National Property Trust has bowed to unit-holder pressure and will hold a vote on July 30 on a proposal to convert it to a listed company and for NPT to take over the management contract of its properties.
Forsyth Barr broker Peter Young yesterday took a positive view on what was being proposed.
NPT proposed to buy out the management contract for $2.5 million, a good price for investors at 1.3% of the $191 million of assets under management, Mr Young said.
Assuming that NPT could reduce its operating costs by $500,000 a year, incur $500,000 in transition costs and, as proposed, paid $2.5 million for the management contract and bought back 31.95 million units at 51c, the net tangible asset price increased by 2c per unit and the 2010 full-year earnings per share rose 6%.
Gearing increased from 21% to 31% and Forsyth Barr's valuation increased by 5% to 64c per unit, Mr Young said.
"While we have not seen the details, what is proposed in terms of management changes will lead to a significantly improved management and governance structure and is a positive move for investors."
NPT had also reduced debt considerably and reduced the risk in the portfolio with the sale of the Rialto Centre, a large retail asset, he said.
The St Laurence-owned National Property Trust Ltd (the trust) is the manager of the NPT assets.
A report by Northing Partners report said that the proposal was fair and would deliver better outcomes for unit holders. The analysis showed that operational costs would reduce and that the initial savings could be about $550,000 a year. Additional future savings would come from no longer having to pay a performance fee to an external manager.
A director of the manager, Andrew Walker, said the directors of the manager believed the proposal was in the best interests of unit holders and would save money in external management and performance fees.
The money now paid out in external fees would instead be retained within the company. Buying out the manager removed an overhang of units in the market and should lead to an increase in unit value.
"More importantly, by bringing the management function in-house, there will be a singular focus on protecting the interests of shareholders and maximising shareholders' returns," Mr Walker said.
The push for the trust to relinquish its management contract came after David Cushing, representing the Cushing family, one of NPT's largest shareholders, secured the backing of 10% of NPT unit holders needed to call a special meeting where it was planned to sack the manager.
St Laurence was placed into receivership in April by trustee Perpetual Trust, owing 9000 investors $245 million. At that time, it was estimated the receivers could receive between $6 million and $10 million from selling the trust management contract. The announcement the contract would be sold for $2.5 million is not good news for St Laurence directors.
NPT, which was started in Dunedin by businessman Paul Dallimore, owns properties in Auckland, Napier, Wellington and Christchurch.
