17 Nov A2B unveils property deal ahead of AGM showdown

Source: Financial Review

A2B will swap a $57 million property for a $135 million property. But will be it enough to prevent two big shareholders voting against chairman Paul Oneile.

A2B, formerly known as Cabcharge, will face off with frustrated investors at Thursday’s annual general meeting from a stronger position after announcing a property deal that will see it swap its $57 million property in the Sydney suburb of Alexandria for another property in the same suburb that it says will be worth an estimated $135 million at completion.

The deal was announced hours after The Australian Financial Review revealed that two of the company’s biggest shareholders, Investors Mutual and Sandon Capital, were planning to vote against the re-election of A2B chairman Paul Oneile at the AGM.

The pair, which own 11 per cent and 5.8 per cent of the company respectively, is unhappy with the strategic direction of the company and the oversight and accountability demonstrated by the board.

The A2B camp stresses the deal is not a reaction to the shareholder dissatisfaction and has been in negotiations for a year.

Under the property swap with Denis O’Neil’s property development business Addenbrooke, A2B will swap its existing property in O’Riordan Street, Alexandria, for a property in Bourke Road, Alexandria, where Addenbrooke will be responsible for funding and developing a new nine-storey commercial office building, which will have a net lettable area of 9634 square metres.

A2B has estimated the value of the new property on completion at $135 million, which is much higher than the $57 million valuation an independent valuer placed on the O’Riordan Street property in August.

Sources said the Bourke Road estimate is based on a valuation of $14,000 per square metre, which has been calculated based on comparable transactions, including Caltex’s move to Alexandria in 2019 and a 5 per cent capitalisation rate.

And, as the A2B camp points out, the company doesn’t need to put a cent into the development of its shiny new, purpose-built digs.

A2B shares rose 5 per cent on the news, lifting its market capitalisation to $168 million. If we take that new $135 million valuation as read, it means investors are getting A2B’s operating business for next to nothing.

A2B’s approach to unlocking value from its property assets has been a little hard to follow – despite 12 months of negotiations that clearly highlighted the value of the land on its books, it chose not to revalue its portfolio until after its June 30 balance date. But insiders argue this is exactly the sort of value creation that frustrated investors have been keen to see.

Which leads to the obvious question: will Investors Mutual and Sandon change their plans to vote against Oneile’s re-election, the company’s remuneration report, and the award of performance rights to chief executive Andrew Skelton?

“Absolutely not,” says Sandon managing director Gabriel Radzyminski, who argues Wednesday’s announcement doesn’t contain enough detail to judge the merits of the transaction.

He wants to know more about the basis for the $135 million valuation, any tax implications, and whether the deal was done following a competitive process.

“It reinforces the concerns that we have. Here’s an announcement with some headlines, very little detail, and the numbers described in the announcement make us ask more questions than the announcement answers.”

Investors Mutual portfolio manager Marc Whittaker said it would not change its vote either.

“I think this is a deal that comes partly in response to shareholder activism, but the fundamental issues of alignment, transparency and accountability remain, he says.

“The company needs change at the board level most certainly. We’re happy to see incumbent management have better support from the board to maximise the potential of this company.”

Thursday’s AGM should be fascinating.