Investors to vote on giving Kiwi more rope

Unit holders in listed real estate vehicle Kiwi Income Property Trust today decide on a measure which would allow it to increase its debt by $179 million and borrow up to $440 million.

Kiwi chief executive Angus McNaughton said yesterday that the trust had $261 million borrowed by September 30 but owned more than $1.1 billion of property assets.

Unit holders will vote on a proposal to allow the trust to increase its gearing capacity to 40 per cent.

The trust had a debt-to-equity ratio of 24 per cent in September and has the ability to increase that borrowing only up to 35 per cent.

Now, it has big plans on at least three fronts but needs more capital to fulfil those plans.

McNaughton said based on the assets held now, a vote in favour of the deal could result in the trust borrowing up to a maximum of $440 million.

But this figure would change if the trust bought more property. Then, it could borrow more.

McNaughton refused to say how the extra money would be used, citing only various moves the trust could make this year.

Among those he listed were:

* Spending the money on the $300 million Sylvia Park development in Auckland;

* Buying a larger stake in Capital Properties after its 19.9 per cent purchase last year;

* Expanding the $70 million Palmerston North shopping centre The Plaza, which McNaughton said had potential for redevelopment.

The trust's units are trading at around $1.14.

McNaughton said Kiwi's debt management was headed by the treasury division of Colonial First State Property in Sydney. The division managed $3 billion in debt for the wider group.

Encouraging unit holders to approve the proposal, he said the move could ultimately result in better distributions to investors.

"I'll be telling unit holders that the cost of debt is cheaper than the cost of equity, so if we have an acquisition or an investment, it will be better to use debt rather than equity which enhances returns," he said.

ING, which owns 10 per cent of Kiwi, backed the move, he said, as did the Accident Compensation Corporation (listed in the latest annual report as owning a 2.65 per cent stake), Alliance Capital Management and Brooke Asset Management, among others.

"This is a good deal for investors."

McNaughton also praised the trust's performance, saying that since listing on December 3, 1993, it had paid unit holders a compound return of 11.7 per cent annually.

Time had shown the beauty of the $53.4 million Capital deal, he said.

"The market thought we had paid too much for it, but we had a good understanding of Capital's assets and knew they were undervalued."

Capital has been trading at around $1.20, well up on Kiwi's purchase price.

Meantime, McNaughton hopes to be able to announce within the next six months the funding structure of Sylvia Park.

The trust was talking to Australian and New Zealand investors interested in owning part of the development in return for funding, he said.

Kiwi's management company said this month it would waive management fees for its latest Wellington property investment.

The trust bowed to investor concerns over high fees, saying it would review them.

The Takeovers Panel this month knocked back Kiwi's complaint over Capital's move to sell its management company.

The panel said it would take no action on the complaint that Capital had breached the takeovers code by using defensive tactics.

* Kiwi's extraordinary general meeting is at 4pm today on level five of Auckland's Crowne Plaza Hotel, 128 Albert St.

How it's shaping

* Kiwi's largest asset is the $215 million Vero Centre spanning Shortland St and Fort St in Auckland.

* Next largest is its Northlands shopping centre at Papanui in Christchurch, valued at $203 million in last year's annual report.

* The trust recorded revaluations of $50.6 million for the March year.

* Net income of $49.1 million was almost 10 per cent up on the year before.

* Today, unit holders vote on a change to the trust deed to allow it to take on more debt.