KPG - Kiwi Property Group

[BlackPeter]

It's "unfortunately" because I have no desire to up my holding at the current price nor sell it for such a discount. Re the buyback I think about it like this. 1 dollar spent buying and cancelling shares at the current prices entitles you to $1.37 in net property assets that return around $0.082 per year. What property could you and I buy that would return that sort of money? If I knew that I'd be a property mogul by now. I think I did a post on this aaages ago and actually calculated the NTA and dividend accretion that a buyback could achieve. Regardless, KPG has never grown anything over the years despite capital raises, significant inflation in asset values and rents. The way I see it the only way this could occur is people making decisions have underestimated risks and overestimated returns on various investments.

I see it like so:
Borrow money, build something - Hopefully higher returns, investment case built on a wide range of forecasts 10+ years into the future. Predictions are hard, and KPGs performance over the last 20 years suggests they struggle at them.

Borrow money, buyback shares - Highly calculable returns, investment case built on forecasts of company costs, rental yields, asset valuations. Company costs for KPG can be predicted with reasonable accuracy given the simple nature of being a landlord, and with knowledge of all the rental agreements as landlord these can be predicted into the future too.

At this time I see daily the potential return the 2nd option could give, I have not seen any estimated returns for Drury. I feel that if the returns are even remotely comparable, given the risk differences, a buyback is the better choice for KPG. The only time I would say this is not the case, is if Drury is all or nothing. I.E. do drury and commit all liquidity into a hopefully income generating venture, OR buyback to the 5% limit then do nothing with the remaining liquidity because there isn't enough to proceed with Drury etc. They should be putting any spare liquidity (within the appropriate gearing range) into buyback and if there isn't enough for it, selling a property (so long as it isn't at a big discount to book value obviously)

Look, I do know and understand the theoretical case for BuyBacks. It's just in practise it doesn't seem to work that way. While we can find some examples where buybacks did (at least temporarily) lift the SP, there are various spectacular examples where Buybacks have been the last straw for the SP to tank. The outcomes of BuyBacks tend to be all over the place, and I have not seen any evidence yet that buybacks have regularly a positive outcome for shareholders (well, they have not).

I suppose this has something to do with nobody being able to predict the future, it is a prestige thing (hey this super board used other peoples money to support their share price and egos) and it has as well something to do with a huge hype component in ALL share prices (which just can't be predicted).

Personally I prefer if directors and management focus on the original purpose of their business and keep that growing and improving instead of diving into the world of smoke and mirrors, pretending to know when their share is undervalued (lots face it, they have not more clues than anybody else) and they can't see the future either.

Re Dury ... I do see this as a huge opportunity for KPG, and it is one of these things where you can't go in half-a*sed. Either they go in with all they've got and they can create the environment they think they need, or they are just one of many real estate brokers hoping for things working out to their advantage. If they do the latter, then, no doubt, somebody else will take the cream.

I prefer a company which is kicking (and using the appropriate amount of resources) instead of just spitting.

[Plata]

I don't care about it lifting the SP, although it would be nice. I want it to lift the dividend. And anyone can predict the future, its just that it is hard to do so accurately. Predicting your own company costs, rents and to some extent property valuations as a landlord is probably some of the easier predictions one can make.

[BlackPeter]

I don't care about it lifting the SP, although it would be nice. I want it to lift the dividend.
...

I think this is one of these "have your cake and eat it too" exercises. Often tried, but never achieved.

Have a think about it. A buyback is only a good idea if the board knows that the shares will be in future more worth than they are now. Now - directors are only humans, so they don't know. An analysis of past Buybacks will demonstrate that to you.

If it doesn't - there is an easy solution ... if you do know that the shares will be more worth in future, than buy all the shares you can get and reap the benefits. No need to share them with fellow shareholders.

...
And anyone can predict the future, its just that it is hard to do so accurately. Predicting your own company costs, rents and to some extent property valuations as a landlord is probably some of the easier predictions one can make.

Correct - everybody can predict the future. My bad. What I obviously meant is while everybody can make predictions, nobody is able to get a statistically relevant sample of correct predictions.
 
Oh dear - and predicting property valuations easy as landlord? I invite you to find out which landlord (or analyst) predicted correctly the real estate price development over the last say 3 decades without the benefit of hindsight.

Similar related to costs ... Who would have predicted only two decades ago what GFC, later Covid and subsequent negative interest rates do to the money supply and to the development of wages and building costs?

Why would you think that the future development will be any less erratic than the past?

Better let them do their job running a property business ... we do need a good board, not another set of useless future tellers.

[Plata]

Eh. I guess it depends what you think the purpose of a buyback is. What do you think is harder? Forecasting KPG operating costs, income and asset valuations with no development vs forecasting the development costs, income + opex + valuation after completion of Drury. I know what I am picking.

[KW]

You can't say that this is a general REIT problem, as the Aussie ones have almost closed the NTA discount gap in the last couple of months.  I'm up 21.6% on my SCG (Westfield) holding since December, in addition to the 5.5% dividend.  Currently trading at a 4.6% discount to NTA now.  The well managed REITS are roaring back, and the one's that havent are probably not well managed or hold low quality assets. 

[Plata]

You can't say that this is a general REIT problem, as the Aussie ones have almost closed the NTA discount gap in the last couple of months.  I'm up 21.6% on my SCG (Westfield) holding since December, in addition to the 5.5% dividend.  Currently trading at a 4.6% discount to NTA now.  The well managed REITS are roaring back, and the one's that havent are probably not well managed or hold low quality assets.

PFI also springs to mind. Admittedly industrial property is more in vogue than retail/mixed use.

[Waltzing]

GMT has liftt back also... ARG stayed at its average long run price levels... forming a base.

NZ comp props are refelecting the economy ? subdued?

 

[Shareguy]

The Auckland rental market is hot at the moment. Lots of recent immigrants looking for rentals. Several units at Sylvia park on Trade Me for rent. I sent them a enquiry four days ago about one of the units.  They must be really busy as have had no response. Good for them.

2 bedroom units from $890 and 1 BRM at $695. A lot for a shoe box without a car park. Gosh these immigrants must have plenty of money. Will have to review our own rental prices I guess.

With all the insider buying and large discount to NTA will have to look at adding this to my portfolio.

[Basil]

The Auckland rental market is hot at the moment. Lots of recent immigrants looking for rentals. Several units at Sylvia park on Trade Me for rent. I sent them a enquiry four days ago about one of the units.  They must be really busy as have had no response. Good for them.

2 bedroom units from $890 and 1 BRM at $695. A lot for a shoe box without a car park. Gosh these immigrants must have plenty of money. Will have to review our own rental prices I guess.

With all the insider buying and large discount to NTA will have to look at adding this to my portfolio.

Is there any clarity yet on whether their FY24 dividend is sustainable going forward ?  I guess we have to wait for commentary with the annual result.
I think they will have their work cut out for them selling super lots of land at Drury to developers.  Not many developers walking around with tens of millions in their bank account at present.

[winner (n)]

As a matter of interest what was the $200m cap raise a few years ago for

Maybe another one due?

[LaserEyeKiwi]

The Auckland rental market is hot at the moment. Lots of recent immigrants looking for rentals. Several units at Sylvia park on Trade Me for rent. I sent them a enquiry four days ago about one of the units.  They must be really busy as have had no response. Good for them.

2 bedroom units from $890 and 1 BRM at $695. A lot for a shoe box without a car park. Gosh these immigrants must have plenty of money. Will have to review our own rental prices I guess.

With all the insider buying and large discount to NTA will have to look at adding this to my portfolio.

Had a look on site a few weeks ago, looks good.

I don't doubt they are priced above normal market rates, given all the extras you get. And they aren't shoeboxes, the smallest one bedroom unit is 50sqm + balcony - see image below - carpark is an extra $40 option. (Even the studio apartments are bigger than my first 1 bedroom apartment)

Extras you get over a normal apartment:
- Pre-furnished
- unlimited tenancy length (probably worth the most in extra rent premium to many)
- pets ok
- authority to redecorate as desired
- on-site 24 hour staffing
- numerous large shared facilities, including roof top BBQ decks, Gym, the large pavilion lounge/co-working space/screening room.
- literally steps away from the largest shopping mall in the country (admittedly can be a pro or a con depending on individual tastes)
 
KPG expect it will take 12 months+ to fully tenant BTR 1.
 
1 bedroom layout:

[LaserEyeKiwi]

Is there any clarity yet on whether their FY24 dividend is sustainable going forward ?  I guess we have to wait for commentary with the annual result.
I think they will have their work cut out for them selling super lots of land at Drury to developers.  Not many developers walking around with tens of millions in their bank account at present.

They have said on more than one occasion that it's sustainable - what reason is there that it wouldn't be absent a major event? There operating income is increasing on like for like basis and operating cashflow is more than enough to cover dividend payments.   

And if they end up selling Vero centre? That could be very interesting for capital return possibilities.

[LaserEyeKiwi]

As a matter of interest what was the $200m cap raise a few years ago for

Maybe another one due?

Why? They have no active capital projects now, just some earthworks to be completed at Drury. No need for any large cash injection. They even let go their executive of development recently as he was surplus to requirements (literally nothing for him to do). They also have numerous "capital recycling" attempts under way, and they are significantly below their gearing ratio covenants.

[Habitz]

Am impressed by the floor plan, good size not pokey. Is all the furniture included

[Shareguy]

Had a look on site a few weeks ago, looks good.

I don't doubt they are priced above normal market rates, given all the extras you get. And they aren't shoeboxes, the smallest one bedroom unit is 50sqm + balcony - see image below - carpark is an extra $40 option. (Even the studio apartments are bigger than my first 1 bedroom apartment)

Extras you get over a normal apartment:
- Pre-furnished
- unlimited tenancy length (probably worth the most in extra rent premium to many)
- pets ok
- authority to redecorate as desired
- on-site 24 hour staffing
- numerous large shared facilities, including roof top BBQ decks, Gym, the large pavilion lounge/co-working space/screening room.
- literally steps away from the largest shopping mall in the country (admittedly can be a pro or a con depending on individual tastes)
 
KPG expect it will take 12 months+ to fully tenant BTR 1.
 
1 bedroom layout:

The rental market in Auckland is very hot at the moment so they should all be rented quickly.  Rents are rising and are taking up greater proportions of income. But there is limits,even in this market. The property is in a great location with transport, shopping and dinning at their doorstep.

We have lots of immigrants looking for accomodation currently but my experience is they are looking for larger properties to house family either now or down the track. A lot of these people are here for construction , trucking or healthcare related jobs in my experience. They are not bringing lots of money over, and can not afford high rental prices unless they have lots of working people in the dwelling.

I have been a property manager for a long time and my experience is that most tenants don't want to sign long leases. The most we could get is 2 years. The exceptions to this have been tenants that we did not want with bad credit or rental history. Under the residential tenancies act if the lease is over five years you are exempt from the Act provisions. People's situations change and they don't want to be locked in. What they really want is for the landlord to be locked in but tenants can leave when they want and importantly without penalty. I fail to see people paying a premium for something they don't want.


But hey they have already rented 12 percent to a company that offers short term rentals.  I'm surprised after stating early on how much demand there was and stating the advantages of having a community of long term renters to then go and lease 12 percent to what will be short term tenancies.  I would not be surprised to see this increased, especially if they have issues filling up the building.

Would be interesting to see what's in the lease and how many sign up for longer than a year. I wish them luck.