Friday 28th October 2016
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Augusta Capital, which bought 9.3 percent of listed property investor NPT a month ago, wants to spill NPT's board after being rebuffed with an offer to buy the company's management contract and facilitate a $329 million acquisition.
Auckland-based Augusta is seeking a special meeting of shareholders where it wants to dump chairman John Anderson and directors Jim Sherwin and Tony Sewell, replacing them with its own chairman, Paul Duffy, and independents Bruce Cotterill and Allen Bollard. Augusta would also use the forum to put a proposal in front of the property group's shareholders where NPT would buy three buildings worth $329 million and Augusta would buy the management contract to build "a meaningful listed entity that generates greater returns than are currently being realised," it said in a statement.
"Unsuccessful attempts to engage with the NPT chairman has left Augusta little choice but to seek change at the board level so that its proposal can be put in front of NPT shareholders," it said.
Augusta paid a 14 percent premium to take the stake in NPT at 73 cents apiece last month, saying at the time it saw value in acquiring a cornerstone stake from Accident Compensation Corp. Today Augusta shares fell 2.9 percent to $1.01 and are up 4 percent this year, while NPT stock gained 2.9 percent to 70 cents and has barely budged in 2016.
The company diversified into funds management last year when it bought KCL Property and Investment Property Titles, giving it about 165 properties to manage, with some $1.1 billion in funds under management. Since then it has been focusing on property syndication to grow that funds management business, which it sees as less demanding on capital than direct property investment.
Augusta wants NPT to buy three office buildings, one of which is under construction, worth a combined $329 million at the net tangible asset price in an uncontested process, and would support a $185 million issue of new equity to help buy the assets. Augusta also wants to buy NPT's management contract for $3.5 million, a premium to the $2.5 million paid to internalise it in 2010, with an initial five-year term and automatic right renewal.
The proposed contract attract a base management fee of 0.5 percent of assets under management up to $500 million, and 0.4 percent after that, with a performance fee attracting 10 percent of shareholder returns above the threshold. That compare to the previous external contract with base fees of 0.75 percent of assets under management and bonus of 20 percent of the average annual increase in capital reserve account over the previous three years.
The expanded property portfolio would increase NPT's assets under management to about $505 million, which Augusta estimates would more than triple net profit by 2020 to about $18.3 million. Augusta would look to pocket base fees of $1.7 million in 2018, rising to $2.5 million by 2020.
The looming stoush will be another distraction for NPT, which appointed Tony Osborne as chief executive in August, a role he'd been acting as since March. The property investor has been focusing on upgrading its Eastgate shopping centre in Christchurch and refurbishing its AA Centre building in Auckland to take advantage of that city's strong office leasing market.
The vote will largely hinge on whether Augusta can convince the NPT shareholders Salt Funds Management, ANZ New Zealand Investments, and Westpac, which collectively own about 46 percent of the property investor.
Augusta, whose biggest shareholder is managing director Mark Francis with about 17 percent, counts all three fund managers as substantial shareholders, with ANZ topping up its stake in Augusta to about 12 percent.
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