NPT shareholders to vote on Kiwi Property offer, Augusta board spill

NPT will pitch its favoured tie-up with Kiwi Property Group at a special meeting next month.

NPT will pitch its favoured tie-up with Kiwi Property Group at a special meeting next month, where shareholders will vote on whether to back the deal or accept a rival proposal from Augusta Capital to dump the board.

The Christchurch-based property investor has wrapped up negotiations with Kiwi Property over a transaction where the larger firm will 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 $100m of new equity as well as a $50m issue to Kiwi Property for a 19.9 per cent stake to help fund the deal. At the same time, Kiwi Property would pay $6m for the management contract of the enlarged portfolio, which it would more than recoup within three years of collecting fees of about 0.5 per cent of assets under management, reaping an annual $2.1m.

NPT has called a special meeting on April 21 to be held in Auckland where the deal will be put to shareholders with the blessing of the board. A rival bid by Augusta, which owns 9.3 per cent of NPT, won't be discussed at the meeting but Augusta's resolutions to dump the board and install its own directors will still be voted on.

"Shareholders should understand that, not only are board changes at this time an unnecessary distraction, but if there is a change to the composition of the board at the special shareholders meeting, even if shareholders vote in favour of the Kiwi Property proposal, there can be no guarantee as to what sort of transaction, if any, a revised board may pursue," NPT chairman Tony Sewell said in a statement.

Augusta planned to dump the board and facilitate an acquisition of three buildings worth $329m, which would need a capital raising of $185m. Augusta would also buy the management contract for $3.5m with a base management fee of 0.5 per cent of assets under management up to $500m, and 0.4 per cent after that, with a performance fee attracting 10 per cent of shareholder returns above the threshold.

In the notice of meeting, NPT told shareholders the board attempted to measure Augusta's proposal against Kiwi Property's and said it would "result in a significant decline in NPT's earnings and dividends" compared to a standalone basis and a projected increase with the Kiwi Property deal. It also relied on an increase in debt gearing beyond the Kiwi Property deal.

The Kiwi Property deal also needs Overseas Investment Office approval, and NPT obtaining sufficient funding and raising at least $90m in the entitlement offer by the end of May.

NPT plans to extend its debt facilities by $100m to $170m, with new funding from Westpac New Zealand and Industrial and Commercial Bank of China (New Zealand) and a bigger line from its current lender, Bank of New Zealand.

The purchase prices for the two properties are slightly below their independent valuations, with the Majestic Tower going for $119m compared to $121.8m and North City Plaza at $111m versus $114m. Kiwi Property has spent $84m on earthquake strengthening at Majestic Tower in recent years, and as part of the deal, it has to bring North City Plaza up to at least 67 per cent of the new building standard.

Kiwi Property chairman Mark Ford said the deal lets the larger property firm keep an interest in the Wellington and Porirua buildings while freeing up capital to spend on expanding the Sylvia Park retail centre in Auckland.

NPT shares last traded at 60 cents and have dropped 6.3 per cent so far this year, while Kiwi Property's stock closed at $1.415 yesterday, up 2.2 per cent this year. Augusta shares were last at $1, and have gained 2 per cent since the start of the year.