A group of Newmarket Property Trust unitholders are opposed to a merger with the National Property Trust because they will be losing their yield guarantee.
A group of Newmarket Property Trust unitholders are opposed to a merger with the National Property Trust because they will be losing their yield guarantee.
When Newmarket was launched in 1994 its promoter MetLife guaranteed to top up Newmarket's income so investors would receive an effective 9.5 per cent minimum pre-tax return annually.
Metlife, which is now owned by Sovereign, as paid out guarantees worth more than $8 million in the year to June 30, 1997, $5.4 million the following year, and $1.47 million in the period to December 31 last year.
This yield guarantee, which is due to run until June 200, was created as the properties in the trust were not fully tenanted or developed at the time the trust was launched.
However, as earlier pointed out by Good Returns, the guarantee is to be terminated early as part of the merger plans.
PricewaterhouseCoopers says in an appraisal report to Newmarket unitholders that, because of this cancellation, investors will receive fewer units in the merged trust than would have otherwise been the case.
Auckland accountant Tony Frankham says, in an appraisal report to National unitholders that, based on revenue forecasts Newmarket unitholders will be disadvantaged in the first two years after amalgamation, losing up to 20.9 per cent per unit return this year and 17 per cent the following year.
However, they will be better off than National unitholders in 2001.
Equity Research principal Phil Briggs says he is surprised anyone would stand in the way of the proposed merger, as the enlarged company will be stronger than the individual companies, and it will have better diversification.
"A very weak company is getting a stronger one with stronger management," he says.
Briggs says the benefits of a stronger larger company outweigh the cancellation of the yield guarantee.
Unitholders in both funds are due to vote on the merger proposal on March 25.
A group of Newmarket Property Trust unitholders are opposed to a merger with the National Property Trust because they will be losing their yield guarantee.