The Newmarket Property Trust's yield guarantee will disappear if unitholders agree to merge the fund with the National Property Trust.
The two trusts, today, announced details of a proposed merger that would create a larger, more diverse property fund that would be managed by The National Property Trust Ltd.
The Newmarket property fund, which was established by Metlife Group subsidiary Metropolitan Life (which is now a wholly owned subsidiary of ASB Bank-owned Sovereign Ltd), offers investors a 9.5 per cent pre-tax return.
Any shortfall in trust income is topped up by the company to ensure investors get their guaranteed yield.
Under the merger deal, which will be put to unitholders for ratification in March, the Newmarket guarantee will disappear.
"The ability to maintain a return to unitholders of 9.5 cents per unit through guarantees has been invaluable to investors. However, the manager has been conscious that the guarantee will cease as at June 30, 2000 and believes it is prudent to address this eventuality sooner rather than later," Newmarket chairman Jock Irvine says.
The proposal is that Newmarket unitholders will receive 75 National Property Trust units for each 100 Newmarket units.
The price has been worked out on the net tangible asset backing of each trust.
National executive chairman Paul Dallimore says while the merger is aimed at getting critical mass, it also gives a better geographical spread of properties. Currently National owns buildings in Wellington, Christchurch, Dunedin, Nelson and Wellington, while Newmarket owns property in the Auckland suburb of Newmarket.
Dallimore says if the deal goes ahead the new fund will also buy 16 levels of the AA Centre in downtown Auckland.
Dallimore says NPT had wanted to expand, however the market wasn't conducive to capital raising. While NPT wasn't in the position to increase its debt levels, Newmarket had the ability to raise up to $16 million through borrowings. This will be used, along with the placement of units, to fund the AA acquisition.
If approved the merged and expanded trust will have total assets of more than $145 million, Dallimore says.
Post amalgamation, NPT is predicting a net surplus before tax of $9.68 million, for the year ending May 31, 2000, and a net surplus after tax of $8.2 million.
For the 2000/01 year it projects a net surplus before tax of $9.24 and $7.83 million after tax.
This equated to an annualised pre-tax return of 10.51 cents per unit in the 1999/00 and 10.01 cents per unit to 2000/01, with dividend distribution of 8.91 cents per unit and 8.49 cents per unit respectively.
The lower net surplus for the May 2001 year resulted from the expected cessation of a modified rental guarantee on the Newmarket properties.
The Newmarket Property Trust's yield guarantee will disappear if unitholders agree to merge the fund with the National Property Trust.