KPG - Kiwi Property Group Limited

[LaserEyeKiwi]

Day out for you LEK

http://nzx-prod-s7fsd7f98s.s3-websit...041/378142.pdf

hmmm…a but short notice for us wellingtonians. I see its being recorded to be viewed online later, so seems like no big news dropping.

[LaserEyeKiwi]

Belated reply.

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.

A-C - yes that is my theory in a nutshell.
D - Takeover was purely a hypothetical, no expectations on that, although if pension funds are interested in buying 50%+ of office portfolio at book value, then maybe they might judge buying shares in KPG at its discount to NTA and higher divi yield as the more prudent approach.

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, sometime in 23/24 perhaps (depenging on Auckland council squabble)

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

I am not sure if they have ever said if openly, but Kiwi have spent the last decade (post-2011) offloading malls & other assets south of Hamilton for one obvious reason: a major de-risking of there portfolio exposure to seismic events. Northlands & The Plaza are the last two malls to go, and the 50%+ proposed “co-investment platform” (sale) of office assets will take the exposure south of Waikato (just two Wellington office blocks currently worth $239m) down to just a few percent portfolio value (~$120m if 50% divested).

Would agree they are becoming a property developer, but the bulk of their assets, even after both southern malls & 50%+ of offices sold, will remain in existing mixed used portfolio (mostly Sylvia Park).

In terms of cash needed - the current immediate outlays are not actually very significant. 3 Te Kehu way (new office tower at Sylvia park) is almost finished, and the Build-to-rent project is already in progress. Drury is mostly earthworks still, and the first phase constructed by KPG will be some buildings for big box retailers and car parks in 23/24, timing dependent on Auckland council squabble.

So who knows what they will do with a big influx of cash (~$700m+) IF they manage to sell Northlands & 50% of office portfolio this year. Capital return possibly. Maybe just sit on it I suppose is an option. There are ZERO bond maturities until FY2024, and even then it is only $175m. (FY2025 sees $358m mature).

[Waltzing]

What did they do with the the last decade of cash from sale of malls. Did they sink that into auckland?

well they could do a buy back...

[LaserEyeKiwi]

What did they do with the the last decade of cash from sale of malls. Did they sink that into auckland?

well they could do a buy back...

The funds were minimal in nterms of portfolio value, it was more important to de-risk.

For instance the Majestic centre tower in Wellington was sold for $123m in 2017, but that was a money pit with a multi-year $85m earthquake strengthening program done before the sale.

Porirua Mall (North City) was a better result, selling for $100m in 2018 (5% below book value at the time).

Kiwi sold centre place south in Hamilton for $46m, and entered into a 50/50 partnership with Tainui Group for Centre Place North & The Base. (I guess Kiwi actually wants to keep as much of its portfolio as possible north of the Bombays.

Kiwi has spent more on Sylvia Park expansions alone than all the cash raised from those asset sales so far.

[Waltzing]

LEK suppose it take a while to realign a portfolio in a small market where selling assets takes a while and creating new assets for long term growth also takes time.

Evidence the time it takes in NZ to built a road...although for SMALL country the motorway extensions from huntly to south karapiro went smoothly.

lot of retirement village new builds underway is that area.

[winner69]

Another cool preso from Kiwi

Deep dives, halos and other stuff .... and even mentioned pathways

Lots of pictures of buildings etc but the people shown seem to be predominantly caucasian

http://nzx-prod-s7fsd7f98s.s3-websit...335/378420.pdf

[Rawz]

Another cool preso from Kiwi

Deep dives, halos and other stuff .... and even mentioned pathways

Lots of pictures of buildings etc but the people shown seem to be predominantly caucasian

http://nzx-prod-s7fsd7f98s.s3-websit...335/378420.pdf

Maybe KPG dont see colour like you W69? Just see us as the bags of meat that we are. Walking wallets for their malls or fodder for their rentals.

I didn't realize how big drury was!!! Sylvia park is 34 hectors and Drury is 56% bigger at 53 hectors holy moly

[LaserEyeKiwi]

Well that took some time to read through - definitely wasn’t expecting that level of detail today!

Was great seeing the more detailed masterplan for Sylvia, and the timelines for developments over the next decade.

Noted they said the council appeal has now been settled, good news! But countered somewhat by commentary saying the deterioration in macro-economic environment has disrupted negotiations for co-investment platform partner(s) currently. Good to see that current capex commitments are low however.

[winner69]

Hey LEK. …..they put a few slides in about the US REIT market

Purpose …..seeking out global investors? Who might be impressed impressed with the 1+1=3 concept?

[Poet]

I see they have announced a conditional sale of Northlands Mall for $160m (light conditions, so probably a done deal)