million entitlement offer to fund the acquisition. Kiwi Property shares declined 0.7 percent to $1.425. 



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