STR - Stride Property [ex DNZ Property]

[Steve]

At least the punters have realised that pigs don't fly...

[fungus pudding]

On paper, DNZ shares have $2 NAV. However, when you subtract the cost of buying out the managers, deferred tax, cost of selling properties and winding up, the true value per share if the company was wound up might be $1.40. If the properties can only be sold at 10% below the last NAV, this further reduces to $1 per share. This is a bit more than the proposed listing price of $0.82 but not much.

Well it's 22% above on your reckoning. I'd say that's quite a bit more. But that's last resort stuff. There are better ways of handling the situation - like forgeting about listing.

[Snapper]

I see Greg Ninness in the SST today was having a go at the decision not to list. Trouble is when he did his calculations he used the pre-consolidation NTA. Bit sad for a business journalist.

[Jessie]

Well it's 22% above on your reckoning. I'd say that's quite a bit more. But that's last resort stuff. There are better ways of handling the situation - like forgeting about listing.

Listing is not the issue with DNZ, although it is obviously good to have a selling mechanism for those who have to sell. Otherwise it is irrelevant. The real problem with DNZ is that their level of debt is too high and the banks will demand higher levels of interest for these debt levels than they did in the past - more than the net income from the properties. Therefore reducing the level of debt is an urgent necessity. How this can be best achieved is the issue. The best option may be to sell off all the properties in an orderly way and pay out the proceeds to the shareholders. As part of this, the managers unfortunately would also have to be compensated.

[fungus pudding]

Listing is not the issue with DNZ, although it is obviously good to have a selling mechanism for those who have to sell. Otherwise it is irrelevant. The real problem with DNZ is that their level of debt is too high and the banks will demand higher levels of interest for these debt levels than they did in the past - more than the net income from the properties.

Who said? There are plenty of privately held commercial properties mortgaged at higher than 47%. The most sensible thing to do is reduce distributions to buy out mngmnt contract and reduce debt - flog off the odd property if necessary. There is no way they would discount the properties so heavily and flog them off, so why the hell should they create shares and discount them. It's a racket.

[Jessie]

Who said? There are plenty of privately held commercial properties mortgaged at higher than 47%. The most sensible thing to do is reduce distributions to buy out mngmnt contract and reduce debt - flog off the odd property if necessary. There is no way they would discount the properties so heavily and flog them off, so why the hell should they create shares and discount them. It's a racket.

The effective gearing is much higher than 47% when you take account of deferred tax and the management contract, and the fact that the property valuations are probably excessive. The managers may be legally within their rights to reduce gearing to protect their investment. Apparently they paid $15-20m for a 1/3 share in the contract when they bought out Somers-Edgar.

[Snapper]

The effective gearing is much higher than 47% when you take account of deferred tax and the management contract, and the fact that the property valuations are probably excessive. The managers may be legally within their rights to reduce gearing to protect their investment. Apparently they paid $15-20m for a 1/3 share in the contract when they bought out Somers-Edgar.

The properties were revalued as at 30 September resulting in a drop in NTA so unless you think the valuers are crap they shouldn't be too far off the mark. After all they've sold $70 million over the past year at or very close to NTA.

[Jessie]

The properties were revalued as at 30 September resulting in a drop in NTA so unless you think the valuers are crap they shouldn't be too far off the mark. After all they've sold $70 million over the past year at or very close to NTA.

I think the best and fairest thing for everyone would be to wind the company up. Hopefully this might realize a bit more than the scrapped plan although most investors will still only get a fraction of their original investment back.

[OldRider]

Has anybody read, or have knowlege of these management contracts, I presume they cover just about all eventualities, so that the owner of the contract has little chance of loss no matter what happens to the property owning company.

What happens if the property owning company sells all properties and is then wound up, or just goes broke, does the management contract still get paid out ? For how much?

[Jessie]

Has anybody read, or have knowlege of these management contracts, I presume they cover just about all eventualities, so that the owner of the contract has little chance of loss no matter what happens to the property owning company.

What happens if the property owning company sells all properties and is then wound up, or just goes broke, does the management contract still get paid out ? For how much?

The management agreement is a very generous 0.6% of total investments per year plus extra fees and performance fees. Therefore, for example, it is not in the interest of the manager to sell properties to reduce gearing. Secondly, the manager controls the board so they can pretty much do what they like. That is why they could make the public offer without consulting the owners.