Kirkcaldie faces $1.3m bill for future lease payment of Petone warehouse after deal falls over

Kirkcaldie & Stains [NZX: KRK], which closed its iconic Wellington retail store in January, faces a $1.3 million cost for future lease payments at its warehouse and office space in Petone after the landlord failed to sell the building, preventing an exit of the lease ahead of its April 30, 2023, expiry.

"The directors continue to actively pursue opportunities to mitigate the ongoing commitments under the lease," Kirkcaldie chair Falcon Clouston said in a statement.

The company also holds a non-cancellable lease for its retail space on Thorndon Quay which expires in May next year and is estimated to cost it $188,000, and on its Brandon Street space which expired December 2017 and is estimated to cost $220,000. It's seeking to sub-lease or assign those leases and is in talks with a third party for Brandon Street but hasn't yet identified a sub-lessee for Thorndon Quay.

It made provision for a total of $1.7 million of onerous contracts for leases in its accounts for the six months ended Feb. 28, and a $93,000 provision for employee redundancy costs.

The former Kirkcaldie store is now closed for redevelopment as the first New Zealand branch of Australian retailer David Jones, which has taken over the lease of the Lambton Quay building, having bought the Kirkcaldie & Stains name and associated trademarks for A$400,000.

Kirkcaldie sold its remaining stock for more than expected ahead of the store closure, enabling it to reverse about $1 million of the $1.3 million net inventory writedowns from Aug. 30 last year. The company posted a net profit of $32,000 in the first half of its financial year, turning around a $501,000 loss a year earlier.

At Feb. 28, its shareholder funds were estimated at $6.916 million, or $3.37 per share. That's higher than the $2.75 per share offered in a takeover bid by Ron Brierley's Mercantile NZ firm, which Kirkcaldies' board recommended be rejected. The board has calculated a high and low scenario for the company's wind up, with the high scenario paying $3.49 per share and the low scenario paying $2.99 per share, both higher than Mercantile's offer. The shares last traded at $3.13.

Brierley's offer will close on May 13, and is conditional on Kirkcaldie making no dividend, bonus or other payments or distributions and on Mercantile gaining acceptances for more than 50 percent of the stock.

"In the event the takeover bid from Mercantile NZ Limited is unsuccessful, once all leases have been assigned and/or surrendered, the group will hold mainly cash and have no business activities," Clouston said. "Although the directors have not yet made a formal decision, a solvent liquidation process appears to be the most likely method for returning value to shareholders."

It expects to start winding down the company in the first half of the 2017 calendar year.

(BusinessDesk)