By Jenny Ruth
Friday 20th May 2011 1 Comment
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Argosy Property Trust's management contract is probably worth about $22 million, well below the $32.5 million OnePath/ANZ is asking, although a wide range of values can be derived, depending on the methodology used and the assumptions made, says Buffy Gill, an analyst at Goldman Sachs & Partners.
Using a stand-alone discounted cash flow valuation "suggests a wide range of values depending on one's view of the longevity of the contract." If it only lasted five years it would be worth 13 million but if it was perpetual it would be worth up to $49 million, Gill says.
Comparable transactions suggest a range of $18 million to $42 million. But Gill's termination valuation range is $15 million to $17 million, based on a $12 million termination payment plus legal advisory and start-up/establishment costs.
"After allowing for the nuances of the Argosy contract, we believe the most relevant valuation range is $16 million to $29 million the midpoint of which is $22 million," she says.
Gill says the potential benefits of internalising the management contract include lower operating costs - she estimates total costs could be reduced by at least $3 million a year - and improved corporate governance with greater allignment of interests and enhanced potential for consoldiation.
Recommendation: Not rated because Goldman Sachs is acting as financial advisor to DNZ Property Fund which has suggest it take over Argosy instead. Last year, DNZ paid chief executive Paul Duffy and Alastair Hassell $35 million to buy out its management contract which, unlike Argosy's, had given them a right of veto over the investors' wishes.
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