Unitholders bite back

"You're setting the unitholders up to be screwed," said investor Peter Kammler in Auckland late last week.

He was addressing the Australian managers of the $1.1 billion listed real estate investor Kiwi Income Property Trust and his vitriol was directed at their debt-increasing move.

Kammler was the first unitholder to speak at the meeting of about 100 people last Thursday and set the tone for what was to became an aggressive attack on the managers.

His feelings were shared by many others. But the directors of Kiwi's managers challenged the investors on all their points - except Kammler's final attack, just before the vote was taken to increase debt.

"Thank you for your comments, but I'll choose not to respond," replied Kiwi's new chairman, Sean Wareing, to the Warkworth-based investor.

Unitholders criticised Kiwi's flat unit price, trading around $1.14 after listing in 1993 at $1. The increased risk of more debt exposure and developing the $300 million Sylvia Park shopping centre, the need to safeguard unitholders' money and the shift from pure investor to developer were all issues canvassed.

Many focused on the risk alone. Most institutional investors remained silent, except Simon Botherway of Brook Asset Management, an investor chief executive Angus McNaughton said supported Kiwi taking on more debt.

Botherway made a short request, calling for a concise statement about the level of risk Kiwi was taking on at Sylvia Park.

One of Kiwi's harshest critics was Business Herald columnist and proxy holder Brian Gaynor, who challenged McNaughton for displaying a graph showing the borrowing capacity of other listed trusts compared with Kiwi and raised questions about the role of former Kiwi chairman Jim Syme.

McNaughton's graph listed real estate entities which could borrow up to half the value of their assets as AMP NZ Office Trust, Capital Properties, ING Property Trust, Macquarie Goodman Property Trust and Property For Industry. National Property Trust could borrow up to 45 per cent of assets, Urbus and Kiwi could borrow up to 40 per cent and Calan Healthcare Properties Trust had the lowest maximum gearing with a 35 per cent ratio.

McNaughton's point was that Kiwi was towards the lower end of the scale for borrowing, therefore a less risky investment.

"It's not a massive change to the stable, low-risk nature of the trust," he told investors. "The trust is in the strongest position it has ever been in, showing a 15.4 per cent gross annual return in the last five years, compared with 14.7 per cent from the NZX index."

But Gaynor said the debt figures on McNaughton's chart were misleading because the trusts and companies had often not exercised their right to borrow up to that maximum.

"You're not comparing apples with apples," he said.

Gaynor called for managers to give unitholders copies of the independent review about to be conducted into management fees.

One investor even called for the debt-increasing vote to be deferred until after that review, but Wareing rejected the idea as "not in anyone's interest".

Shareholders Association research director and proxy holder Oliver Saint regretted that Brooke was the only the institution to speak.

"I'm sorry I've heard from only one of the institutions because they will decide what happens.".

He said the trust was exposing its investors to increasing risk, encouraging small unitholders to consider selling their Kiwi units, adding they should seriously consider whether they wanted to invest in an entity which had changed from being an investor to a developer.

Wareing disagreed with Saint and said the managers were there to safeguard the interests of the trust.

Kiwi got its extra debt, with an 80.4 per cent voting in favour, but not without some blood-letting.

Worrying times

Kiwi's unitholders are fearful of an increased debt risk and the heated market.

They are also worried about property booms and busts.

Some felt Auckland already had too many shops and questioned whether development was necessary.