21 Aug 2009 07:00
The Advantage Property Income Trust Limited ("TAP" or the "Company")
RESPONSE BY THE TAP BOARD TO THE OFFER BY THE CONYGAR INVESTMENT COMPANY PLC ("CONYGAR") FOR THE WHOLE ISSUED AND TO BE ISSUED SHARE CAPITAL OF TAP
The Company announces that it has today posted a circular to shareholders in response to the offer by Conygar for the whole issued and to be issued share capital of TAP (the "Response Document").
The Response Document states that whilst the TAP Board believes that Conygar's offer undervalues the Company, the TAP Board, having been so advised by Singer Capital Markets, also believes that TAP Shareholders should consider the matters referred to in the section of the letter from the Chairman of TAP in the Response Document (which is set out below for ease of reference) entitled "Other important factors for TAP shareholders to consider", when considering whether to accept the Offer or not. Under these circumstances, the TAP Board, having been so advised by Singer Capital Markets, does not believe it is appropriate to provide TAP Shareholders with a firm recommendation either to accept or reject the Offer.
A copy of the full text of the Response Document will shortly be available on the Company's website: www.tapincome.com.
The following letter from Christopher Fish, the Company's Non-Executive Chairman, has been extracted from the Response Document. This extract should be read in conjunction with, and is subject to, the full text of the Response Document.
LETTER FROM THE CHAIRMAN
Dear Shareholder,
Background
On 29 May 2009, the board of Conygar announced a proposed conditional offer to be made by Conygar for the entire issued and to be issued share capital of TAP. On 1 June 2009, the TAP Board announced that it believed that the level and terms of the proposed conditional offer undervalued the Company and urged shareholders to take no action.
At the Company's general meeting held on 3 June 2009, the TAP Board announced, inter alia, that Conygar's approach made on 29 May 2009 was unsolicited and unwelcome, undervalued the Company and that the conditional proposed terms set out by Conygar were considered to be wholly inadequate. The Company then announced on 6 July 2009 that the TAP Board continued to firmly believe the proposed offer to be wholly inadequate and undervalues the Company.
On 7 August 2009, the board of Conygar announced its firm intention to make an offer for TAP and you should have now received the Offer Document. On the same day, we advised shareholders that the TAP Board remains of the view that the level and terms of the Offer undervalue the Company.
The TAP Board has sought alternative proposals that would better reflect the value of the Company's assets. Whilst interest has been shown by a number of parties, as at the date of this document it has not proven possible to convert the interest into any formal proposals to put to the TAP Shareholders.
The TAP Board's views on the Conygar Offer
The TAP Board, as advised by Singer Capital Markets, is still of the opinion that the Offer is opportunistic and undervalues the Company for the reasons described below. The TAP Board is, however, mindful that as at the date of the Offer, Conygar together with TAP Shareholders who have signed an irrevocable commitment or letters of intent to accept the Offer, held approximately 52.5 per cent. of TAP's issued share capital and believes that TAP Shareholders should consider the following matters when considering whether to accept the Offer or not:
• Conygar has stated in the Offer Document that, subject to the conditions of the Offer being satisfied or waived and subject to any applicable legal or regulatory requirements, Conygar intends to procure the cancellation of the listing and admission to trading of the TAP Shares on the Official List, the London Stock Exchange and the CISX, which would be conditional upon the consent of not less than 75 per cent. of the votes actually cast by TAP Shareholders at a general meeting.
The TAP Board believes that, should such cancellation of the listing and admission to trading of TAP Shares on the Official List, the London Stock Exchange and the CISX take place, the liquidity and marketability of the TAP Shares would reduce substantially, as may their value. If TAP Shareholders do not accept the Offer, there can be no guarantee that they will be able to sell their TAP Shares at a price equivalent to that under the Offer for some time, if ever.
• In addition, should such delisting take place, TAP Shareholders who do not accept the Offer would no longer benefit from the shareholder protections provided by the rules applicable to companies listed and admitted to trading on the Official List, the London Stock Exchange and CISX and the regulatory oversight of the UK Listing Authority and the Channel Islands Stock Exchange. TAP Shareholders should be aware that there are no provisions of Guernsey law which confer rights of pre-emption in respect of the allotment of any class of shares to protect shareholders from dilution of their shareholdings.
Under these circumstances and in light of the matters described in more detail in the section "Other important factors for TAP Shareholders to consider" below, the TAP Board, having been so advised by Singer Capital Markets, does not believe that it is appropriate to provide TAP Shareholders with a firm recommendation either to accept or reject the Offer.
Notwithstanding the above, the TAP Board wishes to explain to TAP Shareholders why it continues to believe that the Offer undervalues the Company, and also to address certain criticisms made of the TAP Board by Conygar.
The Board's assessment of the terms of Conygar's Offer
On 28 July 2009, the Company reported an unaudited NAV, as of 30 June 2009, of 37.0 pence per TAP Share. Like the UK commercial property market as a whole, the Company has experienced a dramatic decline in property valuations brought about by the recent financial turbulence and recessionary environment.
However, the TAP Board believes, based on IPF forecasts, that the valuations of UK commercial property are approaching their trough in the cycle and therefore does not view current market conditions as being the optimum moment to realise the value in the Company's portfolio.
TAP Shareholders should note that TAP has outperformed the IPD benchmark over the last 12 months which the TAP Board believes to be due, in large part, to the following:
The Board believes that the strategy of holding small lot size assets means that the portfolio has more diversified income streams and relatively low occupier risk, because it has a correspondingly larger number of occupiers and therefore less dependence on individual occupiers.
Offer discount to NAV
In arriving at its view that the Offer undervalues the Company, the TAP Board has given consideration to the following discounts which the various alternative forms of consideration under the Offer (on the basis of the valuations imputed to them by Conygar in the Offer Document) represent to the Company's last reported NAV:
| Value* | Discount to TAP's NAV as at 30 June 2009 | |
| Conygar ordinary share offer | 20.2p | 45.4% |
| Conygar preference share offer | 22p | 40.5% |
| Cash offer | 15p | 59.5% |
Conygar's criticisms of the TAP Board
Additionally, the TAP Board strongly refutes the criticisms made by Conygar in relation to certain decisions made by the Directors.
In particular, Conygar has stated that the Company should have focused earlier on reducing debt levels. This has, however, been an issue which the TAP Board has paid close attention to since the first quarter of 2008. During this intervening period:
TAP has announced the disposal of 15 properties which have, in aggregate, generated proceeds of almost £20 million since January 2008. The proceeds of such sales have been used to pay down the Company's debt facilities. The proceeds generated from actual disposals have reduced TAP's debt from £117.8 million as at March 2008 to £99.6 million as at 20 July 2009.
In the fourth quarter of 2008, TAP took the precautionary action of renegotiating the banking covenants on its largest facility with Bank of Scotland plc. On 31 March 2009 the Company announced the successful outcome of such negotiations. The TAP Board believes that securing these revised terms was a significant achievement, given the limited availability of debt financing at that time.
The TAP Board rejects the suggestion that the Company should have acted with greater urgency in respect of its debt position and would remind TAP Shareholders that it has at no point breached its debt covenants.
The TAP Board rejects Conygar's assertion that the dividend should have been suspended earlier. TAP was established to pay a sustainable dividend income stream to the TAP shareholders based on the Company's total return and this was the investment case on which the Company's IPO was based. However, once it became clear to the Company that the UK commercial property market was experiencing unforeseeable declines in values, the TAP Board took the following timely decisions in relation to the dividend:
On 3 November 2008 the Company announced that it would cut the dividend by 50 per cent. This revised dividend policy increased the Company's dividend cover to over 100 per cent. and aligned future dividends with the earnings of the Company.
Subsequently, following continued dramatic declines in property values, the Company announced on 19 May 2009 that it would temporarily suspend the dividend.
Whilst it was clearly prudent to suspend the dividend and preserve as much cash as possible in the face of such circumstances, it should be noted that Conygar has overstated the importance of cutting the dividend: of the total net debt reduction of £8.6 million in the second quarter of 2009, cash saved from the suspension of the dividend was £1.2 million. As such, the dividend suspension was a prudent action but not the key to the Company remaining covenant compliant.
Source: the Offer Document
Other important factors for TAP Shareholders to consider
Conygar has stated in the Offer Document that, subject to the conditions of the Offer being satisfied or waived and subject to any applicable legal or regulatory requirements, Conygar intends to procure the cancellation of the listing and admission to trading of TAP Shares on the Official List, the London Stock Exchange and the CISX, which would be conditional upon the consent of not less than 75 per cent. of the votes actually cast by TAP Shareholders at a general meeting.
The TAP Board believes that should such cancellation of the listing and admission to trading of TAP Shares on the Official List, the London Stock Exchange and the CISX take place, the liquidity and marketability of the TAP Shares would reduce substantially, as may their value. If TAP Shareholders do not accept the Offer, there can be no guarantee that they will be able to sell their TAP Shares at a price equivalent to that under the Offer for some time, if ever.
In addition, TAP Shareholders would no longer benefit from the shareholder protections provided by the rules applicable to companies listed and admitted to trading on the Official List, the London Stock Exchange and the CISX and the regulatory oversight of the UK Listing Authority and the Channel Islands Stock Exchange.
The Offer is conditional, inter alia, on Conygar receiving valid acceptances in respect of the Offer which, together with any other TAP Shares held or acquired by Conygar, represent over 50 per cent. of TAP's issued share capital. The Offer Document indicates that, together with TAP Shareholders who have signed an irrevocable commitment or letters of intent to accept the Offer, Conygar held approximately 52.5 per cent. of TAP's issued share capital. As a shareholder controlling more than 50 per cent. of TAP's issued share capital, Conygar would have significant power to direct the Company's affairs. This would include the ability to:
appoint or remove directors of the Company, and thereby control the composition of the TAP Board and direct the investment and dividend policy and strategy of the Company;
declare dividends in general meeting; and
(subject to any rights previously conferred on any shares or class of shares) approve the issue of new shares with such preferred, deferred or other special rights as it determined. TAP Shareholders should be aware that there are no provisions of Guernsey law which confer rights of pre-emption in respect of the allotment of any class of shares to protect shareholders from dilution of their shareholdings.
If Conygar were to receive valid acceptances in respect of the Offer such that it was able to control not less than 75 per cent. of the votes cast by TAP shareholders at a general meeting, it would have additional powers including the ability to:
cancel the listing and admission to trading of TAP Shares on the Official List, the London Stock Exchange and the CISX as described in more detail above; and
amend the articles of association of the Company, including the rights attaching to TAP Shares and the borrowing powers of the Company.
Conclusion
Whilst the TAP Board believes that Conygar's offer undervalues the Company, the TAP Board, having been so advised by Singer Capital Markets, also believes that TAP Shareholders should consider the matters referred to above in the section "Other important factors for TAP Shareholders to consider" when considering whether to accept the Offer or not. Under these circumstances, the TAP Board, having been so advised by Singer Capital Markets, does not believe it is appropriate to provide TAP Shareholders with a firm recommendation either to accept or reject the Offer.
Caroline Burton and Nicholas Renny (being the Directors of TAP who hold TAP Shares as at the date of this document) do not currently intend to accept the Offer in respect of their own beneficial holdings of TAP Shares. However, should the Offer become unconditional such that Conygar was in a position to pursue its stated intention to procure the cancellation of the Company's listings, as described in more detail above, the Directors would see no alternative but to accept the Offer in respect of their own beneficial holdings of TAP Shares.
Yours faithfully,
Christopher Fish
Non-Executive Chairman
Enquiries
| VALAD Property Group Chris Carter Keall | 020 7659 6666 |
| Singer Capital Markets Ltd Jeff Keating/James Maxwell | 020 3205 7500 |
| Tavistock Communications Limited Jeremy Carey/Simon Hudson/Gemma Bradley | 020 7920 3150 |
| Anson Fund Managers Limited | 01481 722260 |
Responsibility statements
The directors of the Company accept responsibility for the information contained in this announcement and, to the best of their knowledge and belief, having taken all reasonable care to ensure that such is the case, the information contained in this announcement is in accordance with the facts and does not omit anything likely to affect the import of such information.
Singer Capital Markets, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting exclusively for TAP in connection with the Offer and for no one else and will not be responsible to anyone other than TAP for providing the protections afforded to clients of Singer Capital Markets, or for giving advice in relation to the Offer or any other matter referred to in this announcement.
Sources and bases
(a) Unless otherwise stated, information relating to the Company has been extracted without material adjustment from the audited financial statements of the Company for the relevant financial year or from the Company's unaudited interim results and trading statements.
(b) Unless otherwise stated, the sources and basis of calculation of certain data in this announcement are as follows:
(i) the reference to IPF forecasts has been sourced from Investment Property Forum forecasts for total annual return as at May 2009;
(ii) the reference to TAP's outperformance of the IPD benchmark has been based on TAP's total return (capital growth and income return) vs the Investment Property Databank's total return for the period commencing June 2008 and ending June 2009; and
(iii) TAP's NAV as of 30 June 2009 has been calculated on the basis of the following information extracted from the Company's unaudited balance sheet as at 30 June 2009:
| As at 30 June 2009 | As at 31 December 2008 | |
| Gross value of investment properties | £154,035,600 | £196,270,000 |
| Current assets | £10,526,484 | £7,378,502 |
| Total assets | £164,562,084 | £203,648,502 |
| Less - Total liabilities | (£111,717,555) | (£122,735,156) |
| Net assets | £52,844,529 | £80,913,346 |
| NAV per TAP Share (p) | 37.02* | 56.68* |
* based on a total of 142,747,300 TAP Shares in issue
Definitions
The following definitions apply throughout this announcement unless the context requires otherwise:
| "CISX" | The Channel Islands Stock Exchange, LBG; |
| "City Code" | The City Code on Takeovers and Mergers; |
| "Conygar" | The Conygar Investment Company PLC, incorporated in England and Wales with registered number 04907617 and having its registered office at Fourth Floor, Bond House, 19-20 Woodstock Street, London W1C 2AN; |
| "London Stock Exchange" | London Stock Exchange plc; |
| "Offer" | the offer being made by Conygar on the terms and subject to the conditions set out in the document sent to TAP Shareholders by Conygar on 7 August 2009 (the "Offer Document") and (if applicable) the Form of Acceptance to acquire all of the TAP Shares (including, where the context so requires, any subsequent revision, variation, extension or renewal of such Offer); |
| "Official List" | the official list maintained by the UK Listing Authority for the purposes of Part VI of the Financial Services and Markets Act 2000; |
| "Property Fund Adviser" | Valad Asset Management (UK) Limited, incorporated in England and Wales with registered number 03239548 and having its registered office at Europa House, 20 Esplanade, Scarborough YO11 2AQ; |
| "Singer Capital Markets" | Singer Capital Markets Limited, the Company's financial adviser; |
| "TAP" or the "Company" | The Advantage Property Income Trust Limited, an authorised closed-ended investment company incorporated in Guernsey with registration number 42048 and having its registered office at Anson Place, Mill Court, La Charroterie, St. Peter Port, Guernsey GY1 1EJ; |
| "TAP Board" or "Directors" | the board of directors of TAP, being Christopher Fish, Nicholas Renny and Caroline Burton; |
| "TAP Shares" | the existing 142,747,300 ordinary shares of 1 penny each in the capital of the Company and any further such shares which may be issued and/or unconditionally allotted prior to the date on which the Offer closes or by such earlier date and time as Conygar may (subject to the City Code), decide; and |
| "TAP Shareholders" | holders of TAP Shares. |
In this announcement, the singular includes the plural and vice versa, unless the context otherwise requires. All times referred to in this announcement are London times.