RNS Number : 7640G
Carpathian PLC
05 February 2010
Date: 5 February 2010
On behalf of: Carpathian PLC ("Carpathian" or the "Company")
For immediate release
Carpathian PLC
New Portfolio Management Agreement and Dividend Update
The Board of Carpathian announces that the Company and Carpathian Asset Management Ltd ("CAM"), the Company's Property Investment Adviser, on 5 February 2010 entered into a new portfolio management agreement (the "Agreement"). This Agreement replaces the previous portfolio and development management agreements between the Company and CAM, and is designed to incentivise the management team to focus on delivering the Company's revised strategy of returning cash to shareholders over the period of the Agreement, as well as aligning these incentive arrangements to the interests of shareholders. The Agreement will commence from 1 March 2010 and run until 31 December 2011 (reducing the current term from July 2013), following which any extension (should the term of that extension be agreed between the Company and CAM), will be subject to approval by shareholders.
Introduction
Under the Agreement, portfolio management services will be provided to the Company by a new management entity, CPT LLP ("LLP"). Certain CAM employees will be transferred to, and become members of, LLP. CAM (which was previously owned as to 50% by the Company) will become wholly owned by LLP (for nominal consideration) such that CAM and LLP will be fully externalised. LLP and CAM will be incentivised to assist with the disposal of the core assets (as described in the "Property Portfolio" section of the interim results released on 28 September 2009, the "Core Portfolio") and cost reduction programmes.
Management Fees
The Board of Carpathian believes that the Agreement will result in significant cost savings for the Company and incentivise the management team to achieve higher returns to shareholders through performance related compensation.
The Agreement provides for a fixed management fee payable to LLP of £1.55m per annum until termination of the Agreement on 31 December 2011. In addition, CAM will be paid a variable management fee commencing at an annual run rate of £1.86m which reduces during the course of the year, with such reduction being increased as certain assets comprising the Core Portfolio are sold. The revised management fee arrangements for the Core Portfolio are expected to reduce the portfolio management fees paid by the Company on an annualised basis by approximately 22% for 2010 (excluding exceptional costs up to a maximum of £400,000 relating to restructuring as part of the Agreement) (such reduction increasing as asset sales occur) in comparison to the fees of approximately £3.7m charged for 2009, which exclude costs associated with the Atrium development ("Atrium").
The Company is currently assessing ways to maximise value in terms of cash conservation in relation to Atrium. The Board is looking at the possibility of disposing of certain assets within the Atrium portfolio which would substantially reduce the cost of running the development management operation; such costs being approximately £1.3m for the year ended 31 December 2009.
Performance Payments
The Agreement provides for a capital performance payment to LLP, based upon actual cash available for return to shareholders. LLP will receive 10% of any return above a distribution available to shareholders in excess of a EUR17.25 cents per share hurdle and 25% of any returns available to shareholders above a EUR34.5 cents per share hurdle. However, to avoid the capital performance payment reducing the EUR34.5 cents hurdle below this level following payment, the effective hurdle is set at EUR36.4 cents in order to accommodate any capital performance payment. Such capital performance payment shall be payable in cash but accumulated and deferred until the earlier of (i) the completion of the sale of the Core Portfolio and (ii) the termination of the Agreement.
The capital performance payment has been designed to align directly the interests of LLP and CAM with those of shareholders in terms of cash available for distribution. In the event of a Takeover, each of the Company and LLP may elect to terminate the Agreement, in which case the capital performance payment will be calculated by reference to the offer price per share presented to shareholders. The calculation of the capital performance payment shall include any dividends paid on or after 1 July 2009.
Sales Fee
LLP and CAM will also be entitled to a sales fee of 0.5% ofthe gross property sale value (including debt but as reduced by certain retentions and indemnity or warranty claims) for each asset within the Core Portfolio that is sold rising to a maximum of 1.0% if no other brokers or agents are engaged on the sale. The sales fee is conditional on equity value being released for the benefit of the Company as part of any disposal (e.g. no sales fee will become payable in the event the debt obligations associated with a sale are greater than the consideration received) and cash received on disposals being made available for distribution to shareholders. Additionally, any payment of the sales fee is pro rata to cash available for return to shareholders arising from the sale on a 50:50 basis until the entire sales fee has been paid in full. If the Agreement is terminated on a Takeover, a fixed fee of £600,000 will become payable in lieu of any further sales fees.
Fee tail
If the Agreement is not extended by shareholder vote and so terminates on 31 December 2011, then LLP retains the right to receive the capital performance payment and sales fee from the disposal of assets within the Core Portfolio that occur within the 12 month period following termination provided such assets are sold to parties who were engaged in sale negotiations with the Company prior to termination. In the event an alternative third party purchaser acquires such assets during this 12 month period, the capital performance payment and sales fee will not be payable in relation to the proceeds of that sale.
Discretion on disposals
LLP will have discretion to dispose of the assets within the Core Portfolio subject to a minimum equity recovery threshold being achieved which has been approved by the Board. Such minimum threshold is asset specific and not based on a particular valuation formula.
Related Party Transaction
The Agreement is classified as a related party transaction for the purposes of the AIM Rules. In accordance with the AIM Rules, the independent directors of the Company, being Andrew Shepherd, Timothy Walker and Philip Scales, consider, having consulted with the Company's nominated adviser, Collins Stewart Europe Limited, the terms of the transaction to be fair and reasonable insofar as the Company's shareholders are concerned. For this purpose, in view of their existing directorships in CAM (which will cease upon the externalisation of CAM), Rory Macnamara and Rupert Cottrell have not been considered independent directors.
Dividend Update
The Board set out on 1 May 2009 a dividend target of 8 pence (EUR9.2 cents) per share payable by May 2010. Further to this, on 17 December 2009, the Company announced an interim dividend of EUR4.5 cents per share (4 pence). The intentions of the Company have not changed in terms of returning cash to shareholders, however, the Company is keen to secure sufficient liquidity within the Group to execute the business plan. The Agreement should assist in reducing central overheads but, unless further asset sales complete prior to April 2010 thereby generating distributable cash, the Board will not be in a position to meet its previously announced 8 pence target. The Board intends to continue its policy of returning excess cash to shareholders and will advise shareholders on dividend expectation in due course following further sales of the Core Portfolio.
Commenting, Rory Macnamara, Chairman of the Board of Directors of Carpathian, said:
"We are pleased to have concluded these extensive negotiations which we believe firmly align the manager with the stated business plan and can now set about the task of delivering real cash returns to investors within the next two years. Although we are also alerting shareholders to the real possibility the 8 pence dividend may not be paid by May 2010 in the absence of further sales, through the hurdles set in the Agreement, we hope shareholders have a sense of the Board's dividend aspirations over time."
Enquiries:
Carpathian PLC Via Redleaf Communications
Rory Macnamara (Non-executive Chairman)
Carpathian Asset Management Limited 020 7529 6413
Paul Rogers ir@carpathianam.com
Simon Killick
Collins Stewart Europe Limited 020 7523 8350
Bruce Garrow
Redleaf Communications 020 7566 6700
Emma Kane carpathian@redleafpr.com
Adam Leviton
Henry Columbine
IOMA Fund and Investment Management Limited (the 01624 681250
"Registrar")
Philip Scales philips@iomafim.co.im
Notes to Editors:
Carpathian was created in 2005 for the purpose of investing in Central and
Eastern European commercial real estate.
Carpathian's primary focus is on shopping centres, supermarkets and retail
warehousing in Croatia, the Czech Republic, Hungary, Poland, Romania,
Lithuania and Latvia.
Carpathian was admitted to trading on AIM in July 2005.
CAM is the Property Investment Adviser to Carpathian. It is responsible
for managing the core portfolio of assets and transactions development
activity (in relation to the Arad site) within Central and Eastern Europe.
This information is provided by RNS
The company news service from the London Stock Exchange
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