Q’town hotel value queried

Press, 19 December 1989, Page 25

Q’town hotel value queried

The valuation of a Queenstown hotel owned by Cardrona Group was questioned at an extraordinary meeting of shareholders of Paynter Corporation in Christchurch yesterday. The meeting, called to approve the company’s purchase of Cardrona Group, was adjourned until Friday, so that shareholders can consider a letter to them from Mr David Stock, an independent director of Paynter. This follows the Stock Exchange’s market surveillance panel requesting the adjournment of the meeting because of the form in which information was sent to shareholders. The meeting yesterday agreed to the adjournment, which meant that the Paynter directors did not have to use the proxies they had. Mr Stock says in a new letter to shareholders, dispatched by fast post yesterday, that he believes the purchase of Cardrona Group shares is in the best interests of Paynter shareholders because the Cardrona assets are “substantially” in cash or ready realisable assets. The cash held by Cardrona

represents 100 c a share, and the other assets represent about 34c a share. (Payter is to pay 134 c a share. This compares with the current market price of 65c.) Cardrona has no intangible assets such as goodwill, Mr Stock says. The main non-cash asset of Cardrona is the Country Lodge Hotel at Fernhill Road, Queenstown. Mr Stock says in the latest letter that the hotel is in the balance sheet of Cardrona at $5.75 million. A later 1988 valuation listed the property at $6.5M. The long-term lease to Newmans Tours, Ltd, and guaranteed by Newmans Group, Ltd, a wholly owned subsidiary of Corporate Investments, provides a rent for the hotel of $575,318 a year. All outgoings are payable by the lessee. “Accordingly this shows a 10 per cent return on the property at a value of $5.75M,” Mr Stock says in the letter. However, the Paynter directors have put a value of $5.25M. on the hotel for the purchase of shares in Cardrona.

Shareholders at yesterday’s meeting raised the question of the permanence of the hotel lease and of the valuation. Mr Stock, as an independent director, replied that two legal opinions had been obtained and the opinions were that the 10-year lease on the hotel was binding. “There is no way that Newmans Tours, Ltd, is not liable under the lense.” Mr Brian Kreft, of United Sharebrokers, which made a report on the share move, said from the floor that a legal opinion obtained by his firm supported the two opinions obtained by the Paynter directors. Mr Jack Lagan, a shareholder, asserted that the hotel would not realise $5.25M on the market today. However, Mr Kreft said that valuation had been commissioned by United Sharebrokers from Harcourts, and Robertson and Robertson, a firm with offices in Queenstown and Invercargill but which does hotel valuations all over New Zealand. Both put a valuation on the hotel of $5.25M. Apart from the hotel and

the cash, the other assets of Cardrona are minor but include a small apartment in Wellington, also valued by the firms hired by United Mr Stock says in the letter to shareholders that with the Cardrona Group having substantial cash reserves and “assets that were at realistic value” it was apparent that to gain control of the company full net asset backing would need to be paid for the shares. The directors considered the purchase will be an "excellent long term investment” for Paynter Corp., Mr Stock says. The overheads of the two companies would fall and their cash resources could be used in joint projects and investments, he adds. Mr Kreft told the meeting that in response to a report in a northern-based news-sheet suggesting that the Cardrona deal was being rushed through because of impending new rules regarding minority shareholders, he had made inquiries of the Stock Exchange and other authorities about the new rules. No-one had heard of them.