Takeover of 360 Capital Group business
Many First Samuel clients have an investment in 360 Capital Group (TGP.ASX - '360 Capital'). It was announced this week that Centuria (CNI.ASX) will effectively take over the majority of 360 Capital's operations and assets, including management rights and ownership stakes in the 360 Office Fund (TOF.ASX - '360 Office'), and the 360 Industrial Fund (TIX.ASX - '360 Industrial').
The effect of the transaction will be that 360 Capital assets, will mainly become (a) cash, (b) short term secured debt to Centuria (secured by its 360 Industrial position) and (c) the 360 Total Return Fund (management and equity).
The net tangible assets of 360 Capital will be $0.94cps (post tax). As a part of the transaction, and due to some franking credits being generated through the process, 360 Capital will undertake a buyback of up to 20% of its securities on issue. The company will now focus on partnering or managing funds for offshore and large holders, which it was conflicted to do before. The core management team and Board will remain in place.
For 360 Office and 360 Industrial, the effect will be that Centuria will become the largest unit holder of both, and will also become the manager. Centuria have indicated that they would like to merge 360 Office and its own listed fund CMA (which we own in our property allocation) at some stage in the future, should a transaction be identified as favourable for both sets of unit holders.
For our clients this marks a new stage in our very successful relationship with 360 Capital. We have not yet decided a clear course of action, other than to note we see no downside risk in these transactions. Longer term clients have done very well from all the 360 investments (more on this below). As the largest stakeholder across the 360 'platform', First Samuel has a role to play in the acceptance (or otherwise) of this deal.
Given that it is conditional on a vote by both 360 Capital and 360 Office holders (for the latter, Centuria will be buying more than 20% thereby triggering a vote requirement under corporations law), we feel there is scope for a 360 Office /CMA merger to be fast tracked. This could provide some upside for our 360 Office position.
This transaction does not actually change anything for clients, in that they will still own all three positions. What it does do is make 360 Capital cashed up, which reduces any potential risk from a commercial property market slowdown.
Investment return - 360 Capital Group
First Samuel clients first invested in Trafalgar Corporate Group (the predecessor to 360 Capital) in Mar-13. The initial investment price was $0.53cps, and an average price of $0.63cps was paid for the entire stake.
Along the way we sold some of our holding for an average price of $1.09cps, and we received dividends worth $0.13cps. In total, at the Net Asset Value implied in this transaction ($0.94cps), clients have achieved an internal rate of return (IRR) of 17.0%p.a. Thus it has been a terrific investment.
Investment return - 360 Industrial Fund
In relation to the 360 Industrial Fund, we first invested in Dec-12 prior to it being listed at $0.45cpu (a good discount to then NTA). With subsequent purchases, dividends, unit consolidations and acceptance of shares from the ANI takeover offer, the takeover represents an IRR (at the price Centuria is buying TGP’s stock) of 24.5%p.a. - also an excellent investment.
Investment return - 360 Office Fund
We have owned the 360 Office Fund for less time than the other 360s. It was initially acquired under IPO in Apr-14. Allowing for dividends received and subsequent unit sales, the takeover represents a sound IRR of 12.6%p.a.