Investors voice Kiwi trust fears

Institutional investor protest against the $1.2 billion Kiwi Income Property Trust is mounting in the face of the property giant's move into a series of new ventures.

Kiwi's $538 million development punt at Sylvia Park in Auckland without a joint-venture partner and last year's purchase of a cornerstone holding in rival landlord Capital Properties of Wellington has left investors feeling fearful. They have been making their concerns known to Kiwi's management team.

Kiwi's unit price slumped 5c yesterday morning but the chief executive of the trust's manager, Angus McNaughton, excused this by saying it was simply a return to the trading price earlier this week, after the trust's inclusion in the Morgan Stanley index. Kiwi eventually closed 8c down at $1.10 and was trading at $1.18 when it went into the index on Tuesday. Next week, Kiwi opens its $143 million debt-raising scheme to partially fund Sylvia Park's shopping centre project.

ING, Brook Asset Management, BT Funds Management and Walker Capital Management institutional executives were voicing their concerns about Kiwi yesterday.

Simon Botherway, principal at Brook, which holds under 5 per cent of Kiwi, has been raising his concerns with Kiwi's management executives about Sylvia Park in particular.

He said Brook was "awaiting advice on possible courses of action", but refused to be more specific.

"We are unsatisfied with respect to a number of fundamental issues," Botherway said, adding that he had also made his fears known to Kiwi's trustee, NZ Permanent Trustees. Of particular concern was the apparent "irreconcilability" of statements about the rationale for lifting the trust's debt cap "and the actual application of the debt", he said.

Shane Solly, of ING - which holds more than 9 per cent of Kiwi - said the investment community had been disappointed by projected yields on the first stage of Sylvia Park. He is also looking for an improved level of disclosure from the trust.

Craig Brown, at Walker, criticised Kiwi's decision to buy its 19.9 per cent Capital stake late last year, saying investors would prefer instead to buy shares in Capital directly. He also criticised the Sylvia Park investment, saying it would depress dividend yields next year.

"This is at a time when the property sector is at its best in 15 years," Brown said.

Paul Richardson, of BT, said he too was worried about Kiwi's direction.

McNaughton said he completed 15 to 20 presentations to investors in the past fortnight, explaining the investment strategy. He said an increase in Capital's share price had vindicated Kiwi's buy because the shares had risen 15c since the purchase.

Kiwi was still searching for a joint-venture partner at Sylvia Park after discussions with another party foundered but the trust had "de-risked" the project by securing the land, gaining resource consent and a plan change, and locking down major anchor tenants for the shops.

The concerns

* Sylvia Park's first stage is projected to yield only about 7 per cent on completion.
* A joint-venture partner has failed to materialise, putting all debt burden on the trust.
* The Capital Properties buy-up has raised more worries.
* Many investors are angry about their inability to effect any change.