Archive | Gainz

Knauf & USG seek NZ clearance for merger

International building materials manufacturers & suppliers Gebr Knauf KG of Germany and USG Corp of the US have sought Commerce Commission clearance for their merger.

Knauf’s products include plasterboard, cement board, metal profiles, plasters & suspended ceilings. In New Zealand, it imports & supplies products used for modular suspended ceilings & insulation.

USG’s products include plasterboard, cement board, plasters & suspended ceilings. USG is active in New Zealand through its 50% interest in USG Boral Building Products, which supplies plasterboard, suspended ceiling components & other building materials.

In addition to the New Zealand clearance, competition authorities in several jurisdictions, including Australia, the US & Singapore, will assess the proposed merger.

Attribution: Commerce Commission release.

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Augusta Industrial Fund to add 5 properties, seek more investors

Augusta Capital Ltd will re-open the opportunity to invest in the open-ended, unlisted Augusta Industrial Fund Ltd early in 2019.

Augusta bought the first property for the fund in December 2017, added 3 more over the next 6 months and closed its first subscription offer in June 2018 oversubscribed, with $75 million raised.

The NZX-listed promoter & 10% investor in the fund, Augusta Capital, intends to add 5 assets to the portfolio for more tenant & location diversification. The enlarged portfolio is valued at $296 million, has 47 tenants & 99% occupancy.

The fund is managed by Augusta Funds Management Ltd, which has $1.8 billion of assets under management.

A key objective of Augusta Industrial is to deliver sustainable & stable income paid to investors monthly, along with the potential for capital growth.

Earlier stories:
10 December 2018: Augusta Industrial Fund to take over 4 existing Auckland syndicate properties plus one in Christchurch
30 July 2018: Augusta expands its portfolio platform, a different way of managing & seeing property investment
16 June 2018: Augusta industrial fund closes oversubscribed
12 March 2018: Augusta gets agreement to add 4th building to industrial fund
13 December 2017: Augusta buys Wellington property as seed for new industrial fund

Attribution: Company investment notice.

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Fed disobeys Trump tweet, lifts funds rate

The US Federal Reserve disobeyed the Commander-in-Chief this morning and raised its funds rate target range another quarter percent, to 2.25-2.5% – the fourth rate hike of the year.

That’s up from a range of 1-1.25% in November 2017.

President Donald Trump had tweeted yesterday: “I hope the people over at the Fed will read today’s Wall Street Journal Editorial before they make yet another mistake. Also, don’t let the market become any more illiquid than it already is. Stop with the 50 B’s. Feel the market, don’t just go by meaningless numbers. Good luck!”

The background

The Fed supposedly makes its decisions independently, although its members are nominated by the president. Today’s decision was very independent. Confronting the central bank’s open market committee as it made its interest rate decision overnight NZ time, US sharemarkets slumped early in the week but rebounded ahead of the Fed decision, made on Wednesday afternoon local time.

The Wall St Journal ran an editorial on Tuesday laying out reasons for the Fed to pause from its recent pattern of quarterly rate increases, a view Mr Trump obviously concurred with. The newspaper also ran a story that day questioning a basic of Trump ideology (he’s an interest rates low, asset prices high kind of guy). In that story, the Wall St Journal said Mr Trump’s tax cuts had boosted growth & jobs (specifically, it lifted a quarterly gdp return which Mr Trump could highlight to show he was improving the economy), but questioned the cost, saying: “The deficit has ballooned, and most of the benefits went to corporate profits rather than employees.”

Against the background of petulant ‘Me-me-me!’ criticism, the Federal Reserve’s debt is money owed – money issued in repayable securities.

The US Debt Clock website shows US national debt racing towards $US22 trillion – it’s about 7½ days from rolling past $US21.9 trillion. Through its quantitative easing programme, the Fed built up treasury stock of about $US4.5 trillion in its attempts to maintain economic equilibrium in the wake of the global financial crisis that began 11 years ago, and its method of reducing that debt mountain is to cancel bonds instead of rolling them over. It’s now cancelling up to $US30 billion/month of Treasury securities & $US20 billion/month of agency mortgage-backed securities as they mature, instead of rolling them over – hence Mr Trump’s Twitter reference to “Stop with the 50 B’s”.

Through that programme, the Fed has reduced its debt mountain by about $US400 billion. But a quarter-percent raise in the interest rate will add $US55 billion/year to the national debt, apart from its other impacts.

In today’s statement, the Fed made no mention of its debt reduction programme.

The Fed release on its decision:

“Information received since the Federal open market committee met in November indicates that the labour market has continued to strengthen and that economic activity has been rising at a strong rate. Job gains have been strong, on average, in recent months, and the unemployment rate has remained low. Household spending has continued to grow strongly, while growth of business fixed investment has moderated from its rapid pace earlier in the year. On a 12-month basis, both overall inflation & inflation for items other than food & energy remain near 2%. Indicators of longer-term inflation expectations are little changed, on balance.

“Consistent with its statutory mandate, the committee seeks to foster maximum employment & price stability. The committee judges that some further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labour market conditions, and inflation near the committee’s symmetric 2% objective over the medium term. The committee judges that risks to the economic outlook are roughly balanced, but will continue to monitor global economic & financial developments and assess their implications for the economic outlook.

“In view of realised & expected labour market conditions & inflation, the committee decided to raise the target range for the federal funds rate to 2.25-2.5%.

“In determining the timing & size of future adjustments to the target range for the federal funds rate, the committee will assess realised & expected economic conditions relative to its maximum employment objective & its symmetric 2% inflation objective. This assessment will take into account a wide range of information, including measures of labour market conditions, indicators of inflation pressures & inflation expectations, and readings on financial & international developments.”

Federal Reserve Board & Federal Open Market Committee release economic projections from the December 18-19 FOMC meeting
Wall St Journal, 18 December 2018: The Trump Tax cuts boosted growth & jobs, but at what cost?
Wall St Journal, 18 December 2018: As Fed begins meeting, Trump again calls for no rate increase
US National Debt Clock
Market Watch, markets page

Earlier stories:
2 December 2018: The debt clock pounds on, Trump & Xi use different decks of cards, Lagarde wants illusions to come true
1 December 2018: US debt level pushing fast towards $US22 trillion, and a look into Fed deliberations
3 August 2018: Fed to pull $US40 billion/month out of market

Attribution: Fed release, Wall St Journal, Twitter, US Debt Clock.

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Veritas to buy Citizen Park

Veritas Investments Ltd subsidiary The Better Bar Co Ltd has entered into a conditional agreement to buy the business & assets of Citizen Park from Kingsland Trading Co Ltd as a going concern, for $2.7 million plus stock (estimated to be $30,000).

Citizen Park is a gastro pub at 424 New North Rd, Kingsland, on the western fringe of Auckland’s central city. Veritas chair Tim Cook said on Friday it was an established, profitable business with a good reputation in the community.

“Following refinance of the Veritas group earlier this year, the board & the management have been investigating potential opportunities to grow the group. Citizen Park is in a highly desirable location and represents a complementary acquisition for The Better Bar Co on a number of levels, from which we could drive synergies through our existing hospitality outlets, procurement base & supplier relationships. This is an exciting opportunity for the Veritas group.”

Veritas will debt-fund the full purchase price from the acquisition & capital expenditure facility provided by Pacific Dawn Ltd, a subsidiary of Japanese financier Nomura Holdings Inc, which had consented to the proposed transaction.

Mr Cook said the acquisition remained conditional on Veritas shareholder approval by ordinary resolution, which would be sought at a special meeting in January. It’s also conditional on landlord & key supplier consents, relevant permits & licences being obtained to ensure the day-to-day operation of the business, and key staff transferring their employment to The Better Bar Co.

A deposit of $270,000 will be payable when the transaction becomes unconditional (expected to be in late January), with the balance payable at completion. Subject to satisfaction of all conditions, Veritas expects completion in early- to mid-February.

Citizen Park

Attribution: Company release.

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Precinct secures tenants for Wynyard & 1 Queen St

Precinct Properties NZ Ltd has secured the Media Design School as a tenant in its 10 Madden St development in the Wynyard Quarter, and law firm Bell Gully in the refurbished 1 Queen St, which will be incorporated into the Commercial Bay precinct.

The Media Design School will occupy 4760m² in 10 Madden St on a 15-year lease term. As announced in November, Precinct committed to stage 2 in the Wynyard Quarter on an uncommitted basis. Chief executive Scott Pritchard said yesterday the Media Design School lease took leasing commitment to 60% of the project’s office area.

He added: “The addition of the Media Design School to our Innovation Precinct is significant and demonstrates the momentum that’s underway to create a vital new creative community. We believe Wynyard Quarter will be on a par with leading international innovation precincts and, having secured one of the world’s leading design & digital tertiary institutions, is a huge advance.”

The building, scheduled for completion at the end of 2020, will have a total net lettable area of 8290m². Mr Pritchard said that, once fully leased, the project should generate a yield on cost in excess of 7.0%.

At 1 Queen St, Mr Pritchard said Bell Gully had committed unconditionally to about 3800m² of office space. The law firm has been a tenant of the Vero Centre on Shortland St for 18 years.

Mr Pritchard said the 1 Queen St project was 76% precommitted following the previously announced commitment by InterContinental Hotels Group to 11 levels of the building: “We are delighted to have secured leading law firm Bell Gully at 1 Queen St, 3 years ahead of practical completion. Securing this commitment from outside our existing portfolio is a great result and illustrates the quality of the Commercial Bay precinct.”

Attribution: Precinct release.

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Law firm says it’s leaving Vero Centre, not saying exactly when

Law firm Bell Gully has told its Auckland landlord, Kiwi Property Group Ltd, it will vacate its premises in the Vero Centre on Shortland St between the 2023-25 financial years.

Separately, Precinct Properties NZ Ltd said Bell Gully would move to its 1 Queen St office tower, which is to be refurbished over the next 3 years. It will have a hotel on the lower 11 floors, offices above, and now has 76% precommitment.

Bell Gully hasn’t determined exactly when it will leave. The firm has been a Vero Centre tenant since the building opened 18 years ago. It currently occupies 5912m² on 5 floors.

Kiwi Property chief executive Clive Mackenzie said: “We wish Bell Gully every success in their onward journey. While we are disappointed to see the firm leave, the advance notice by Bell Gully provides us with sufficient time to begin discussions with prospective tenants.”

The Vero Centre is 94% occupied, with a weighted average lease term of 7.0 years. Kiwi Property’s whole office portfolio has 98% occupancy and a portfolio weighted average lease term of 10.0 years.

Attribution: Kiwi Property & Precinct Properties releases.

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Fletcher Building agrees Formica sale, will reinstate dividends

Fletcher Building Ltd said yesterday it had entered into an agreement to sell the Formica Group to Broadview Holding BV for $US840 million ($NZ1.226 billion). Broadview said it was on a debt-free & cash-free basis.

Fletcher anticipates completing the sale by 30 June, the end of the 2019 financial year.

Net of costs, Fletcher expects the sale to return about $US70 million ($NZ102 million) less than the agreed price.

The company’s board also said yesterday it would reinstate dividends, starting with an interim payment in February. Dividends were canned this year when the company reported a $322 million half-year loss and a $190 million full-year loss.

Fletcher Building chief executive Ross Taylor said the sale was subject to conditions which are customary for a transaction of this nature, including regulatory approvals.

Mr Taylor said: “The divestment of Formica completes our strategy to exit non-core businesses, having already completed the sale of Roof Tile Group in November. Our 5-year strategy is to refocus Fletcher Building’s capital & capability behind our New Zealand & Australian businesses, with building products & distribution at our core.

“We are pleased to have signed the sale agreement in line with our target timing, and to have achieved a strong valuation for the business. We believe Broadview is a natural owner of Formica, being a leading player in the laminates industry. We are confident that the regulatory process required to complete the sale will go smoothly, and on that basis expect the sale to be completed by the end of the 2019 financial year (30 June 2019).”

Commenting on the intended use of the sale proceeds, Mr Taylor said it was important to first complete the sale, and that the company would continue to take a prudent approach to management of its balance sheet.

Meanwhile, Fletcher Building confirmed its intention to reinstate dividends, starting with an interim dividend to be declared when the company’s half-year results are finalised on 20 February.

The decision to reinstate the dividend was based on the Fletcher Building board’s confidence in the company’s trajectory & return to profitability in the 2019 financial year: “The board will size the dividend prudently, having regard to the ongoing capital requirements of the company. Given the expected settlement timing of the Formica sale, the 2019 dividend is likely to be weighted towards the final dividend.”

The sale proceeds from the Formica transaction will be subject to certain deductions, including pension liabilities & other debt-like items retained in the business, and transaction costs. These items are expected to total about $US70 million ($NZ102 million). Formica will be classified as “held for sale” and subject to an impairment test in the Fletcher Building half-year accounts.

The regulatory approvals required for the transaction relate to the competition regimes in a number of the countries where Formica operates.

About Formica & Broadview
Formica employs 3400 people in North America, Asia & Europe. It’s a leader in the design, manufacture & distribution of innovative surfacing products for commercial & residential applications.

Broadview is an industrial holding company with a focus on materials technology & energy. The group has 2900 employees worldwide and combined sales of €700 million. The company commented in its brief release: “The transaction is a good fit with Broadview’s strategy. Broadview pursues long-term growth & value creation through active support of its operating companies & efficient capital allocation. Broadview aims to support its companies in their development to become & stay the point of reference in their industry.”

The company is a member of Amsterdam stock exchange-listed HAL Holding group, which acquires & holds large stakes in companies with the objective of increasing long-term shareholder value. HAL has market capitalisation of about €11 billion.

HAL Holding NV is an international holding company based in Curaçao. All its shares are held by HAL Trust and form the trust’s entire assets. HAL Trust’s shares are quoted on the Amsterdam Stock Exchange.

Note: all financials have been converted at a $NZ/$US exchange rate of 0.685.

HAL Holding

Earlier stories:
>21 November 2018:Guidance kicks Fletcher share price down as new chiefs present positive outlook at annual meeting
22 August 2018: Updated: A loss, but flow of red ink stops at Fletcher Building
21 February 2018: Fletcher half-year loss $322 million
14 February 2018: Another $486 million of losses for Fletcher Building, and Norris resigns
27 October 2017: Sheppard turns Fletcher meeting into “absolution or exorcism” exercise
21 September 2017: A year on, Fletcher board still has ‘construction nous vacancy’ pencilled in
20 March 2017: Fletcher Building cuts earnings guidance by $110 million

Attribution: Company release.

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Court rules James Hardie parent company can’t wash its hands of cladding defects

The Court of Appeal has dismissed claims by building products company James Hardie Industries PLC that it shouldn’t be found liable for defective products made, marketed & sold by its New Zealand subsidiary.

James Hardie had contested claims by a group of owners, or former owners, of homes, commercial buildings & retirement villages clad with exterior cladding products manufactured & supplied by the James Hardie business in New Zealand. The claims were taken to court through a class action organised by Auckland lawyer Adina Thorn.

The claimants alleged that the James Hardie products were defective, not watertight, and failed to comply with prevailing building standards.

The defendants were 4 operating companies & 3 holding companies in the James Hardie group, but it was the holding companies that pursued this appeal. They argued that, since they didn’t manufacture, market or supply the allegedly defective products, the claimants couldn’t succeed against them. James Hardie Industries protested the jurisdiction of the New Zealand courts to determine the proceeding against it, while its New Zealand subsidiary & RCI Holdings Pty Ltd applied for summary judgment against the claimants.

The claimants’ properties were constructed or reclad with James Hardie product between 1983 & 2011. They were clad in fibre cement sheets with one or other of the brand names Harditex, Monotek or Titan (sometimes also known as Titan Board) manufactured by either Studorp (before 1998) or James Hardie NZ.

The appeals were heard in June and the Court of Appeal issued its decision yesterday.

Apart from the individual claimants, the retirement villages in the action were Waitakere Group Ltd, Metlifecare Pinesong Ltd, Forest Lake Gardens Ltd, Vision (Dannemora) Ltd (now Metlifecare Dannemora Gardens Ltd) & Metlifecare Coast Villas Ltd.

Court of Appeal decision, 13 December 2018: James Hardie Industries PLC v White 

Attribution: Judgment & court release.

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Restaurant Brands announces Taco Bell rollout as Mexican takeover documents posted

Restaurant Brands NZ Ltd announced plans on Tuesday to roll out over 60 Taco Bell restaurants in Australia & New Zealand as directors said they would sell their shares to prospective new 75% owner of the listed company, Finaccess Capital SA de CV of Mexico.

Restaurant Brands already operates 36 Taco Bell outlets in Guam & Hawaii, and said on Tuesday it had reached agreement with Taco Bell Restaurants Asia Pte Ltd to bring the brand to New Zealand, New South Wales & Canberra next year.

Taco Bell Corp is a subsidiary of Yum! Brands Inc. Its Mexican-inspired quick service restaurants serve made-to-order & customisable meals.

The companies have reached development agreements to build the restaurants between 1 January 2019 & 30 June 2024, providing Restaurant Brands with the right of first offer in relation to the establishment of new Taco Bell restaurants in the 3 territories.

Restaurant Brands group chief executive Russel Creedy said these agreements weren’t conditional upon the completion of the current partial takeover offer.

He said the company expected to fund construction from internally generated cashflows. The Guam & Hawaiian outlets contributed $19.4 million to group earnings before interest, tax, depreciation & amortisation in the 2018 financial year. However, Mr Creedy said it would take several years for the brand to make a significant contribution from the Australian & New Zealand markets.

He added: “Bringing the Taco Bell brand to this part of the world aligns with our strategy of focusing on global tier one brands in markets we understand. We know from our experience in Hawaii & Guam that Taco Bell is a top tier brand backed by excellent franchise systems.”

Restaurant Brands is a corporate franchisee which specialises in managing multi-site branded food retail chains. It’s listed on the NZX & the ASX and has annual sales of about $740 million. As of November, it had 283 stores: 94 KFC MZ, 61 KFC Australia, 29 Pizza Hut NZ, 18 Carl’s Jr, 36 Taco Bell Hawaii, 45 Pizza Hut Hawaii. 

The takeover offer

Restaurant Brands’ board signed a pre-bid agreement with Finaccess Capital on 26 November for Finaccess subsidiary Global Valar SL to make a partial takeover offer to acquire up to 75% of Restaurant Brands’ shares at $9.45 cash/share.

Finaccess sent its offer document to Restaurant Brands on Monday, along with Restaurant Brands’ target company statement and an independent advisor’s report prepared by Grant Samuel Ltd.

Grant Samuel has assessed the value of Restaurant Brands shares at $8.15-8.92, including a premium for control. As the offer is above that valuation range, Restaurant Brands’ board unanimously recommended accepting it, in the absence of an unmatched superior proposal.

The biggest holding, 8.52%, is held by interests associated with Australian director Stephen Copulos, who’s agreed to accept the partial takeover for all those shares.

Grant Samuel said the offer price represented a 24.3% premium over the closing price of $7.60 on 17 October, the last day before Restaurant Brands announced Global Valar’s indicative proposal to make the offer, and a 23.1% premium over the New Zealand volume-weighted average price for the previous 6 months.

Offer document
Target company statement
Grupo FinAccess
Restaurant Brands

Earlier story:
30 October 2018: Updated: Restaurant Brands completes Starbucks sale, working on FinAccess offer

Attribution: Company release, offer documents.

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Investore sells South Dunedin Countdown

Investore Property Ltd has an unconditional agreement for the sale of its Countdown supermarket in South Dunedin, 10 months after a tender for it closed.

The sale of the property at 323 Andersons Bay Rd is for $19.328 million, representing an initial yield of 6.26% & a 5.6% premium over the $18.3 million valuation in the March accounts. Settlement is scheduled for 1 April 2019.

Philip Littlewood, chief executive of Investore’s manager, Stride Investment Management Ltd, said the Dunedin sale completed the divestment programme Investore announced in November 2017, associated with the purchase of 3 Bunnings-operated properties for $78.5 million in February 2018.

To buy the Bunnings properties, Investore decided to sell this Countdown, another one in Christchurch and the Fresh Choice in Queenstown. Sales of the other 2 were settled in March for $32.6 million.

The South Dunedin Countdown sits on 10,298m² and has a 4071m² floor area. The tender documents showed it was returning $1,225,375/year net + gst and had a 14.7-year weighted average lease term. Even after its sale, Countdown stores still dominate the Investore portfolio. At the March balance date they represented 73% of contract rent.

Earlier stories:
21 November 2018: Investore lifts rent but profit slips
6 August 2018: Investore launches share buyback
26 March 2018: Investore settles 2 property sales
5 March 2018: Investore sells Hornby supermarket property
2 March 2018: Stride’s 3-property sale to Investore settles
9 February 2018: Investore confirms 3-shop buy from Stride, and signs a sale
13 July 2016: Stride stapled securities & Investore start trading

Attribution: Company release.

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