KPG - Kiwi Property Group Limited

Any comment on KPG's property portfolio revaluation of $175.9m or the 3.30cps final div? I'm probably a tad concerned that online trading may well impact their mall tenants in the not too distant future. So, is the revaluation fair?

Disclosure: Holding.

Yes, online trading will eat into mall sales, but against that, there are a lot of strange people out there that consider it fun to spend hours at a shopping mall.

Do not quote me on this but I think that much of the property gain can be attributed to the current low interest rates and how that is factored into the valuation methodology.

Reversing the property revaluations out there is still a significant increase in 'operating profit', due to the lower interest rates & possibly the capital raising during the year?

I own some KPG and may read the report properly later and form a less uninformed view.

I recall reading recently that NZ is growing up and that the likes of H&M & another companies are invading (we already have them here in KL) so whilst they may drive a hard bargain with the likes of KPG and affect the (retail clients of KPG) competition I do not believe that physical retail therapy in NZ is quite dead yet.

Best Wishes
Paper Tiger

Mall owners are now facing a few challenges.
The Farmers are now putting pressure on mall owners.
The Farmers own store is a "major" and as such pays a modest rental,as do the likes of Pak'n Save/Countdown, and The Warehouse.
So Farmers now own Stevens,Bed bath and beyond,Pascoes, Whitcoulls,and another Jeweller [whose name I forget].
I believe they have already managed to have Whitcoulls rent substantially reduced in one ChCh mall,which is owned by Kiwi Property.
I would expect they will be doing the same for all their chains' stores.
I do not see Michael Hill, for example, being happy paying a higher rental than Pascoes.

Don't necessarily disagree with posters above but on the other side of the coin KPG are morphing their malls into a more comprehensive product offer. An excellent example of this is our closest mall in New Lynn Auckland where they have added a whole new extension wing of bars and restaurants along with the Reading Cinema complex and this addition has really transformed the whole mall into a diversified shopping and entertainment complex. Its frequently been extremely difficult to get a car park whereas before this transformation the place was looking a little sad and under patronised. On a side note, Lynnmall was N.Z.'s first shopping mall and I remember starting my career in 1980 just over the road at an accounting firm and I would wander over the road and do my shopping when it was nothing much more than an open strip of shops with a walkway down the middle.

I'm pretty sure malls will keep morphing as they have always done in the past on as required basis to stay relevant.

To answer the Op's question, the revaluation is the result of valuers using lower capex rates in their valuation model's consistent with interest rates and capitalisation rates at 60 year lows so yes the revaluation is fair in this ultra low interest rate environment. Amazing that you can borrow money fixed for 2 year's at only 3.99%. Never seen that before in my career.

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Originally Posted by percy

Mall owners are now facing a few challenges.
The Farmers are now putting pressure on mall owners.
The Farmers own store is a "major" and as such pays a modest rental,as do the likes of Pak'n Save/Countdown, and The Warehouse.
So Farmers now own Stevens,Bed bath and beyond,Pascoes, Whitcoulls,and another Jeweller [whose name I forget].
I believe they have already managed to have Whitcoulls rent substantially reduced in one ChCh mall,which is owned by Kiwi Property.
I would expect they will be doing the same for all their chains' stores.
I do not see Michael Hill, for example, being happy paying a higher rental than Pascoes.

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Tenants have always fought for lower rents. Major tenants like Farmers do know that if valuation rentals are not paid then new development stops. So rent reviews are often contested, but while there may be a bit of a variation between two valuers, it usually won't be much of a problem because rent levels are general ratcheted. New development is forever forging new rent levels.

[QUOTE=Roger;620311 Amazing that you can borrow money fixed for 2 year's at only 3.99%. Never seen that before in my career.[/QUOTE]

He He, I can remember the good old days ( Roger Douglas ) when my home mortgage rate was 20% !!

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Originally Posted by kura

Yes, online trading will eat into mall sales, but against that, there are a lot of strange people out there that consider it fun to spend hours at a shopping mall.

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Spending nothing more than time...

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Originally Posted by janner

Spending nothing more than time...

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Disc. Hold no retail..

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Originally Posted by janner

Spending nothing more than time...

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Last time I went to a big mall was to collect something I ordered online pay-and-collect. The item had to be shipped from another location, as the shop closest to me did not stock it. For my trouble my car received a ding in the car park. So next time it will definitiely be an online courier delivery and no visit to the mall.

Re the current offer for 20m new units. I wonder if we will have to jump through as many hoops to subscribe to these and then at the price which is only a couple of cents discount at this stage. My recent experience with the GMT issue has me hesitating, but then I have not received the paper work yet.

I would think that the same procedure as the GMT issue would apply - it seems to be necessary to comply with the restrictions on overseas ownership of land and property.

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Originally Posted by Beagle

Don't necessarily disagree with posters above but on the other side of the coin KPG are morphing their malls into a more comprehensive product offer. An excellent example of this is our closest mall in New Lynn Auckland where they have added a whole new extension wing of bars and restaurants along with the Reading Cinema complex and this addition has really transformed the whole mall into a diversified shopping and entertainment complex. Its frequently been extremely difficult to get a car park whereas before this transformation the place was looking a little sad and under patronised. On a side note, Lynnmall was N.Z.'s first shopping mall and I remember starting my career in 1980 just over the road at an accounting firm and I would wander over the road and do my shopping when it was nothing much more than an open strip of shops with a walkway down the middle.

I'm pretty sure malls will keep morphing as they have always done in the past on as required basis to stay relevant.

To answer the Op's question, the revaluation is the result of valuers using lower capex rates in their valuation model's consistent with interest rates and capitalisation rates at 60 year lows so yes the revaluation is fair in this ultra low interest rate environment. Amazing that you can borrow money fixed for 2 year's at only 3.99%. Never seen that before in my career.

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Property values (thus cap rates) and interest rates are the opposite ends of a see-saw. That is why the best time to buy real estate, particularly housing, is when interest rates are high.

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Originally Posted by fungus pudding

Property values (thus cap rates) and interest rates are the opposite ends of a see-saw. That is why the best time to buy real estate, particularly housing, is when interest rates are high.

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Good insight fungus. The question is will we consider today's interest rate high in 1, 2 or 5 years time?

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Originally Posted by fungus pudding

Tenants have always fought for lower rents. Major tenants like Farmers do know that if valuation rentals are not paid then new development stops. So rent reviews are often contested, but while there may be a bit of a variation between two valuers, it usually won't be much of a problem because rent levels are general ratcheted. New development is forever forging new rent levels.

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Mistake

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Originally Posted by fungus pudding

Property values (thus cap rates) and interest rates are the opposite ends of a see-saw. That is why the best time to buy real estate, particularly housing, is when interest rates are high.

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Excellent post.

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Originally Posted by fungus pudding

Property values (thus cap rates) and interest rates are the opposite ends of a see-saw. That is why the best time to buy real estate, particularly housing, is when interest rates are high.

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What's the group's opinion on this last paragraph of the offer .....

Further details about the Retail Offer are included in the Offer Document, which can be viewed here. While participation in the Retail Offer is optional,if you choose not to acquire additional shares via the Retail Offer your shareholding will be diluted.On behalf of the Board, I would like to thank you for your continued support.

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Originally Posted by Waiuta

What's the group's opinion on this last paragraph of the offer .....

Further details about the Retail Offer are included in the Offer Document, which can be viewed here. While participation in the Retail Offer is optional,if you choose not to acquire additional shares via the Retail Offer your shareholding will be diluted.On behalf of the Board, I would like to thank you for your continued support.

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I hold some on behalf of my Mum and won't be participating in this capital raise. To me it makes no sense subscribing for new shares at $1.58 when the last recorded NTA is $1.43 per share.
I can see why GMT and KPG are rushing to this new issuance when their shares are trading a such a premium to NTA, its a great deal for the company.
Yes, strictly speaking your percentage of the company will be very slightly diluted but the value of your shares will increase because other people are subscribing for new shares at a material premium to NTA. What they're saying is technically correct but nevertheless slightly disingenuous.
GMT issued shares at quite a substai8ntial premium to NTA because the industrial property sector is being perceived at present as very safe. This issue is not at quite such a premium but nevertheless is not a compelling offer by any means.

Thank you Beagle I appreciate your comments.