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NZX rejects Kiwi Income Complaint

18 February 2005

NZX rejects Kiwi Income Complaint

On 26 November 2004, Capital Properties New Zealand Ltd announced that proposals would be sought for the purchase of the management rights over the Company's property assets. The Capital Properties board expressed the view that the value of the Company's management rights, as distinct from the value of its property assets, were not properly recognised by the market.

Further, the board expressed the view that the value of the management rights, if sold following a contestable open market process, could be considerably in excess of that recognised in other circumstances. If the board considered that, following receipt of proposals, it was in the best interests of shareholders to sell the management rights then it was likely that they would be sold and the proceeds of sale distributed to shareholders as a return of capital.

On December 21, 2004, Kiwi Income Property Trust (KIP) announced that it had made applications to New Zealand Stock Exchange Ltd (NZX) and the Takeovers Panel in an attempt to procure regulatory intervention to prevent Capital Properties from proceeding with its proposed course of action.

On 20th January 2005, the Takeovers Panel announced that it has considered KIP's complaint and has decided that it would take no further action.

Today, the New Zealand Stock Exchange (NZX Regulation) also dismissed KIP's complaint.

Having failed twice to procure regulatory intervention, KIP announced today, through its external manager, Kiwi Income Properties Ltd (KIPL), that it was requesting that a special meeting of shareholders be called to consider a resolution requiring any decision to sell the management rights to be put to all shareholders for approval.

Capital Properties' Chairman, Colin Beyer commented that the decisions of both the Takeovers Panel and NZX Regulation to take no action support the earlier view taken by the Capital Properties board that it was fully entitled to proceed with its proposed course of action. Mr Beyer confirmed again that he and his fellow directors were simply acting in the best interests of all Capital Properties shareholders. The Capital Properties Board is concerned that KIPL's motivation for seeking this resolution is to use KIP's 19.9% voting block in Capital Properties to vote against any resolution to sell the management rights, regardless of whether such a course of action is in shareholders' best interests. As KIP's external manager, KIPL have had the opportunity to acquire the management rights in the open contestable process we are running but have chosen not to participate.

Our view is that this is because KIPL's clear preference is to have KIP's unitholders pay for the management rights as part of a possible future takeover of Capital Properties (if one ever emerges). In this way KIPL are seeking to acquire the management rights for nothing, at the cost of KIP's unitholders who derive no benefit from the profitable management fee arrangements. Unfortunately we have a situation here where KIP's external manager KIPL can potentially use the voting power of KIP's unitholders to vote in its interests as manager rather than in the interests of KIP unitholders.

Capital Properties' CEO, Chris Gudgeon commented further that it was interesting to make the comparison with the potential ING/Urbus merger recently announced. In this transaction the ING management company, not the ING unitholders, acquired the Urbus management rights. A merger of the property assets is now able to proceed on its merits and with the interests of both ING unitholders and Urbus' shareholders properly safeguarded.

Capital Properties is consulting with its legal advisers and will advise the market of its response to KIP's recent actions in due course. One potential action under consideration is an approach to the KIP trustee to establish whether KIP's unitholders best interests are being properly upheld in this recent action by its external manager.

Capital Properties anticipates issuing a newsletter later this month to update shareholders on recent events and future prospects for the Company.


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