This article is from the Australian Property Journal archive
CEC Group has terminated a $1 billion joint venture agreement with Consolidated Properties, after receiving lower valuations for the properties earmarked for sale.
It would appear CEC has decided to sell the land bank in its own right after it was not satisfied with Consolidated Properties’ substantially lower valuations of the properties.
This prompted Consolidated Properties’ managing director Don O’Rorke to demand answers from CEC why it walked away from the $1 billion deal.
O’Rorke said the company was informed by CEC’s lawyers on May 02 stating that CEC “does not wish to proceed with any further negotiation or discussion of the matters the subject of the heads of agreement” and “does not wish to enter into the agreements contemplated by the heads of agreement and considers that the heads of agreement is at an end.”
Last month, Consolidated Properties entered into a heads of agreement with CEC Group to create a new joint venture entity to develop in excess of 8,000 lots of land owned by CEC, with an end value of $1 billion.
As part of the agreement, the joint venture entity was to purchase the land bank in Cairns, Townsville and Mackay from CEC to be determined after obtaining an independent valuation, carried out by HTW valuers, which is CEC’s usual valuer, and approved by CEC’s major financier, Commonwealth Bank.
At the time, CEC told Consolidated Properties, the value will likely to range between $80 million and $120 million.
But O’Rorke said yesterday he was surprised by the low valuations for the portfolio, even accepting that only seven of the 12 properties were valued by HTW Valuers at $41.07 million.
“To be honest, I’m surprised at the low valuation. Up until we received CEC’s lawyer’s letter terminating our agreement, we were proceeding full steam ahead with the project, and as late as 1 May, sent CEC’s lawyers draft shareholders agreement and project structuring documentation for them to review and comment on,” O’Rorke said.
“I’m looking forward to a full explanation from CEC on why it terminated our agreement and why a substantial part of its portfolio was valued at substantially less than the value CEC announced to the ASX on 8 April 2008,” he concluded.
Yesterday, CEC’s chief executive Roy Lavis said the board has reassessed the transaction in conjunction with the current organisational review.
As a result, the board concluded that it would get a better value by continuing to progress the development and sale of this core residential land bank in its own right.
“CEC Group has confidence in the continued long term growth potential of the North and Far North Queensland regions and is well positioned to benefit from its strategic asset base and operational presence and expertise.
“Accordingly, CEC has ceased negotiations with Consolidated Property Pty Ltd in relation to the proposed Joint Venture,” he added.
Meanwhile, Lavis said the group has entered into unconditional contracts to sell land totaling around $32 million with settlement dates prior to May 31. Further, CEC is in negotiations with other parties for the sale of additional land totaling approximately $12.7 million.
And contracts have been negotiated for other non-core property sales of approximately $32 million.
Lavis said the above portfolio of non-core asset sales totaling approximately $76.7 million comprises commercial properties which have not formed part of the core residential land bank of the group.
“When the above sales are added to the sale of its non-core 50% interest in the SITACEC Environmental Solutions Joint venture for $13.5 million announced in early April, total non-core asset sales of around $90.2 million have been, or are currently in the process of being consummated,” he added.
Proceeds from the sale will go towards reducing the group’s debt position.
CEC Group shares closed 6 cents or 10.17% higher at 65 cents.
Australian Property Journal
