Macquarie moves worry analysts

Analysts have complained that Australia's Macquarie Goodman Group is offloading its development properties in New Zealand at the peak of the market and keeping lucrative development profits.

Stephen Freundlich, associate analyst at UBS Investment Research, had an issue with the timing of the property sales by the Australian group to New Zealand's Macquarie Goodman Property Trust.

"Given that New Zealand's property market fundamentals are in their best shape of the past 10 years, one could feel that Macquarie Goodman Group looks to be pushing these assets into the trust at the peak of the cycle," Freundlich wrote in a report.

"If the current yields turn out to be aggressive, this could have implications for the trust later on."

Last week, the Australian group said it would sell properties worth $200 million to the New Zealand trust.

That trust goes to unit-holders this month, seeking approval for a $318.2 million real estate deal, buying some industrial and commercial properties around Auckland but the bulk from the Australian group.

Citigroup research analyst Blair Cooper predicted little earnings improvement for unit-holders and noted the Australians were keeping development profits to themselves.

Both raised issues with the New Zealand trust's dealings with the trust's related party - the Australian group which manages the trust and owns a 30 per cent stake worth around $200 million.

Freundlich said the trust's portfolio, which will stand at $1 billion after the deal, could also be exposed to more leasing risk. The group had given rental guarantees on some of the properties it was selling to the trust and, when these expired, re-tenanting could be an issue.

The trust's corporate governance overhaul, also announced at the time of the purchases, would not necessarily add more value. But Freundlich praised any attempts to improve governance and transparency.

The group said it would sell New Zealand property assets worth $200 million to the trust and a further $118.2 million from other entities.

Many of the $200 million properties had either just been finished or were about to be completed, meaning the lucrative development margins would flow to the Australian group, not the New Zealand trust and its unit-holders.

Cooper also had misgivings, saying any earnings improvement from the deal was minimal and the Australian group was getting development margins which the New Zealand trust was missing out on.

The trust would also need extra equity to pursue further development which would suppress the growth of its earnings to investors.

But both analysts found good points about the deal, saying it put the trust in the Top-25 index, increasing its likelihood of its inclusion in global index benchmarks.

David van Aanholt, Macquarie Goodman's chief operating officer from Australia, and John Dakin, chief executive of the trust's manager Macquarie Goodman NZ, said the group was not depriving unit-holders in New Zealand of big development margins and there were no problems with the deals being predominantly related-party transactions.

"These are valid questions to raise and something we're conscious of," Van Aanholt said.

But they said the only reason the issues were a concern was because of the extremely poor record of other listed property trusts and companies.

The Australian group had made development margins of about $8 million on the properties it was selling to the trust, Van Aanholt said, and stood to make a further $100 million as margins on the Highbrook Business Park, which it will develop in the next decade.

Many of these Highbrook buildings will then be on-sold to the trust.

Dakin said those who questioned the deals should remember the trust was established to be low risk and it did not have the capacity to take on large developments.

Instead, it owed a duty to its 6000 retail unit-holders to make stable quarterly distributions.

THE PLAYERS

New Zealand's Macquarie Goodman Property Trust
Formerly Colonial First State Property Trust.

* Established three years ago as an investor with minor development.

* Biggest investor is Australia's Macquarie Goodman Group.

* NZX listed.

Australia's Macquarie Goodman Group

* Bought Colonial's management in December 2003.

* World's second largest industrial landlord, behind ProLogis of the US.

* Holds a 30 per cent stake in the trustworth $200 million.

* Has A$26 billion assets under management.

* ASX listed.