Local property firm DNZ set to float

The Meridian Energy building in Wellington is part of DNZ's property portfolio. Photo / Supplied

The second NZX listing this year is looming after $671 million real estate investor DNZ Property Fund said it planned to float mid-August.

DNZ is tapping existing investors and institutions for $35 million to $45 million in an initial public offering and a radical shakeup of the business headquartered in Auckland's Greys Avenue.

The company needs $35 million to buy out the management contract of its chief executive Paul Duffy and ex-chairman Alastair Hassel but it can raise up to $45 million, reserving the right to take the extra $10 million in oversubscriptions at its discretion.

Home fragrance company Ecoya is the only other NZX listing this year. That has been far from successful. Its shares debuted on NZSX at the listing price of $1 each on May 3. Yesterday it was trading at 81c.

DNZ is the first property listing since Kermadec Property Fund floated in 2006.

DNZ expects shares to be allotted on August 13 and to list three days later.

"Initial quotation of the shares on the NZSX is expected to occur under the symbol DNZ on August 16," the company said in its investment statement and prospectus.

DNZ, previously Dominion Funds with 32 Money Managers' syndicates, has a heavily-indebted $671 million portfolio and wants to reduce its borrowing, limited to 50 per cent of its asset base.

The listing is being brought to the market, but not underwritten, by Goldman Sachs JBWere.

Professional investors say underwriting would have been too expensive and its absence is a byproduct of the relatively small size of the capital-raising and Goldman's belief that the shares will be taken up by institutions, even if they are rejected by disgruntled existing investors.

Duffy and Hassel are the two largest shareholders with 10.6 million shares via Duffy's Hayphil Investments and Hassel's Rose Star.

The $35 million being raised is to pay them but Duffy will stay on as chief executive on a $650,000/year salary package, initially for three years but with renewal terms for another two.

Institutional investors have a strong appetite for the float because it offers them New Zealand's first internally managed property business and one large portfolio of real estate, they say. Some say that despite its troubled past, they are forced to buy shares to give them the correct weighting on the NZX.

Institutions say they will keep an extremely close eye on the company's management, fees charged and corporate governance after its difficult past and outcry from investors, some suffering the fate of seeing three-quarters of their original capital wiped out.

DNZ's size on the NZX is expected to give it a market weight of about 6 per to 7 per cent of the NZ Property Index, forcing big investors who hold listed real estate stocks into the float to keep their holdings correctly balanced.

The large property-holding investor managers with NZX real estate stocks are ING (NZ), Mint Asset Management, ACC, ASB, ABN and AMP. All are expected to have an appetite for DNZ shares, professional fund managers said yesterday.

The indicative price range in DNZ's prospectus is 80c to $1.05 and institutions say the lower-end price would particularly draw them to the deal via the book build on August 10.

DNZ is projecting a $106 million net after-tax loss in 2011 on net rental income of $52.8 million.

The loss includes the cost of terminating the management contract at $31.76 million, amortisation and impairment of the renegotiation payment for the contract of $3.6 million and deferred tax of $88.7 million.

One of the largest shareholders, Keith Yealands of Blenheim, who with Doris Yealands holds 691,696 shares, said he was not keen on taking up his share entitlement in the pro rata deal.

He remains disgruntled by DNZ Property's share consolidation deal last year which he said was against his wishes.

Tim Storey, DNZ's chairman, has apologised for confusion over this issue, emphasising that the value of existing shareholdings were not diluted by the number of shares being cut.

DNZ's board is Storey, Duffy, John Harvey, Michael Stiassny and David van Schaardenburg.

DNZ FLOAT
* July 19: Offer opened
* August 4: Offer closes
* August 10: Book build
* August 13: Shares allotted
* August 16: NZX listing

THE NUMBERS
* DNZ holds 55 properties rented to 265 tenants on a weighted average lease term of 4 years.
* It has 40 per cent office, 15 per cent retail, 20 per cent bulk retail and 25 per cent industrial property.

Source: DNZ Property Fund investment statement & prospectus