KPG - Kiwi Property Group

[Onemootpoint]

KPG announced today they will start paying dividends on a quarterly basis staring 21 September 2022.

https://www.nzx.com/announcements/397867

[Arbroath]

Puts them on the same footing as Precinct and Argosy. Could attract a few more retiree investors.

[Basil]

Market seems to like the idea. 

[Basil]

Puts them on the same footing as Precinct and Argosy. Could attract a few more retiree investors.

I bought a few yesterday cum dividend.  The main thing that attracted me was the yield and the new quarterly payments.  Works out to 8.5% gross for 33% taxpayers.  Not expecting anything value add to come from their proposed divestment or building programs and not expecting the discount to theoretical NTA to close either.  Just a diversification of my strategy to find what is hopefully, sustainable yield.  Small position < 2%.

[arekaywhy]

I bought a few yesterday cum dividend.  The main thing that attracted me ...

Have you changed your mind on management?  Or, do you think this will govern the share price performance less significantly?

I am still pissed that they stopped divvies when everyone panicked about a flu that went around.

[Basil]

Have you changed your mind on management?  Or, do you think this will govern the share price performance less significantly?

I am still pissed that they stopped divvies when everyone panicked about a flu that went around.

No not really and you are right to be annoyed because they came out of that okay and management still paid themselves very handsomely. The shift to quarterly dividends is the first truly shareholder centric thing I have seen them do in years.  Maybe I am a little bit hopeful that they actually care about looking after shareholders or maybe I am delusional and they still place all other stakeholders including all things ESG on an equal level ?  Time will tell.

I think they will muddle along and I will collect what for me on a 33% tax rate is the equivalent of an 8.5% gross yield.  Those hoping for a meaningful closing of the gap to the theoretical NTA are probably going to be disappointed.  My thesis, (which is not a strong one), is there should be at pretty good chance the current dividend is sustainable going forward and I will simply collect 8.5% gross and they will make a lot of noise about this that and the other, none of which in my opinion is likely to be eps accretive to shareholders.  Maybe with less Covid assistance to tenant's, earnings, dividends and the share price can go up a bit in FY24 ?  Not expecting anything wonderful in terms of capital gains, (if any).  It's simply a yield thing for me in my semi-retirement.
I think you can tell that this is not a high conviction position for me LOL

[Onemootpoint]

Have you changed your mind on management?..........

I had a similar thought. 😆

The fundamentals haven't really changed much (yet) but the minor shift to be more shareholder friendly is welcoming. Perhaps more to come? But the share price has been hanging around the low end for the past 6 months compared to the years prior. Also in line with the general sharemarket sentiment around the world. And with that a reasonably high dividend yield now paid quarterly makes it a bit more attractive as an income providing stock.

[Onemootpoint]

An impressive looking presentation from KPG today.

https://www.kiwiproperty.com/corporate/investor-centre/#our_announcements

(6 Sept 2022)

[Basil]

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/KPG/398429/378590.pdf

Conditional sale of Northlands property for $160m.
Anyone know what the carrying value is as at last balance date.  I had a brief look at the accounts and they don;t make it that obvious.  Maybe in the fine print somewhere ?

[Poet]

Properties held for sale were on Balance sheet at $207m - included Northlands and land sold to Ikea

5 The fair value at 31 March 2021 includes The Plaza, Northlands and 50% of Centre Place North and an adjoining property. The 50% share of Centre Place North and adjoining
property was disposed of as part ofthe Centre Place North Joint Venture transaction referred to above. The Plaza has been reclassified to the other properties asset class above
as it is no longer being actively marketed for sale. The fair value at 31 March 2022 includes Northlands and certain adjoining properties located at Sylvia Park in relation to the
sale of land to IKEA. Northlands is carried at the value determined by external valuation and the IKEA adjoining properties are carried at contract price.

[Basil]

Thanks Poet.  Forgive me, what was the IKEA sale price ?  From very vague memory something in the late $20'sm ?

P.S. Just reviewed 5 news items about the sale and price wasn't mentioned once.

Official news release didn't mention price either
http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/KPG/384028/360912.pdf

As you suggested elsewhere today I think Northlands has been sold at a discount to its currently held value as if it was sold at a profit the news release would have included the usual self-congratulatory back slapping.  That said the discount could be at a lower rate than the share price is to theoretical NTA so maybe some positive reaction when analysts crunch their numbers ?

You have to "love" how opaque they have been about this...

[Poet]

Thanks Poet.  Forgive me, what was the IKEA sale price ?  From very vague memory something in the late $20'sm ?

P.S. Just reviewed 5 news items about the sale and price wasn't mentioned once.

I'm not sure sorry

[Basil]

I think it is fair to say the purchasers of Northlands got a good deal, with an asset that was priced at a very high yield north of 12% (Northlands had $19.1m in operating income in 2019) - in return for the seismic risk inherent with any Christchurch property.

Kiwi took a loss on book value with that sale price - although it looks a lot better with that $23m worth of the unspent seismic insurance payout that they are keeping LEK.

Posted somewhere else.
I struggle to get my head around managements execution of their shift in strategy.  Yeah,  I get what they are trying to do but if in the execution process they're selling quality assets at a 12% yield and reinvesting those funds in their new buildings at somewhere around half that yield It's very dubious this adds value in the medium term.

If in the process of execution, they destroy income like this I wonder if management have lost sight of their real purpose (to maximise income to shareholders).  One wonders if they have ever really known this is their purpose with their endless ESG posturing and extremely regular references to other stakeholders ?

If the cost to execute their strategy remains like this one wonders if in doing deals with other parties to develop Drury, management aren't going to get shareholders "run over" by third parties far smarter than management are ?

I'm in for the 8.5% yield for a while, how long I cannot say because over the long run management have a VERY poor track record of adding value and every other listed property company has outperformed them over the long run.  Maybe "this time its different"...but I heard one expert on CNBC this morning say that phrase is the most dangerous one known to many in terms of potential capital destruction in investment circles.

Time will tell...but I am not adding to my very modest 1.7% position.

[Plata]

I still find it immensely bothersome that they will commit money to BTR on the expectation of ~5% yield when they could buy their own shares back and receive more than that plus NTA accretion. The current discount to NTA is immense, so clearly they expect big valuation uplifts/synergies on their adjacent properties from adding these BTR developments. A buyback would deliver instant low risk gains to both EPS and NTA, compared to these inherently risky development projects with return rates built upon assumptions applying to decades of future operations. Do you trust management to make predictions 10, 20, 30 years into the future?

I had hoped the Northlands sale announcement would lift the share price a bit closer to NTA, but as it seems they are going to throw it all at BTR/Drury I guess that isn't going to happen. Only sticking around for the dividend, even that is tenuous...

[Basil]

Paywalled  https://www.nzherald.co.nz/business/why-would-kiwi-property-sell-northlands-at-papanui-for-87m-less-than-2019-valuation/E6OAYBDRJP3MH6OX6HVYITLT2A/  I think its crystal clear who got the better end of the deal.

My view on the discount to NTA is that its really an illusion and the discount is "apparent" in nature only and realistically not realizable in the current market.
If KPG was to try and liquidate other assets they'd probably get a similar outcome.
Anyone who thinks they can sell their office assets into a new J.V. fund at book value or very close to that in the current market is probably kidding themselves.

Same applies to OCA with many of their assets compromised by lack of adequate return on many of their older care focused facilities giving a woefully inadequate ROI.

At least with KPG you get a decent quarterly return.