Published 27 January 2006
ING Property Trust’s $1.25/unit bid for Calan Healthcare Properties Trust puts a new perspective on the value of the management of listed property entities.
After Kiwi Income Property Trust began its bid for Capital Properties (NZ) Ltd at the end of 2004, Capital put its internal management operation on the market and also talked up the value of the contract as a component of the share price.
Kiwi went to court and Capital withdrew the management rights from the market. Subsequently, the unlisted AMP Property Portfolio Investments Ltd has acquired majority control of Capital, but hasn’t yet reached the trigger point for compulsory acquisition.
Capital & Trans Tasman Properties Ltd were the only New Zealand listed property entities with internal management structures. Capital’s chief executive, Chris Gudgeon, reckoned last September the difference between the company’s $1.9 million cost of internal management and what an external management company was likely to take out was $4.9 million â€“ a total $6.8 million, 260% higher.
Capital’s chairman at the time, Colin Beyer, said the company could have netted $35-40 million from sale of the management rights â€“ in the region of 7.5-9% of portfolio value before a major revaluation, 6.5-7.5% after.
Nobody has mentioned the management contract so far in the ING bid for Calan, but there is one. All the trust’s directors are actually on the board of Calan Healthcare Properties Ltd, owned by directors Martin Lyttelton & Brian Freestone, in partnership with former executive Chris Donahoe on one side, and Richard Ord on the other.
On the Capital Properties basis, the Calan management contract would be worth 8-11c (6.5-9% of $1.20/unit asset backing) â€“ but, unlike at Capital, this time not to unitholders. That’s the value Calan’s managers have at stake as ING bypasses them and attacks the register.
It’s a value which would ultimately be transferred to ING (NZ) & Symphony Group, as joint owners of the ING trust’s manager, if the ING trust completed a takeover of Calan units.
Success for ING in its takeover bid would make it the first occasion the manager of a listed entity has been thrust aside in an ownership & management transfer
That exercise could have numerous consequences for the management rights industry â€“ on value and on structuring a document to fight off control or establish value if it’s going to head out of your domain anyway.
ING offered to buy 9.7% of Calan, to add to the 10.3% held as funds under management by ING (NZ) Ltd. After discovering an overseas ING entity had been negotiating for several months on one Calan asset, which Calan hasn’t said but which I presume is its Melbourne hospital, that ING entity has walked from its negotiations and the ING trust relaunched its bid yesterday, getting 1% of its target 9.7%. In the initial afternoon’s play it had picked up 3%.
Calan’s board has appointed Macquarie NZ Ltd as financial advisor and Bell Gully as the trust’s legal advisor and if, following the stand in the market, a written offer is made for all the remaining units, an independent appraisal report will be commissioned.
You could argue that unitholders should have their own representative outside the Calan management company, and their own advisors because of potential conflicts with the position of the management company in a full takeover.
That might be far-fetched, but the possibility of conflict between the management company’s & unitholders interests exists in this unusual takeover scenario.
26 January 2006: ING seeks 20% of Calan as precursor to full bid
21 September 2005: Capital Properties blunt about cost of external management
4 April 2005: Portfolio premium the next Capital aim
26 November 2004: Capital Properties puts management rights on the block
Attribution: Company statements, talking to typewriter, story written by Bob Dey for this website.