Tuesday 13th December 2016
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(Fixes reference to KPG share issue in 2nd paragraph, updates shares in last paragraph)
Kiwi Property Group, the country's biggest listed property investor, has put forward a deal to take over the management of NPT that would see it sell two Wellington properties to the smaller company, and has won the backing of the target's board, trumping a rival bid by Augusta Capital.
Auckland-based Kiwi Property plans to sell the North City Shopping Centre in Porirua and Majestic Centre in downtown Wellington to NPT for cash and shares worth $230 million, with NPT raising $100 million of new equity as well as a $50 million issue to Kiwi Property for a 19.9 percent stake to help fund the deal, it said in a statement. At the same time, Kiwi Property would pay $6 million for the management contract of the enlarged portfolio, which it would more than recoup within three years of collecting fees of about 0.5 percent of assets under management, reaping an annual $2.1 million.
The deal has won the backing of NPT's board, which will put the proposal to shareholders at a special meeting in February. It was one of four considered by the board, including NPT shareholder Augusta Capital's pitch to dump the board and facilitate an acquisition of three buildings worth $329 million, which would need a capital raising of $185 million. Augusta would also buy the management contract for $3.5 million with 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.
In a statement, NPT chairman John Anderson said the Kiwi Property deal was "likely to deliver the best short and long-term benefits to shareholders" and that the board will recommend it to shareholders at the special meeting. The directors hired Northington Partners to assess the deals, which backed the Kiwi Property bid, and the board also canvassed major shareholders' opinions.
Kiwi Property chief executive Chris Gudgeon said the partnership will align the interests of the two companies due to the cornerstone shareholding, and the management contract allows for termination if it's in the best interests of NPT.
Kiwi Property chairman Mark Ford said the sale of the properties would let the company recycle capital to fund an expansion of its Sylvia Park retail centre in Auckland.
If the Kiwi Property transaction is backed by NPT shareholders, it would expand the company's portfolio to $400 million from its current $170 million, and more than double distributable income to $16.8 million 2020 from $5.8 million in the 2017 financial year.
That compares to the Augusta bid which 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.
NPT internalised its management contract in 2010, paying $2.5 million to end a relationship with National Property Trust Ltd, a vehicle in the group of failed lender St Laurence. That came at a time when the structures were seen as unfairly rewarding external managers at the expense of investors by basing fees on the value of gross assets under management.
NPT shares last traded at 65 cents, down 3.7 percent this year, while Kiwi Property shares rose 1.1 percent to $1.375, having increased 0.7 percent this year. Augusta shares gained 1 percent to $1.02, and were up 1 percent this year.
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