Richard Inder: Behaviour needs changing too

Sean Wareing, chairman of the Kiwi Income Property Trust's manager, was less than gracious as unit holders yesterday voted in a new governance regime for New Zealand's largest listed property company.

Indeed, his behaviour only reinforced the necessity of the landmark changes, which make a start on aligning Kiwi Income Property Trust's governance with those of most other listed companies.

Wareing began the special meeting in Ellerslie with a seven-page, often bilious address, to unit holders, much of which was devoted to the manager's perspective of the later carried proposals. He then asked for questions and comment from the floor.

After this he tried to block Brook Asset Management's Simon Botherway - the driving force behind the powerful investor coalition that had forced the special meeting on the manager - from putting his side of the story.

"Please tailor your comments to the resolution," Wareing sniffed.

Botherway deserved to be heard. The resolutions cut the threshold for unit holders to requisition meetings from 10 per cent to 5 per cent, laid out clear time limits for convening meetings and made it easier for unit holders to put matters up for discussion. Most investors would find such provisions reasonable. In many cases, they would be surprised they were not part of the trust deed.

Unit holders only requisitioned the meeting because the manager, Kiwi Income Properties, had demonstrated undue sensitivity to criticism when it refused to allow motions to be put to the trust's September annual meeting.

Finally, the manager was dragged kicking and screaming to the meeting by a coalition of professional investors, who owned 22 per cent of the trust's units.

And then only after a flurry of expensive legal exchange and public spats between investors and the manager. The trust's ultimate owner, the Commonwealth Bank of Australia, yesterday said it would support the resolutions.

But Wareing's poor form did not end there. Investors' discontent with the manager - and their determination to push through improvements to the trust's governance - has its roots in the latter's mixed messages over the huge Sylvia Park development in south Auckland.

The facts are not in dispute.

Between 2001 and this year, the trust's manager went from insisting the development would not be carried on the trust's balance sheet to disclosing it would take on the entire development and the attendant risks itself.

Wareing yesterday did not resile from those statements, saying they were true at the time. And then he started to deconstruct the concept of property development risk, declaring: "The board does not accept the global use of the term development risk."

Development was a necessary part of any property company and Sylvia Park was such an opportunity that it had to be taken, even though it would weigh on unit holder distributions.

Most investors do not disagree with those statements. However, they want to buy something in the certain knowledge that what is in the tin is the same thing that is written on the label.

Kiwi has arguably not delivered this. As Brook Asset Management's Paul Glass noted, the trust is called Kiwi Income Property Trust.

Wareing's protests seem to suggest the manager still may not have fully grasped this point.

If a presentation yesterday by the manager's chief executive, Angus McNaughton, is to be believed, the Sylvia Park project offers real potential.

Meanwhile, property and the trust need a level of reinvestment (read development) to maintain their value. The important question, however, is what level? On this score, the manager still has given no real comfort other than promising to publish a statement about investment and management philosophy. It is long overdue.