Park proves to be far from a picnic

Sean Wareing

Parks can be risky places to visit, but New Zealand's largest listed property trust reckons the one it is building in Mt Wellington will be a corker.

Although coverage of Friday's extraordinary meeting of Kiwi Income Property Trust focused on a corporate governance revolution, most of the meeting, which ran just shy of two hours, was spent discussing Kiwi's large shopping centre project, Sylvia Park, at Mt Wellington.

The management used the meeting as an opportunity to turn deep-seated criticisms of its actions into an opportunity to boast of its success.

Australian Sean Wareing, chairman of Kiwi's manager, and Angus McNaughton, the manager's chief executive, spoke at length about how wonderful Sylvia Park would be.

Wareing tackled criticism head-on and raised the six most contentious issues levelled at the manager:

* Allegations that unit holder approval was needed before embarking on the project because it was an essential change to the business and at $530 million, would be worth more than half the trust's market capitalisation. Wareing said trustee Phillip Dyer, of NZ Permanent Trustees, took legal advice about this and he and the trust were "satisfied" it was empowered to proceed.

* Strong unit holder dissent against the project. Wareing said only a "small number" of the 12,000 unit holders had voiced objections. The project would enhance the portfolio.

* Allegations that the trust had misled investors, saying it had sought joint-venture partners, that the project was too big for the trust's balance sheet and then going ahead without a partner and holding the project on its balance sheet. But Wareing said the trust was nearly 50 per cent larger than in 2001 when the first statements were made. This gave it the ability to finance and manage such a large project.

* Criticism that the trust was taking on too much development risk and changing its role from being an income vehicle to a developer. Wareing said the trust "must move forward or by default will fall backwards", that the project had been "de-risked" when the land was bought, resource consent granted, tenants pre-committed and the construction timetable was running on schedule.

* The project's yield was too low and would depress unit holder distributions. Wareing said the 7 per cent initial yield was low but long-term returns would be better. A focus solely on the initial yield was "somewhat simplistic" and investors should instead concentrate on rental growth forecasts.

* The project was too big for the trust. Wareing said risk mitigation and good management and leasing would offset any initial negative effects and the park would set a new benchmark.

Despite an 18-page presentation from Wareing and extensive park update from McNaughton, the chairman still tried to cut short Brook Asset Management principal Simon Botherway.

But Wareing was even more offended by remarks from Brook's Paul Glass who criticised the trust for changing tack, saying the manager should have "come clean" earlier this year about its failure to find a partner; investors had been misled; people still had grave concerns about the trust; and that unit holders should be allowed to vote for independent directors.

Glass also criticised Dyer, saying negotiations with him had been "a real struggle" and that just before the meeting, assurances had been given that an independent chairman would head the meeting but Wareing had carried on chairing it instead. Botherway and Glass said they had problems getting Dyer to return calls or emails.

Wareing responded hotly, saying he was indeed an independent chairman, the call to come clean "added insult to injury" and he strongly resented the criticism.

"He is the first person in my entire career to question my integrity and I'm scandalised that you talk about coming clean," Wareing told the meeting. "I don't mislead anyone, sir. I don't need to come clean."

The exchange illustrated the divide between the parties and why it took so many months for the meeting to be held.

In the midst of the standoff earlier this year, ING chief investment officer Rebecca Thomas brokered a peace accord between the parties. But even the straight-talking international lawyer, analyst and fund manager said it was not easy.

Botherway expressed frustration about responses from Dyer and Kiwi's lawyers.

"It was tempting to belittle and dismiss matters and put them down to one or two individuals," Botherway told the meeting. But so many parties were concerned about the manager's conduct that they shouldered the financial burden of the challenge.

After the meeting, Botherway said that although it was a victory, he was still not entirely satisfied.

"The substantive issues we raised remain unanswered from our point of view," he said.