Property: Reasons for discount yet to be revealed

Chris Hutching

Friday 30th April 2004

One of the reasons for the discounted offer price and proposed privatisation of listed Kingsgate is because of the new 2.25% stamp duty being introduced by the New South Wales Government, according to the ANZ investment experts advising majority shareholder CDL Hotels.

Bruce Nettleton, executive director of corporate finance with ANZ Investment Bank based in Sydney, and acting for interests behind CDL Hotels, acknowledged the 32c a share offer for property developer, Kingsgate, was a considerable discount to the asset backing of 40c a share. However, he expected that an independent appraisal report would provide shareholders with more details. One of the reasons for the discount was the new Australian tax duty that would be incurred by vendors of properties, he said.

The 32c represents a 10.3% premium to the closing price of the shares on April 26, a 23.1% premium to the volume weighted average closing price of the shares up until the offer, and a price earnings multiple of 31.4 times the 2003 reported earnings per share of Kingsgate. The total value of the Kingsgate shares is $125.5 million but the outstanding public pool subject to the takeover offer represents about $22 million at the offer price. A Stock Exchange notice issued by CDL and Kingsgate this week also stated that Kingsgate does not meet the spread of shareholder requirements under the Listing Rules whereby 25% of the shares in a company should be held by 500 shareholders or more. In the case of Kingsgate, the two main shareholders have 80% and the balance is held by 2000 shareholders.

Mr Nettleton said it was not a case of an ultimatum from the Stock Exchange but the matter had been brought up in general discussions in the recent past. It was one of several reasons for the offer, including such issues as poor liquidity of the stock, he said.

A takeover company called KIN Holdings has been set up as a subsidiary of CDL Hotels New Zealand to carry out the takeover. KIN is 61.3% owned by CDL Hotels and 38.7% owned by Tai Tak Holdings Pte (the Singaporean interests behind CDL).

CDL Hotels itself is 70.2% owned by the listed UK company Millennium & Copthorne Hotels (ultimately controlled by the Singaporeans). CDL Hotels operates the Millennium, Copthorne and Quality Hotel brands in New Zealand.

The Kingsgate takeover is one of several changes following the recent resignation of John Wilson as chief executive of the UK-based Millennium & Copthorne Hotels (and chairman of Kingsgate), in a move that hit the share price of the UK company.

The restructure may improve the balance sheet of separately listed CDL Hotels, which was adversely affected recently by its 51% stake in Kingsgate, according to the last annual report for the 12 months ending December 2003. A lower profit was due primarily to costs from the closure of Kingsgate's Millennium Hotel Sydney and a decline in profits from its residential development following completion and sale of Birkenhead Quays.

The company was also affected by the conversion of earnings from the Australian operations given the strength of the New Zealand currency. The last accumulated Australian tax losses were absorbed in September 2002 and Kingsgate incurred a tax charge of $2.18 million for the 2003 year. Borrowings were projected to increase over the next 18 months to fund scheduled construction projects in Sydney.

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