KPG - Kiwi Property Group

[snapiti]

no sure how credible KPG 2.4% loss in NTA for the 6 months, but I suppose that is why they trade at a large discount already

[winner (n)]

no sure how credible KPG 2.4% loss in NTA for the 6 months, but I suppose that is why they trade at a large discount already

NTA down to $1.18 .....was $1.45 only 18 months ago

[Waltzing]

Articles that house prices are heating up again...

DISC: slightly political statement follows:
change of govt looking very likely now and even with a chaotic centre right they are all going to want to get the market moving again... looks like the country no longer wants the LABOURED LEFT... it wants to get rich after all...

all that Hokie Dokie Wonkie stuff has gone out the door .... money talks...

China green what evere there name is cant offer any more bonds to sell....

Is this china thing going to cause trouble in little china?

That will hit the NZ export market for sure if it does... and that will effect balance trade... economic slow down now predicted to last ... the rest of the decade?

SH....t

what does a CEO do to get back in  the black... cut baby cut... and is that what the Nats really have planned but they dont want to tell you...

Could Luxon actually be a smiling killer after all ?

taking bets...

could government departments about to enter  a new phase in there life cycle... a cut to ribbons cycle..

 

[BlackPeter]

Articles that house prices are heating up again...

DISC: slightly political statement follows:
change of govt looking very likely now and even with a chaotic centre right they are all going to want to get the market moving again... looks like the country no longer wants the LABOURED LEFT... it wants to get rich after all...

all that Hokie Dokie Wonkie stuff has gone out the door .... money talks...

China green what evere there name is cant offer any more bonds to sell....

Is this china thing going to cause trouble in little china?

That will hit the NZ export market for sure if it does... and that will effect balance trade... economic slow down now predicted to last ... the rest of the decade?

SH....t

what does a CEO do to get back in  the black... cut baby cut... and is that what the Nats really have planned but they dont want to tell you...

Could Luxon actually be a smiling killer after all ?

taking bets...

could government departments about to enter  a new phase in there life cycle... a cut to ribbons cycle..

 

You are right - we are getting political and better should discuss this on the political thread. Having said that, I think there is a strong likelihood for austerity policies to reign if a coalition of ACT and National runs the show for the coming three years. We don't need to look further than the UK to see what the outcomes will be - well ... austerity! Rich getting richer, poor people getting poorer and the economy is lingering at best and strangled at worst.

Back to KPG - I would not see this scenario (austerity policies) as particularly positive for any of our property funds. Austerity would most likely end up in stagflation and reduced economic activity and I can't see how this would be good for any property fund.

Ah yes, maybe we can keep ACT out of the picture, but still - I am pretty sure we will get a change, but whether its a change for the better, we will see.

[LaserEyeKiwi]

Not too fussed about election outcome. By far the biggest impact on Listed Property entities will be interest rates, which will be determined by inflation of course, which is mostly out of the hands of NZ politicians and driven by international macro forces.     

Inflation slowly retreating globally, which means at some point in the not too distant future we will see interest rates start to retreat and cap rates for property sector improve, maybe late 2024, probably 2025.

KPG specific: was encouraged by their update yesterday which mentioned strong rental income growth. With their "Mixed use" assets holding value now (valuation down just 1% over 6 months), while their shrinking pool of office assets revaluation driving the bulk of fall.   

[Waltzing]

LEk... thanks for that update ...

[LaserEyeKiwi]

Interesting seeing how the listed property companies have performed this year.

The operational fundamentals:

Interest costs: Have of course gone higher on any new debt rolling over, new issuance etc. Will remain high during high inflation/interest rate environment (Obviously). Will fall as inflation/interest rate lowers.

Rental revenue: Significant Increases. Unlikely to decrease in future, rather will continue yearly increases.

Occupancy: Occupancy rates have remained high, 99%+ - no sign of any danger here yet anywhere, despite the WFH trend for office market.

Cashflow: companies have restarted Dividend Reinvestment Plans, increasing cash on hand (with the downside of share count increase / dilution). Some companies have sold / attempted to sell off surplus assets to decrease debt and/or provide cheaper funding for development projects.

==========

Non-operational factors:

Portfolio valuations: Have fallen significantly, despite the assets earning more rental revenue, and no increase in vacancies. Cap rates used in valuations the reason.

Share prices: Continue to trade well below even the significantly reduced net asset values.

Yields: have increased, as dividends that have remained static or slightly increased amid share price falls. (However bank term deposit interest rates sitting at 6% now have made some of the skimpier yields from some listed property names look rather pathetic)     
     

[snapiti]

KPG testing the lows......is anyone surprised given the likelihood that commercial property investors profits are on the chopping board to pay for all the sweeties the politicians are promising....sentiment swing from interest rates have peaked to look out they are going higher seems to be weighing somewhat.....happy to step in here and start to bank a few

[Basil]

No hurry I reckon, could easily have a share price with a 7 in front in due course in my opinion.

[snapiti]

No hurry I reckon, could easily have a share price with a 7 in front in due course in my opinion.

tend to agree Mr Beagle but happy to "start" to bank a few @ 82cps and below........pure divi play.....given the companies history only a fool would back them to produce capital gains

[Buzz]

tend to agree Mr Beagle but happy to "start" to bank a few @ 82cps and below........pure divi play.....given the companies history only a fool would back them to produce capital gains

Yeah, a nice gross div% and getting better with each SP bashing. $0.74 was the Covid low, with $1.70 not too long before that. Right here $0.82 is the double bottom from recent malaise. I have a plan to at least double my current holding for a long hold, and the window has opened to do that, $0.7's would be a gift imo. Happy to average in. A quick TA note, KPG very rarely has a low RSI on the chart and it's there now, it never lasts very long, literally only a few days, only the Covid low lasted a month. History apparently is the best indicator of the future. I won't be mucking around getting my top-up fill, even if I miss out on a few cents lower, but I'll be averaging in to minimise the risk of future returns.

[Basil]

Yeap, fair enough guys, appreciate your thoughts.  If they can maintain 5.7 cps, (not sure that's a given with the loss of depreciation claim from FY25), that's 5.7 / 82 = 6.95% net PIE yield, worth 10.37% gross (10.58% gross effective yield with 2% discount of DRP) for 33% taxpayers and those poor unfortunates paying the top envy tax rate of 39% its worth 11.39% (11.62% gross with DRP).

[Buzz]

Yeap, fair enough guys, appreciate your thoughts.  If they can maintain 5.7 cps, (not sure that's a given with the loss of depreciation claim from FY25), that's 5.7 / 82 = 6.95% net PIE yield, worth 10.37% gross (10.58% gross effective yield with 2% discount of DRP) for 33% taxpayers and those poor unfortunates paying the top envy tax rate of 39% its worth 11.39% (11.62% gross with DRP).

Cheers, I'd not thought of myself as poor or unfortunate, but annoyingly a 39% taxpayer, so those gross % returns are pretty enticing.

Agree, no guarantee the div is sustainable but, you know, KPG is a story of two halves, one side is the 98% occupancy leveraging existing assets that drives the sustainable cashflows -> profit and dividends. The other is the development business.

I see people confusing these and worrying about the former, though I think that's rock solid. It's the later than gives pause for thought, that's where the risk is .. if they win, they win oh so big, but if not it just doesn't work out, but it doesn't kill the former.

These are complex companies with heaps of moving parts, but for me at least I like to differentiate between the sustainable leverage on assets which is paying out to investors, vs the longer term development ambitions which imo for KPG are well thought out and they have the ability to execute on it, exciting and adds some spice to long term investment.

Things like Costco buying the property at Drury, just one example of how serious the potential is on the development side.

Meanwhile I'm enjoying a regular above average income and recycling all of it back into more equity. Well, that's the plan until I need the income for cashflow. So far it's working out pretty well, better than money in the bank, though I have accumulated a lot of that (relatively) as well and need to find a better place to put it.

[snapiti]

Yeap, fair enough guys, appreciate your thoughts.  If they can maintain 5.7 cps, (not sure that's a given with the loss of depreciation claim from FY25), that's 5.7 / 82 = 6.95% net PIE yield, worth 10.37% gross (10.58% gross effective yield with 2% discount of DRP) for 33% taxpayers and those poor unfortunates paying the top envy tax rate of 39% its worth 11.39% (11.62% gross with DRP).

I don't believe they can maintain the current dividend, with loss of depreciation claim it will instantly undermine the current dividend payout......hence awaiting a SP correction to align with payout going forward.......82cps is the top end of what I see is fair value....happy to pay less

[Basil]

These are complex companies with heaps of moving parts, but for me at least I like to differentiate between the sustainable leverage on assets which is paying out to investors, vs the longer term development ambitions which imo for KPG are well thought out and they have the ability to execute on it, exciting and adds some spice to long term investment Buzz.

Good post but I have real concerns about whether they can execute their future development plans in a value accretive way.  There is no evidence to date that any development work they have done in the past is either eps or NTA accretive and compounding that when you start selling assets like they did last year at up to a 12% yield to develop rent to build at a 5% yield in the current yield environment with the cost of capital where it currently sits, this makes no sense to me in fact you'd be forgiven for wondering if the board have lost the plot or has no vision other than to provide new buildings that benefit other people than shareholders.  You can definitely put me in the camp of I'll believe their current development program is value accretive when I see it.  To me it's a yield story and it ends there and anyone hoping this will deliver capital gains over the long term might like to consider their share price performance over the last 25 years, especially relative to other property classes.

Disc: I have recently reduced to a "nursery" sized portfolio position, < 1% and will reevaluate in due course.  I am not sure the inexorable march higher in interest rates is done yet by any means and interest rate sensitive stocks trading primarily for their yield face further possible downside pressure from higher rates, especially if there's a dividend cut.