KPG - Kiwi Property Group

[Basil]

So.... the new build to rent is worth $200m, not a huge part of the business and obviously the market has been disappointed with the effective yield which has been reported as low as 3.5% by one source.

The share price has come back a fair way from $1.14 to $1.02 and I note the consensus view of brokers is a price target of $1.12.  I also note that asset back could be boosted by about 6 cps, see post #364 above taking it to $1.18 before any other revaluations the valuers put through with their revised valuation on 31 March 2026, only a few months away.  https://www.marketscreener.com/quote/stock/KIWI-PROPERTY-GROUP-LIMIT-19354941/finances/

Consensus is for dividends to grow 2-3% per annum over the next few years.  At $1.02 its giving a net forecast after tax yield of 5.6% worth ~ 8.4% gross to 33% taxpayers and 9.2% to those including trusts paying 39%.  Maybe the correction is a bit overdone and with the gross yields now being very attractive indeed and the prospects for share price growth in 2026 looking decent, opportunity knocks for those not already well positioned ?
 

[Shareguy]

Yes it seems good value or is it a dividend trap.

Although they have rented out Resido, the rents achieved are much lower than what was expected. You also have a rental market in Auckland that is getting worse with a big over supply. Simplicity have a huge competing offering just down the road that will be a future drag on rents and the return is simply not there.

https://simplicity.kiwi/learn/updates/simplicity-livings-biggest-project-yet

Jarden analyst Arie Dekker notes that Resido cost $240 million to build and that its value at Sept 30 had dropped to $200 million "and the initial yield on cost looks like it is going to be in the order of just 3.5%."

Dekker is the least optimistic of the five analysts with a 12-month target of just $1.02.

What in essence KPG have been doing is selling higher yielding assets which are going to be eps dilutive unless Drury and other assets performs.

They have elevated gearing and the plaza sale according to FB is 4 percent of the portfolio but 8 percent of AFFO.

I only have a small position. At a $1 I see little risk but I'm not buying.

[Basil]

Thanks Shareguy.  I agree the build to rent has not been a success, (pretending otherwise is irrational), and is possibly a victim of initially being planned when the market was very different. Worth keeping it in its proper context though, remembering its only 6% of their assets.

Probably a silly way of looking at it but this is how I look at it nonetheless. I look on my holding as the equivalent of owning a rental property.  I'm getting 5.6% net return after tax with no work whatsoever and buying at ~ 25% discount to NTA when I was buying in the mid 80 cent range .  I reckon I'd struggle to get half that net return after tax for an actual rental property and then there's all the hassles and work that goes with it and all the risk of a single tenant damaging the property and / or not paying the rent.  I also love the structure of it being a PIE.  Paying tax at 28% instead of 39%, floats my boat too.  In terms of cash flow I reckon I get the equivalent after tax of owning nearly two rental properties but only have the capital tied up of one.  I shudder at the thought of all the work involved with tenants owning 2 rental properties.  Life is too short for that many drama's.  Same deal with my holding in ARG but the discount to NTA was about 30% based on my average purchase price.  Worth noting that rents for ARG and KPG are going up each year whereas for rental properties they're going down.

I'd buy more KPG and ARG at this level if I wasn't already pretty much fully invested..

[Plata]

I recall when they initially proposed Resido there was some concerns raised around overly optimistic rental appraisals. Yield of 3.5% on residential property is pretty poor but on apartments it is abysmal. Regardless, I think this will bounce off 1 buck and get closer to $1.1 in the next few months.

[Buzz]

I recall when they initially proposed Resido there was some concerns raised around overly optimistic rental appraisals. Yield of 3.5% on residential property is pretty poor but on apartments it is abysmal. Regardless, I think this will bounce off 1 buck and get closer to $1.1 in the next few months.

I agree, the rental property prices, and frankly all property is bouncing around like crazy, with no consistency countrywide. I can only see a brighter future and as rentals roll over, yields will improve. That said, I have no problem with a yield around bank TD deposit rates at the moment, or whether the SP does a bump from here. Reliable consistent returns are just fine with me, esp paid quarterly, and I have a sizeable relative portfolio allocation to back that conviction.

[Buzz]

Interesting, KPG bounced twice now off the daily 200EMA, RSI bottomed and perked up. Maybe the selling pressure is done?

Great to see the news today, KPG just getting it done, working the strategy. I'm impressed with how decisive, effective and committed this management is and getting their gearing ratio into an easily manageable range. https://www.nzx.com/announcements/464919 ... and today we learnt that ACC are probably behind a chunk of the volume selloff, dropping 10.8m shares into the market, but still a substantial holder at 9.5% https://api.nzx.com/public/announcement/464993/attachment/459462/464993-459462.pdf

[Arbroath]

I think the talk that Resido is only yielding 3.5% is misguided.

At 31 March 2025 for the 6 months they only had $1.3m of net income and for the 6 months to 30 September that had risen to $3.6m. They told us it was 81% rented in August and it's now up to 99% but there will be timing lags with the rent roll growing. My guess is the net rental to 31 March 2026 will be closer to $4.5-5m. Still not amazing but not as bad as is being suggested. Probably around a 4.5% yield.

[LaserEyeKiwi]

I think the talk that Resido is only yielding 3.5% is misguided.

At 31 March 2025 for the 6 months they only had $1.3m of net income and for the 6 months to 30 September that had risen to $3.6m. They told us it was 81% rented in August and it's now up to 99% but there will be timing lags with the rent roll growing. My guess is the net rental to 31 March 2026 will be closer to $4.5-5m. Still not amazing but not as bad as is being suggested. Probably around a 4.5% yield.

The calculation is also quite different if you are using the construction cost vs the current valuation.

[LaserEyeKiwi]

Kiwi Property agrees sale of ASB North Wharf
27/01/2026, 10:15 NZDT, GENERAL
Following the extension of the lease to ASB for ASB North Wharf, Kiwi Property has now entered into an agreement to sell ASB North Wharf in Auckland's Wynyard Quarter to the Precinct Pacific Investment Limited Partnership for $205 million, representing a 3.3% discount to the September 2025 book value. As part of the transaction, Kiwi Property will complete approximately $2.2 million in remaining capital works at the property, with the purchaser assuming responsibility for additional capital expenditure associated with the extension of the lease to ASB.
 
 The extension of this lease to 2040 last year helped to position the asset for a successful transaction. The sale delivers a property IRR from inception of 10.1%.
 
 The sales of Sylvia Park Lifestyle (which remains conditional) [Note 1], The Plaza in Palmerston North (which completed in December 2025) and ASB North Wharf will reduce Kiwi Property's pro forma gearing to 30.9%, based on September 2025 figures. The sales present an opportunity for reinvestment into further growth initiatives, including potential acquisitions and development at our key mixed-use assets.
 
 Kiwi Property CEO, Clive Mackenzie, said: "The sale of ASB North Wharf is a significant milestone for our capital recycling programme and is the third property transaction we have agreed in the last three months. Our balance sheet is now strongly positioned to support growth, aligning with a property market that is showing clear signs of recovery."
 
 Completion of the sale of ASB North Wharf is subject to the consent of the Overseas Investment Office, with settlement expected in the first half of 2026.
 
 Notes:
 1: Capital released from the Sylvia Park Lifestyle transaction assumes Kiwi Property acquires a 50% stake in the Mackersy LFR Fund as part consideration for the sale of Sylvia Park Lifestyle and provides an additional 25% equity underwrite on establishment.

[Basil]

That certainly solves any perception that the gearing is too high. 

[LaserEyeKiwi]

Bit of a minor narrative shift now.

They haven't completed their goal of transitioning to only mixed-use assets in Auckland/Hamilton yet, but they have sold enough of the standalone retail and office assets that now they are in a transition phase where they have sold down considerable income generating assets, reduced debt, and now have ample funding to proceed with the large scale development work at Drury & Sylvia Park while remaining well within the debt covenants.

The management cost ratio vs net rental income is going to spike a bit higher though for the next few years.

Wondering if they might offer to buy the other 50% of The Base off of Tainui.

[Basil]

https://www.marketscreener.com/quote/stock/KIWI-PROPERTY-GROUP-LIMIT-19354941/consensus/

Average target price $1.12 and average rating of 4 analysts is outperform.  Gosh its very cheap buying at $1.01.

[LaserEyeKiwi]

https://www.marketscreener.com/quote/stock/KIWI-PROPERTY-GROUP-LIMIT-19354941/consensus/

Average target price $1.12 and average rating of 4 analysts is outperform.  Gosh its very cheap buying at $1.01.

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Dividend yield getting back to a level I might even consider adding more to my position again.

[entrep]

I have been buying at 99cents. Back in fully now

[Basil]

It seems all the REITS in N.Z. peaked in October 25.  Drops from the peak are SPG 20%, PCT 18%, GMT 17%, VHP 17%, PFI 16%, ARG 15% KPG 15%.

The extent of these falls seems like a lot to me.  Going off the new Reserve Bank Governors tone last week, I think interest rates could stay lower for longer.