The SIA allows termination in the event of a “material adverse change” – any event, condition or change of circumstances which reduces, or is reasonably likely to reduce, Metlifecare’s NTA by NZ$100 million or its underlying net profit in any financial year by 10 percent or more.
COVID-19 has materially adversely affected Metlifecare’s property portfolio, the value and margins of future unit sales and resales, and operating costs. Metlifecare’s NTA has substantially reduced based on an analysis of 25 year cashflows and its profitability will be materially adversely impacted across a range of scenarios. The financial impact exceeds the thresholds in the MAC by significant margins on both the NTA and profitability limbs, either of which permit APVG to terminate the SIA.
The Board of APVG recognises that Metlifecare shareholders will understandably be disappointed with this outcome. APVG has looked at the evidence closely and concluded that the business has and will continue to be materially adversely impacted by COVID-19. As a responsible investor, APVG is therefore exercising the rights that have been agreed in the SIA to protect against this sort of unforeseen material adverse event.
APVG has undertaken extensive work and carefully modelled and analyzed the impacts of COVID-19 and reviewed and taken into account all information provided by Metlifecare, including Metlifecare’s sales and development pipeline and the assumption sets relied on by Metlifecare in respect of its 20 April 2020 profit projection.
APVG has made a careful, merits-based assessment of the situation, guided by highly qualified experts with relevant experience in the retirement village and aged care sector.
APVG has engaged two global property valuation firms, a “big 4” accounting firm, a prominent New Zealand economist and leading New Zealand and international legal advisers, including two of New Zealand’s leading Queen’s Counsel.
APVG has also considered the analysis and forecasts of market analysts covering Metlifecare and the sector generally, major retail banks’ housing prices and real estate forecasts, other information relevant to the retirement and aged cared industry generally, and economic forecasts from other institutions. In the last week, broker analysts from two major firms published research downgrading their underlying profit forecasts for Metlifecare in FY21 by 29 percent and 41 percent respectively.
APVG also believes Metlifecare has materially breached certain restrictions on the conduct of Metlifecare’s business which apply under the SIA, and which constitute Prescribed Occurrences that permit APVG to terminate the SIA.
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