Archive | Australian Growth Properties

AGP management goes back inhouse

Trans Tasman’s takeover completed

Australian Growth Properties Ltd will revert to inhouse management now that parent company Trans Tasman Properties Ltd has completed its takeover.

Trans Tasman said on Friday that AGP had reached agreement with AGP Management Ltd to terminate the management agreement on 30 November. Operational staff will be employed by AGP as part of the Trans Tasman Properties group management team, and AGP will buy AGP Management’s operational assets, which comprise vehicles, computer equipment & other office fixtures & equipment, at agreed fair values totalling $A227,615.

AGP announced the sale of its management company in 2000 to SEA Holdings Ltd, its Hong Kong-based ultimate controlling shareholder through Trans Tasman. The sale was done with consulting shareholders and drew constant criticism.

Trans Tasman Properties’ New Zealand management has always been inhouse.

2000 story: Australian Growth management deal sets critics in motion again

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Australian Growth Properties lifts profit 4.2%

Trans Tasman offshoot now into developing apartments

Australian Growth Properties Ltd, just over 50%-owned by Trans Tasman Properties Ltd, increased profit by 4.2% to $A6.5 million on ordinary revenue down 82.2%, from $A116.1 million to $A20.7 million.

The revenue comparison doesn’t compare rental income in the 2 periods — the 2001 figure included $A92.1 million from property sales. Sales revenue fell 15.2% from $A23.7 million.

Expenses were correspondingly reduced, from $A102.5 million to $A7.9 million, and borrowing costs fell from $A7.4 million to $A5.9 million.

Earnings/share (basic & diluted) were A2.2c in both periods.

Total assets rose slightly from the December balance date, from $A476.5 million to $A480.1 million. Liabilities rose from from $A177 million to $A180.2 million.

Net tangible asset backing fell from $A1.10 to A99.4c.

Australian Growth will pay an A2c unfranked dividend, after paying nothing at the half-year in 2001.

Chief executive Don Fletcher said the company’s 601 Bourke St redevelopment in Melbourne was completed in February with 37% of the space leased and an offer has been made on another 24%.

The company has received development approval for 65 York St in Sydney (James Hardie House), which will bring 8500m² of refurbished B grade space on to the market in the last quarter of this year.

Mr Fletcher said Australian Growth had advanced $A13.75 million of project finance to support a serviced apartment development which has received substantial presales. He said the projected return was higher than on the company’s traditional investments, with earnings to flow through this year and in 2003.

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Australian Growth management deal sets critics in motion again

… and they wonder why they’re discounted

Listed companies, and especially property companies, puzzle in public over the way “the market” concludes their value is lower than net tangible asset value.

One answer is that the discount is for the way the assets are managed. “The market” doesn’t have much faith in management’s abilities to make something greater of those assets than if the assets are left to their own devices, on this reasoning of discounts.

In Trans Tasman Properties’ case, the market has marked the company’s ability to deal with its assets down to a shockingly low level — a share price of 19c at the close on Friday compared to stated asset backing at the June balance date of 73.9c, a 74% discount.

Trans Tasman’s Australian offshoot, the 46.8%-owned Australian Growth Properties Ltd, has caused plenty of annoyance by announcing the sale, for a low price, of its in-house management company, AGP Management Ltd, to SEA Holdings Ltd, its Hong Kong-based ultimate controlling shareholder through Trans Tasman.

Deal wasn’t put to shareholders

The management contract sale was done without being put to shareholders. That kind of behaviour is the sort that helps create price discounts because the investor cannot have faith in directors — a lack of faith which is usually only overcome by superior profit and dividend performance, neither of which AGP has achieved.

AGP, like its immediate New Zealand parent, is a discounted stock with a share price on Friday of A54c. The 1997 issue price was $A1.

AGP, and therefore Trans Tasman, has ensured its hopes of credibility will be mocked by the presentation of an outsourcing report dated 30 June, the approach to outsourcing, and the use of two divisions of the firm which was about to take over auditing its books to provide the independent expert report.

Even if Arthur Andersen’s corporate finance and legal divisions acted entirely properly in carrying out their functions (though the contents of the report summary suggest their view of the exercise might have been somewhat coloured from the outset), and the Chinese walls within the firm are effective, the outsider can too easily harbour doubts about the stated independence.

That kind of doubt turns itself into a price discount.

Chairman’s explanation

AGP chairman Rod McGeoch said in his letter to shareholders the idea of outsourcing management had been under review for some time.

Sir Rodney (as he would undoubtedly like to be known for leading the campaign to get Sydney the Olympics) said in his letter to shareholders the directors had received an outsourcing proposal from SEA in April. It was duly accepted and approved.

The proposal to outsource both corporate and property management was weighed against the market for this work but doesn’t appear, from the letter, to have been put to other management contractors.

If it’s natural for SEA to want to keep the management contract inhouse (and away from others in the industry), why is it not natural for AGP to feel the same?

All the AGP Management staff were transferred, with their management company, from AGP to SEA, essentially no different a position.

Justification for the chief cause of this shift, cost savings, is flimsy.

Coconut shy

Mr McGeoch said “ongoing corporate and property management costs are likely to be less…” He said the Arthur Andersen Corporate Finance summary concluded the implied cost savings at $A224,000 for the current year.

He added: “While it is noted that the forecast for the cost of inhouse management for AGP over the next 12 months is $A3.53 million, actual cost for the last recorded similar period was $A4.44 million in the 12 months to 30 June 1999. Thus, the ongoing contracted cost structure is anticipated to lower overall costs compared to previous periods.”

That is a sickeningly bad paragraph from any company chairman. What it means is this: We have set a budget figure lower than it cost us a year ago, but the same management who come up with the numbers have said they can do it for less if they work from their own office down the street. Sir Rodney!

The Arthur Andersen summary, presented by Corporate Finance director Neil McDermott, shows implied savings for the June 2001 year of $A224,000 and says outsourcing for an indefinite period would provide substantial savings — $A228,000 a year for the first four years.

Outsourcing indefinitely, Mr McDermott says, “we have estimated that the present value to AGP is likely to be in the range of $A2-3 million.”

Unfortunately, in true coconut-shy style, these claims are knocked down just as easily as they’ve been stood up: “We note that AGP Management is entitled to pass on to AGP certain charges and cost reimbursements relating to leasing, sale and property management activities that would, if incurred, reduce the forecast savings set out above.

“The extent of any such fees and costs cannot be estimated reliably. It is therefore possible that the cost savings achieved, both in 2000/01 and thereafter, may be materially less than those indicated above.”

Mr McDermott’s last sentence knocks out the main reason for a change.

Basic fee: 0.8% of gross assets

But, as the change has been made, the next issue to examine is the fee structure of the management contract. Mr McGeoch said in his letter: “The corporate management fee is set at 0.8% per annum of shareholders’ funds and the property management fee is 2% of gross property income.”

Mr McDermott said in his summary the contract “is consistent with current management arrangements in the market place” and “the proposed corporate management and property management fee arrangements are generally comparable with the levels charged by similar sized companies/trusts in the ASX listed property trust sector.”

It is some time since I’ve looked at those fee structures, but given the rationalisation of the sector and the highly competitive nature of the management contract market, it’s hard to imagine the fees would have risen.

The 0.8% corporate management fee alone sets off alarm bells.

PFI made it transparent, and tough

Some comparisons:

PFI negotiated a change in December 1998, from its initial fee structure of 0.85% (plus gst) of portfolio value up to $150 million and 0.65% beyond that level. The replacement structure was complicated, but contained base and incentive components.

PFI continued monthly payments of its fees and set a base component of 0.7% of total assets, plus gst, up to $175 million and 0.35% above that level.

For the incentive component, PFI set a threshold level of shareholder returns for a quarter equivalent to 10% better than the share price at the start of that quarter. It also set a 15% cap, and allowed for an incentive payment of 10% of the increase within that range.

Complicated, precise, and seemingly very fair to both sides.

Kiwi Income at high end, Waltus cuts back basic

Kiwi Income Property Trust started with a base fee of 0.75% of gross asset value plus a performance component of 20% of the average annual increase in net asset value, which was totalling about 1.2% of gross asset value.

In 1997, Kiwi raised the base fee to 8.5% and stopped the performance component. A Grant Samuel assessment of the Kiwi proposal showed a wide range of fees payable in Australia, from 0.6% of gross assets charged by the managers of the Gandel Retail and General Property Trusts, up to 1% at Advance and 1.5% of net assets at Capital.

Syndicate managers are notorious for their array of fees and Waltus, even in the proposal to merge 29 syndicates because of tough market conditions, has maintained many of these specific-event fees, as have AGP’s managers.

But Waltus dropped its management fee last year to 0.5% of gross assets, and in the merger proposal says it will cut back to 0.3% until March 2002.

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Australian Growth Properties chairman tells Fletcher to improve management or lose contract

Independent chairman pits himself against Jesse Lu’s man

Trans Tasman Properties Ltd’s battle with Dr Gary Weiss & Tony Gibbs of GPG plc has hardly begun in New Zealand. But in Australia, after a crusade over corporate management and the calculation for payment of a bonus at TTP’s 50% owned Australian Growth Properties Ltd, Dr Weiss chalked up a moral victory on Monday.

AGP’s independent chairman, Rod McGeoch, told the company’s annual meeting in Sydney that if the manager didn’t improve the company’s performance it would be ousted. In any case, the manager should “reconsider its fees,” he said.

AGP was set up in 1997 to take over Trans Tasman’s Australian assets, which it has been able to sell or develop to greater advantage than was possible under Trans Tasman’s financial restrictions.

Trans Tasman was set up in 1995 to ensure the survival of 2 quite different assets of Hong Kong investor Jesse Lu, his major stakes in Seabil NZ Ltd and Tasman Properties Ltd. AGP has traded at a discount to asset value, Trans Tasman at a greater discount.

Both Trans Tasman & AGP are controlled by Mr Lu, managing director of SEA Holdings Ltd of Hong Kong, through its 54.8% stake in Trans Tasman. Mr Lu’s man in Australasia is Don Fletcher, executive chairman of Trans Tasman, a director of AGP and a director of AGP Management Ltd, which was contracted as manager of AGP from June 2000. The contract manager, essentially the same people as were there before, took over from themselves as inside managers.

So the independent chairman has given notice that the majority shareholder — or at least his man in Australasia — is not managing competently where he lives, which is Australia. On this side of the Tasman, management is internal and mostly conducted locally.

Paramor has quickly made name for Fielding business

Greg Paramor, director of James Fielding Investments Ltd — which has quickly made a name for itself in the acquisition of management contracts in Australia, including taking over MTM Funds Management Ltd, the manager of the MTM office & entertainment trusts — joined GPG in taking a collective 11.2% of AGP, and in laying siege to the majority & management interests.

Mr McGeoch told the Australian company’s shareholders on Monday GPG had asked that James Fielding be considered as an alternative manager. James Fielding had given a presentation to the board, but Mr McGeoch said Trans Tasman’s directors couldn’t support the appointment of James Fielding as manager for reasons connected to its association with GPG.

$13 million profit on $300 million shareholders’ funds inadequate

“There is a dispute as to the mechanisms for appointment of a new manager to replace the existing manager. GPG holds the view that only the independent directors should vote to appoint a new manager. I disagree. GPG believes the company has represented that to be the position. I have undertaken to obtain legal advice within the next 14 days in an endeavour to resolve the issue,” Mr McGeoch said.

“The manager has largely driven the formulation of strategy but the board has played its part in adopting that strategy. The board is of the view that the financial performance of the company is not where it should be. $A13 million of profit on shareholders’ funds of $A300 million must be improved upon.

“The manager has been asked to reconsider its fees and revise its strategy. The board has encouraged the manager to extend the breadth of its strategy into wider aspects of property & property services.

“The independent directors have decided to give the manager that opportunity. If that strategy does not have the potential to produce the kind of returns the market would expect then I believe the independent directors will have no choice but to serve a notice of termination.

“There is nothing personal in these kinds of decisions but the board has to make decisions that drive shareholder wealth,” Mr McGeoch said.

Ample growth opportunity

There’s plenty of opportunity to grow the company’s value. Mr McGeoch said the company had enough undrawn facilities to enable it to make investments of $A80-90 million. “The board & management believe that holding central business district properties is unlikely to generate the type of return expected from the marketplace,” he said.

Congratulations have to go to Dr Weiss for a highly successful campaign. Expect Mr Paramor to take charge any day — except for 1 thing. Mr Lu has to overcome the trait among Asian listed company majority owners to regard the parent and all entities trailing beneath it as a personal fiefdom. In a personal fiefdom, the other shareholders pay for the privilege of having the owner’s representative at the helm.

For Mr Lu, employing Mr Fletcher entirely on his own account would be at least 3 times as expensive as it is now. However, both Trans Tasman & AGP have been able to go through significant changes in the past 18 months.

AGP changed strategy in 2000

In 2000, AGP announced its strategy would be to hold 363 & 345 George St and sell out of passive assets. In 2001 it sold 5 properties for $A92 million.

Mr McGeoch said last year’s share buyback & bonus issues increased undiluted net asset value to A110.8c/share. That compares to the A100c issue price in 1997, A106.2c asset value at the end of 2000 and A104.c at the end of 2001, as shown in the annual report, a share price today of A78c and a price a year ago of A59c.

Net property income rose last year from $A8.1 million to $A28.9 million, interest-bearing debt fell from $A217.4 million to $A151 million, and profit rose 29% to $13.7 million.

Auditor Andersen also tenant

AGP has extra complications in that its auditor, Arthur Andersen, is also a tenant at the start of a long lease at 363 George St and is likely to merge with the company tax advisor, Ernst & Young.

“A proposal for Arthur Andersen and Ernst & Young to merge is being voted on this week. The decision will be known on Friday and if favourable the merger takes place next Monday 20 May.

“Ernst and Young are the company’s tax advisors and will remain so. The company has a policy of separating its tax advisors from its auditors and if the merger happens the company will move to appoint another major firm.”

Mr McGeoch said AGP had a 6-month bank guarantee on the Andersen lease, which was for 10 years and had 8 years to run. He understood Ernst & Young would still require the space if the merger proceeded, but that Ernst & Young was also intending to move into a building which hasn’t been finished.

“There is a view that if the lease was surrendered the company would be able to lease on better terms,” Mr McGeoch said.

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Australian Growth Properties profit up 29.5% to $A13.7 million

George St completion pushes rent up 82%

Australian Growth Properties Ltd, half owned by Trans Tasman Properties Ltd, increased net profit after tax by 29.5% to $A13.745 million, which will be paid out as an unfranked final dividend at A6.19744c/share.
Gross rent increased 82% to $A40.3 million and profit from continuing operations increased 47.5% to $A26.4 million before finance costs.

Finance costs increased (from $A5 million to $A13.9 million) due to the expensing of finance charges directly relating to 363 George St. Finance costs of $11.9 million relating to the development were capitalised in the previous year.

No income tax was payable on net profit due to the benefit of income tax losses carried forward from previous years.

During the year the company bought back & cancelled 7.8 million shares for $A4.2 million, at A53.5c/share.

Ordinary shareholders will get a bonus share for every 61.705 shares held, making a total 3.6 million bonus shares to be issued so the holders of dividend-deferred shares don’t accrue a benefit over ordinary shareholders from the buyback programme.

A previous bonus issue, last October, cut net tangible assets back by $A4.2 million to $A299.5 million at the December balance date, representing a fall from $A1.06 to $A1 asset backing. After the bonus issue on 15 March, NTA will fall another A1c to A99c.

The company increased portfolio value by $A1.32 million, compared to an $A7.3 million writedown in 2000, but the investment portfolio has been pared back by nearly $A80 million, from $A530.5 million to $A451.9 million, plus an $A14.67 million development property.

Total assets at December 2001 were $A476.5 million, against total liabilities of $A177 million. Bank borrowings were cut back from $A217.4 million to $A151 million, representing 32% of total property assets.

AGP said occupancy was at 95% of net lettable area, leaving 4312m² vacant. The estimated gross annual rental for vacant space is $A2.2 million.

Valuation changes

Individual valuation changes from December 2000 were:

363 George St complex, $A246 million, down $A4 million

345 George St, $A138.5 million, up $A16.5 million

65 York St, $A28.5 million, down $A2.8 million

Penrhyn House, Canberra, $A37.5 million, up $A800,000

Other property, $A1.4 million, down $A400,000

Total change $A10.1 million, less $A8.8 million capex for an $A1.3 million gain.The company bought 601 Bourke St, Melbourne, for $A10.8 million last October. The 8155m² building is being redeveloped at an estimated cost of $A7.5 million, including marketing & leasing.

AGP sold 5 properties for $A92.1 million, using the proceeds to reduce bank debt.

The group has estimated income tax losses of $A119 million, up $A4 million. The company said tax law changes would impact on losses it could carry forward & the timing of their accessibility.

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Australian Growth Properties lifts profit 34%

AGP lifts profit 34%

Australian Growth Properties Ltd, 50.3% owned by Trans Tasman Properties Ltd, increased net profit 34% to $A18.3 million in 2002.

Pretax profit rose from 10% to 21.5% of revenue, net profit after tax from 4.6% to 5.8% of equity and earnings/share rose from A4.9c to A6.1c.

The company has reduced its portfolio from $A469.4 million to $A442.4 million but total assets are steady at $A480 million. Interest-bearing liabilities have been cut from $A165.1 million to $A156.6 million.
Net tangible assets rose from A99c to $A1.03.

Chairman Rod McGeoch said the board still had to consider the issue of a final dividend. Australian Growth Properties paid an A2c/share interim dividend & an A6.19744c final last year.

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Australian Growth Properties directors voted back

But GPG’s protest draws support

Trans Tasman Properties Ltd subsidiary Australian Growth Properties Ltd’s 2 board members facing re-election in Sydney on Wednesday were both voted back on the board against, but their 3 opponents got far more of the non-aligned vote.

The AGP annual report shows Trans Tasman (controlled by SEA Holdings Ltd of Hong Kong) holding 50.1% (151.2 million shares), Guinness Peat Group plc & subsidiaries 11.2% (33.4 million shares).

Australian Growth Properties chairman Rod McGeoch got 175 million votes (68% of votes cast), former Tasman Properties Ltd managing director David Cooper 160.2 million (62%).

Against them, James Fielding Investments Ltd director Greg Paramor got 98.7 million, Laurie Gibbs got 97.3 million and Gary Weiss of GPG got 97.6 million (all 38% of votes cast).

Excluding the Trans Tasman shares, fewer than 8 million non-aligned shares were voted against the 3 GPG-related candidates – but as everybody knew SEA had the vote won, this margin doesn’t mean much.

Support for the protesters, however, added 15% of the total register to the 11.2% GPG holding.

GPG has campaigned against the awarding of the Australian Growth Properties management contract to an SEA company, and has suggested the whole Trans Tasman/AGP group be liquidated.

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Australian Growth Properties agrees to sell 80% of portfolio

SEA can bypass meeting, Trans Tasman may need one

Trans Tasman Properties Ltd’s Australian subsidiary, Australian Growth Properties Ltd, has signed conditionally to sell 80% of its portfolio to German fund manager Deka Immobolien Investment GmbH.

Deka is Germany’s biggest open-ended real estate fund manager with more than $20 billion under management. It’s part of DekaBank, a central institution of Germany’s savings banks created through a merger in 1999. The investment fund has 290 properties worth €16.6 billion ($NZ33.3 billion).

The net price of the sale is $A300,000 above book value –- an aggregate $A397 million less $A11.3 million of guaranteed income support & related costs, for a net $A385.7 million.

AGP announced a month ago that due diligence was being undertaken on the 3 buildings involved, at 363 & 345 George St, Sydney.

Completion of the deal will be the later of 1 July or 7 days after the last condition is satisfied.

The assets being sold represent about 80% of AGP’s assets and 46% of Trans Tasman’s. Trans Tasman owns 50.1% of AGP. In turn, SEA Holdings Ltd of Hong Kong owns 55.6% of Trans Tasman, and a closely allied group beneficially controls 51.6% of SEA.

“Based on the prevailing market condition & the net realisable proceeds, the company’s board considers that the consideration is fair & reasonable,” AGP said.

The company said its board was still considering how to use the proceeds.

“The company’s board is obtaining strategic investment advice as to the commercial options available which it will consider before informing shareholders.

“Subject to consideration of the advice, the current view of the company’s board is & remains that the company should be a listed Australian entity pursuing its stated strategy since listing, which is to create shareholder wealth through active management of property & property-related investments and through undertaking development opportunities where value can be added.”

AGP said that, as the net profit attributable to the property in 2001 & 2002 on a consolidated accounting basis represented more than 50% of the net profit of the SEA group, its disposal constituted a major transaction of SEA under Hong Kong listing rules.

Accordingly, the disposal required SEA shareholder approval. But as SEA’s controlling group held 51.6% of that company and proposed to give the sale their written approval, no meting would be held.

Trans Tasman shareholder approval might be needed as the sale represented the disposal of assets whose gross value exceeded 50% of Trans Tasman’s average market capitalisation.

Trans Tasman’s shares closed up 1c at 30c yesterday, and AGP’s at A90c.

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Trans Tasman bids for Australian Growth

Takeover offer at A85c

Trans Tasman Properties Ltd issued an offer on Friday for the 49.8% of Australian Growth Properties Ltd it doesn’t already own.

The offer at A85c/share values the minorities at $A128 million, the whole company at $A256 million. Trans Tasman proposes paying from its own resources and a new $A105 million HSBC facility.

The bid, through subsidiary Trans Tasman Properties (AGP) Pty Ltd, has a closing date of 14 November.

It’s been lodged before AGP’s board completes a strategic review of the options for the Australian company, which also has to be considered by Trans Tasman but has no delivery date. AGP has sold 75% of its assets, including 363 & 345 George St, Sydney, sold to German funds manager Deka for $A397 million. AGP’s remaining portfolio has a book value of $A65 million.

At high end of market range, 17% discount to nta

The offer was made at the closing share price on 21 August, A85c, which was towards the high end of the price range of the past 12 months, A66-90c.

The offer is subject to a number of conditions, including 1 for 75% acceptance. Trans Tasman said if it gets 75-90% of AGP it would maintain the Australian company’s listing. Beyond 90% it would move to compulsory acquisition.

At the half year, AGP’s net tangible asset backing was $A1.02/share, up from A99c a year earlier. The market & bid price is a 16.7% discount to nta.

SEA Holdings Ltd, of Hong Kong, headed by Jesse Lu, owns 55.16% of Trans Tasman and also owns the AGP management contract. Trans Tasman is run inhouse.

Floated in 1997

Trans Tasman floated AGP in 1997, and tried but failed to float a trust in New Zealand containing its main assets on this side of the Tasman. It has since sold the bulk of its unwanted New Zealand assets and is getting on with a change in its roll, introducing some commercial development and carrying out an industrial land subdivision near Auckland International Airport, to be followed by a 2nd subdivision on neighbouring land.

Trans Tasman said it supported the sale of properties to Deka, “as it believes that the Australian commercial
property market is currently near the top of the valuation cycle. Trans Tasman considers that a softening of the property market is likely to lead to stagnant or lower market prices.”

Trans Tasman said it appreciated not all AGP shareholders might take the same view of AGP’s activities as Trans Tasman (which include not liquidating AGP), and some might wish to exit their investment in AGP even before the results of the strategic review are available. “The cash offer provides the opportunity of an alternative for those shareholders in AGP who wish to sell their shares, in addition to selling through the stock market where the depth of the market will vary.”

The offer rates as a major transaction under NZX listing rules, so Trans Tasman has to call a shareholder meeting. The date hasn’t been given.

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AGP independent directors to resign

KPMG puts fair value at $A1.01

Australian Growth Properties Ltd independent directors Rod McGeoch (chairman) & David Cooper said today they would resign within a month of the 14 November close of Trans Tasman Properties Ltd’s takeover offer.

Their decision is in the target statement released by the Australian Stock Exchange late this afternoon Sydney time. They said they would resign, whether Trans Tasman moved to compulsory acquisition or not. Trans Tasman currently has 65.84% of AGP, up from just over 50% when it launched the A85c/share (cum dividend) bid.

The 2 independent directors were outvoted by Trans Tasman/SEA Holdings interests on the board in a 23 September meeting on future strategy.

They said in the target report they had put forward 5 options for the company, all rejected. These included a special dividend or return of capital by way of a buyback.

The assessment by KPMG Corporate Finance, which did the independent appraisal for the 2 minority directors, said the offer was not fair but reasonable. KPMG put the value of AGP at $A1.01 – based on 100% ownership. Net tangible asset backing is $A1.02.

The independent directors said surplus cash – A84c/share – would increase as remaining property assets were realised, so AGP should have implemented any 1 of the 5 specifically formulated alternatives to return more than the bid figure of A85c/share to minority shareholders.

However, given the intransigence of the SEA interests at AGP, the independent directors decided to sell the shares for which they are responsible and to recommend to minorities that they accept the offer. They said that if Trans Tasman didn’t proceed to compulsory acquisition, locking in remaining minorities, the market share price was likely to be below the offer price.

In their reasons tabled at the 23 September board meeting, the independent directors said AGP should soon have more than A90c/share asset backing in cash, the company had been reluctant to reinvest its increasing cash reserves over the past 2 years and, if money wasn’t being invested, it should be returned to shareholders.

They didn’t support the new strategy option of investing outside Australia – probably in Asia: “The company was established to invest in Australia. Sufficient opportunities should exist in Australia to reinvest and this is considered preferable to changing the company’s activities by including investment in offshore markets which are assumed to be Asian-based (1 of the key proposed strategies).

“This is considered a potentially high-risk strategy for AGP – we are aware of few Australian property investors/developers which have been successful in Asia. The offshore investment strategy is not supported.”

This statement form the independent directors was made without reference to the Asian links AGP has – ultimate controlling shareholder Jesse Lu, managing director of SEA Holdings, is based in Hong Kong.

The independent directors did find appeal in the new strategy of pursuing opportunistic investment classes, but felt this was best left to larger individual investors in AGP allocating their investments directly into identified transactions – which might be managed by AGP – rather than investing via AGP.

The independent directors said that despite their recommendation to accept the offer, small shareholders might still want to hang in on the chance that, if Trans Tasman ends up using the “creep” provisions of the Corporations Act to complete its takeover, a price higher than A85c/share might well end up being paid.

KPMG’s report sets out the relative sizes of the 3 group companies: AGP, owned 50.1% (now about 65%) by Trans Tasman, had market capitalisation of $A250.4 million on 26 September.

Trans Tasman, 55.16% owned by SEA, had market capitalisation of $NZ190,.3 million on 5 September.

SEA had market capitalisation of $HK731.1 million on 26 September.

Previous story: Trans Tasman pursues full control at Australian Growth

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