KPG - Kiwi Property Group Limited

[LaserEyeKiwi]

Yup still in the doldrums. Im still taking the opportunity to buy $1.45 bills for $1 while the sale is on.

On where it goes from here, I think the market might start to close the valuation gap when more of the NTA is in the form of cash, which looks set to be a reality soon. Also it appears bond rates may have already peaked, which if true would make the 7% dividend yield somewhat of an outlier.

approximately $750m in KPG asset sales coming up before year end. At least $500m for 50% of office portfolio going into “co-investment platform” for overseas pension funds to buy into. $200m for northlands, which chairman said at recent AGM should be concluded within 2 months.

After that still the potential plaza mall sale and already confirmed ikea land sale funds to come through, and potential for mixed use centers to also enter a co-investment platform.

The advantage of the co-investment platform is that KPG releases funds on its assets, while still retaining asset control and also creates a new revenue stream in the form of management fees on the equity it sells off.

[Waltzing]

hamilton very busy yesterday with great winter support.

malls not dead yet.

[LaserEyeKiwi]

Government announces that new Build-to-rent residential developments will be able to deduct interest.

There are conditions, but seem to line up with KPGs stated plans to offer long term occupancy contracts.

https://www.rnz.co.nz/news/political...g-term-rentals

[winner69]

KPG share price back under $1 ….. possibly because 10 year govt back up close to 4% again

[LaserEyeKiwi]

KPG share price back under $1 ….. possibly because 10 year govt back up close to 4% again

7%+ yield, 31% discount to NTA.

Good while still allocating funds, but it is a tough slog staying in that long term mindset.

[SPC]

That's right. A 4 yr bank TD, or KPG with a superior pie return and capital upside.
A $1.40+ investment unit value for around $1. Not to be barked at in my opinion 😉

[Rawz]

I agree, don’t hold but maybe can get 8% yield? It hit that a few weeks ago right?

Plus you got to think that the DPS will grow over the years and NTA?? Even thou it’s history in that regard has been quite poor

[LaserEyeKiwi]

Ok so here is a bit of a thought experiment:

Stock currently trades at a 31% discount to NTA (Net Tangible Assets). KPG generally keeps a low cash balance (pays out a high dividend ratio). So calculating cash per share balances or what the asset value per share excluding cash on hand is, is currently rather pointless.

However…KPG is in the process of selling a 50%+ equity stake in its office portfolio, and in final stages of selling Northlands Mall in Christchurch. The sales at book value will be somewhere close to $750m.

Using the hypothetical $750 million sale value, the non-cash Asset value per share changes dramatically. Valuing the cash at 100% value (as one should), and removing that from the current share price and NTA per share value - would leave a share price trading at a 47% discount to NTA.

See my math below:

284C2035-C511-494A-8B4F-162DF870917E.jpg

Who knows what happens in the scenario where those sales are completed and the share price stays roughly where it is now, potentially becomes a very easy take over target.

The company also has The Plaza Mall to sell, along with the already announced sale of the IKEA land to proceed in future, and also stated possibility of further equity sales / co-investments of all its other property assets possibly - but we ignore all that for now. Although hypothetically KPG could keep selling equity stakes in its properties and end up in a situation where the cash balance surpasses the current market cap, and it still would have half a billion in property assets (ignoring the future value created at Drury etc).

[Waltzing]

Its becoming a very interesting stock.

Your a true arithmetical investor LEK..

One hopes that something really good comes of it at some point in time.

If immigration opens up and the current strange policy of keeping people out changes then new multi purpose planned towns created by private sector capital could become a new public stock investor model.

[Snoopy]

KPG is in the process of selling a 50%+ equity stake in its office portfolio, and in final stages of selling Northlands Mall in Christchurch. The sales at book value will be somewhere close to $750m.

Using the hypothetical $750 million sale value, the non-cash Asset value per share changes dramatically. Valuing the cash at 100% value (as one should), and removing that from the current share price and NTA per share value - would leave a share price trading at a 47% discount to NTA.

Who knows what happens in the scenario where those sales are completed and the share price stays roughly where it is now, potentially becomes a very easy take over target.

The company also has The Plaza Mall to sell, along with the already announced sale of the IKEA land to proceed in future, and also stated possibility of further equity sales / co-investments of all its other property assets possibly - but we ignore all that for now. Although hypothetically KPG could keep selling equity stakes in its properties and end up in a situation where the cash balance surpasses the current market cap, and it still would have half a billion in property assets (ignoring the future value created at Drury etc).

So your thesis is LEK, that:

a/ If KIwi sell down some of their assets at NTA for cash AND
b/ Those cash assets are are then 'upvalued' by the market (because Kiwi have replaced formerly undervalued by the market buildings with cash on their balance sheet) THEN
c/ The Kiwi shares should be uprated by the market OR - if they are not - THEN
d/ A predator company can come and bid for the company and use the cash on the Kiwi balance sheet to fund a leveraged buyout.

You make a good case. But allow me to put forward what I see as the counter argument.

Go back one step and ask yourself why Kiwi are selling Northlands Mall in Christchuch, and half a stake in their office portfolio in the first place. The answer is that they need the money to develop the tenement towers for long term rental accommodation that they envisage at their Auckland shopping precincts. Oh and to develop their greenfield town at Drury. Now ask yourself what would happen in your leveraged buyout scenario.

The predator company would strip out the Kiwi cash and have no money left to proceed with these property developments. So they would probably have to sell down more Kiwi properties to fulfill the possibly already inked development contacts. They end up with a couple of residential towers, with the remaining shopping centres sold off to fund them, a management team with no experience operating long term tenancies, and an uncertain green field town centre development 'out of town' just as fuel prices skyrocket to a new plateau. Suddenly our 'predator company' isn't looking so clever. A clever 'predator company' probably wouldn't make such a takeover offer in the first place.

Next we get to the delayed Kiwi property sales. A real estate agent once told me every property has a buyer at the right price. If your property hasn't sold in many months of trying, the most likely reason is that the price you are asking is too high. If a clean sale was on offer for Northlands, surely the boxes would have been ticked by now? And the Palmy mall is still getting earthquake strengthening work done on it, is it not? More dollars out of that 'spare cash' you keep talking about?

For listed property Mr Market has spoken. And the reason that all these listed property companies are trading well below net asset backing is that the net asset backing is too high. No matter what some hired calculating valuation stuffed shirt has been telling the Kiwi directors based on historical (and that word is important) evidence. I don't consider myself a property guru. But when even I see 'really good' long leased warehouse assets in an apparently land constrained area only able to be bought at a yield of 3% (I am thinking GMT property here), I have to wonder: Is that GMT share really undervalued? I can get a higher return than that on a bank term deposit now, without any downside property value risk.

The key theme I am trying to get across here is that the Kiwi Property Group is, at heart, now a property developer - not a property owner. And property developments require money, and lots of it. I am not saying that Kiwi will fail in their development execution, and neither am I saying they will succeed. What I am saying is that there is no 'spare cash' to be had here. My opinion of course. Make of it what you will.

SNOOPY