NZ Shareholders' Association supports Kiwi Property deal for NPT

Karl Refief, GM of Kiwi Property. The New Zealand Shareholders' Association says a property deal between Kiwi Property Group and NPT would provide certainty. Photo / Greg Bowker

The New Zealand Shareholders' Association says a property deal between Kiwi Property Group and NPT comes down to certainty with some known negatives versus the significant uncertainty about NPT's future under the status quo, and the investor lobby will vote discretionary proxies in favour of the proposal.

The commentary was sent to NZSA members ahead of an NPT special meeting scheduled for April 21 where shareholders will be asked to vote on approving the deal, which includes buying two buildings from Kiwi Property (KPG) for $230 million.

"We believe most shareholders invest in property companies for steady income without too many surprises" and the NZSA plans to support the KPG proposal, it said. The lobby will vote against five other resolutions proposed by Augusta Capital - NPT's biggest shareholder with an 18.9 per cent stake - to remove two directors and replace them with three of its own nominees.

According to the association, NPT's acquisition of the buildings is a $6.5m, or 2.8 per cent discount to the independent valuation.

NPT will fund the purchase with additional bank debt of $87m and a roughly 1-for-1 entitlement offer to all shareholders seeking to raise $94m. The issue price will depend on the NPT share price at the time and will be done by way of a rights offer with some potential for a small payment to those who don't take it up, depending on the final bookbuild price, the NZSA noted.

In addition, KPG would buy NPT's management contract for $6m, resulting in an overall reduction in NPT's management costs from 1.3 per cent to 0.7 per cent per annum. The larger property investor would also buy a 19.9 per cent stake in NPT at a discount to the 10-day-weighted average price.

NPT shares recently gained 0.9 per cent to 59.5 cents, while KPG stock slipped 0.4 per cent to $1.425.

The Shareholders' Association said the deal would give NPT has some "real scale" and the larger number of share on issue will increase liquidity. Also, the deal is expected to result in a 6.8 per cent increase in distributable profit and dividends.

On the negative side, the share entitlement price remains unknown and the entitlement offer will require underwriting to ensure success and this remains undetermined and could "materially change the financial outcome for NPT shareholders," it said.

The deal has sparked opposition from Augusta and also from fellow NPT shareholders Salt Funds Management, which owns 13.7 per cent and has been critical of the KPG deal, calling it an "unacceptable transfer of value" from NPT shareholders to KPG.

Salt Funds managing director Matt Goodson has written two open letters criticising the deal over the mismatch between the price being paid for the buildings and the discount KPG would get in buying back into NPT. He has said he'd prefer NPT to externalise its management contract or sell assets to return capital to investors above the KPG transaction.

Augusta recently paid a 17 per cent premium to double its stake in real estate investor NPT, putting more clout behind its bid to replace the board and block the KPG deal. "We believe the current board is completely out of touch with its shareholders in recommending this deal," Augusta managing director Mark Francis said in a statement earlier this month.

However, according to the Shareholders' Association, for long-term investors who want to continue receiving a similar level of dividend with the potential for asset and share price growth over time, the KPG proposal brings a "strong level of certainty." It said there is some short-term cost and "it is not ideal" to be bringing in a new major shareholder at a significant discount. However, "scale and liquidity may be very positive in time."