Independent directors reject AMP offer as too low

Capital Properties' independent directors today recommended that shareholders reject AMP Property's $1.42 a share takeover offer for the company.

AMP Property already owns 15.4 per cent of Capital Properties and is looking to gain 50 per cent.

But Capital Properties independent directors' committee chairman Tony Frankham said the committee supported the view of independent advisers, Deloitte, that the offer was "not fair" to shareholders.

Deloitte's reported today that fair value lay between $1.48 and $1.73 a share, with a mid-point valuation of $1.60 a share.

"The independent directors unanimously recommend that shareholders do not accept the offer," Mr Frankham said.

He said independent directors were not selling their own shares into the offer and considered the Deloitte valuation as "conservative, particularly with respect to their valuation inputs on future growth and the cost of capital".

Mr Frankham said Capital Properties had a strong competitive position. It was the largest provider of office accommodation to the government sector, primarily in Wellington where it owned around 60 per cent of the office space leased to the government in the Thorndon precinct.

"Capital Properties is in a strong position to maximise value by meeting demand from government tenants for space in its existing buildings and also in its new and refurbished buildings."

The company had two development sites in Thorndon.

It was negotiating on a new long term lease agreement with the Ministry of Justice as the anchor tenant in Capital Properties' proposed Vogel Integrated Campus development.

It had started discussions with a government ministry to create a large office complex centred on the Bowen State Building and Charles Fergusson Building.

Also Capital Properties was evaluating options for Defence House following the completion of the New Defence building it was developing in Mulgrave St.

"These opportunities have the potential to add significant further value for Capital Properties' shareholders," Mr Frankham said.

Deloitte used a discounted cash flow valuation method to establish the fair value range of Capital Properties' shares. This assumed an after tax weighted average cost of capital of 7.8 per cent.

The Deloitte fair value range took into consideration a revaluation of Capital Properties portfolio undertaken as at September 30. The value of Capital Properties' portfolio increased by 8.6 per cent or $46 million, principally as a result of increasing commercial office rents and strong demand from investors driving up values.

The revaluation has led to an increase in Capital Properties' net tangible assets from $1.29 to $1.48 a share.

Mr Frankham said although 19.24 per cent shareholder Kiwi Income Property Trust was flagged in the Deloitte report as a possible counter-bidder, it had not yet signalled its intentions.

AMP Property's offer is conditional on it getting at least 50 per cent of Capital Properties. AMP has already received consent from the Overseas Investment Commission for the offer.

Capital Properties' shares were trading at $1.45, up 1c, this morning.

- NZPA