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Regional development promotes a myriad of opportunities

Task for property interests is to understand the tussle between planners, big commercial projects and politicians

The property outlook around the Auckland region is changing daily, and not always noticeably.

The Regional Growth Forum is one part of it, a process by which planning staffs of the region’s territorial councils go about sizing up areas for increased population of the next 20 and 50 years, with regular reports to the forum’s politicians.

The forum started five years ago with participation by the private sector, but the scene has changed. Some of the developers then have departed, and others will look for the best opportunity rather than consider themselves territorial animals with a stake in improving a particular patch.

The creation of plans around the region has been done with more public input, in some cases through workshops and charrettes, where members of the public have come up with their own visions for inclusion in the process. Developers, meanwhile, have concentrated on disputing aspects of district plans which have been lodged.

District plans only one part of the process

But district plans are now only one part of the planning process. In every quarter, structural plans are being prepared for specific neighbourhoods, catchment plans are being prepared, and in Auckland City the Liveable Communities project is an attempt to combine workshops, structure plans and transport changes for a new vision of suburbs and business districts.

North Shore City Council produced a city blueprint a fortnight ago, the council’s response to the way regional planners were looking at how to increase population there.

Rodney takes planning into new era

Rodney District Council, elected after a year of being in the hands of a commissioner, has set up an entirely different committee structure and has engaged in nonstop consultation and debate on ways of changing this district, which covers nearly half the region but has less than 10% of its population.

It has run forums for economic growth, has specified retention of workers ahead of fast-tracking them into downtown Auckland, has begun dialogue with Kaipara District Council on that district’s role as the recipient of Auckland growth that Rodney used to capture, and has joined North Shore and Waitakere in breaking down the borders between the northern councils.

While these bureaucratic and political changes occur, significant change is occurring on commercial fronts.

Commercial battles warm up

Westfield NZ Ltd, part of the international Westfield shopping centre group based in Sydney, is pursuing growth on all fronts.

Kiwi Income Property Trust, effectively now part of Sydney-based Lend Lease Corp, has a concrete proposal on the table, the development of its Sylvia Park town centre in Mt Wellington. The trust has spent a fortnight giving evidence to Judge David Sheppard and two commissioners in the Environment Court, with up to two weeks more hearing time.

That proposal is opposed by Westfield (which has concerns for its Newmarket, Manukau City and Pakuranga sites, but which generally opposes any other developer anyway) Retail Holdings Ltd (Haydn Staples & Darryl Henry), which also has Newmarket property and sees a danger of over-shopping, and by owners of some Panmure business premises.

Another south-eastern development site, the Lunn Ave quarry where Fletcher Challenge and Brierley Investments had hoped to get a development consent in place for a town centre, has been sold to Landco Ltd (Greg Olliver).

The various programmes overlap. Kiwi Income has gone to great lengths to work with Auckland City Council on establishing a place for a mixed development on its brownfields Mt Wellington site which will fit in with the city’s Liveable Communities structure.

Panmure pivotal

For many of these schemes the future of Panmure’s town centre is pivotal. It is old, tired, the subject of redevelopment theories in the council’s first Liveable Communities workshop process, but has a very simple reason for continued existence: it is a junction.

The McConnell International business park project on the Waiouru Peninsula will change traffic and business directions, with a cut through from Mt Wellington to the new Botany area of Manukau City, but that’s a different kind of development.

Fletcher/Brierley’s Lake Park in the Lunn Ave quarry and Kiwi Income’s Sylvia Park would directly affect Panmure’s survival.

Fundamental questions arise there — and are being asked on the North Shore, where the Browns Bay retail district has succumbed badly to the new Albany retail developments (and will succumb further when the Albany town centre is built) — of whether new developments have a right to destroy existing infrastructure, and whether existing centres have a right to prevent competition that will destroy them.

Usually progress and new money triumph, though it may take them a while longer than hoped. But new arguments are at play: councils around the region are fighting an uphill battle to meet sewer and stormwater needs, including expensive replacement of old systems and, while they don’t have their charges fully analysed, new development can cost them (and existing ratepayers) dearly.

A new development will produce more income, and more rates for a council by being of higher value, but the council still has to take the diminished value of a rundown centre into account.

Not all pulling together

So the planners, commercial interests and politicians are charging in directions which don’t always coincide. The challenge for property interests is to get into the winning lane.

In listed investment terms, Kiwi Income is accessible, Westfield Trust/Westfield Holdings and Lend Lease stocks are not affected by what happens on the ground here, and AMP holds its retail property investments in managed funds.

Developers and property investors can take advantage of the changes if they can see where the tussle between these planning, commercial and political interests is headed.

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Kiwi Income offer for KDT worth about $190m

Bid puts yield around 9.8% on Royal SunAlliance Centre

Kiwi Income Property Trust’s bid to buy the rest of Kiwi Development Trust prices the target trust at about $190 million — $15 million short of net asset backing, but close to a 10% yield on the building’s income stream.

Kiwi Income announced its intention to make an offer for 60.8% of KDT it did not already own on 21 December. With 20 working days’ notice before a bid could actually be made, that meant the earliest Kiwi Income could lodge a formal bid was 25 January.

The initial announcement gave a range of 2.75 to 3.25 Kiwi Income units for every remaining KDT unit, which equated to $2.53-2.99/unit, compared to $2.20 a KDT unit on market. Kiwi Income said on Monday its offer would be three of its units for every KDT unit.

At the close yesterday Kiwi Income was at 89c, down 1c from Friday, and KDT was at $2.60, up 5c. At yesterday’s closing price, the offer would be worth $2.67 a KDT unit, plus the full dividend to March 2001.

Appraisal on the way

PricewaterhouseCoopers’ independent appraisal report for KDT was filed with the stock exchange yesterday and should be sent out with the offer on Thursday. Full figures will be available then.

However, Kiwi Income and KDT director Ross Green (who, since the annual meetings of the two trusts last August has absented himself from KDT business where a conflict might arise) said after the intention to bid was made in December: “We’re doing it because we like the asset and it [the bid] provides an opportunity for Kiwi Income to buy it. We think it’s an offer that will be acceptable to KDT unitholders.

“These large trophy buildings don’t come along very often and Kiwi Income doesn’t have one in its portfolio.

“The last valuation was $205 million and the offer Kiwi Income is making is $190-odd million — and $190 million on an income stream of about $18.7 million is a high-9% yield, and you don’t see buildings of that quality transacting at those yields.”

One market concern was the level of leasing — the prospectus projection was for 100% on practical completion, but it was just below 80%. “Kiwi Income’s view is the leasing will happen,” Mr Green said.

KDT, as a one-building owner, has struggled to impress the market of its value, even though Kiwi Income steadily raised its holding to 39.2% through onmarket buying, topping up the stake it took at the price set in the prospectus, $3/unit.

Two-man show now in Lend Lease hands

KDT was set up by Kiwi Income’s managers, Mr Green and his fellow joint managing director, Richard Didsbury, to erect the 39-storey Royal SunAlliance Centre between Shortland and Fort Sts in Auckland’s central business district.

Original projected end value was $247 million, well above cost. But cost has risen and valuation steadily dropped, so the market saw a building which was reaching completion at a loss.

The level of greater immediate value then depended on your view of how long, and at what cost, it would take to complete the leasing programme.

Kiwi Income turned down an option to take over the development trust on practical completion because the price would have been at net asset value.

In the background is Australian property giant Lend Lease Corporation, which bought half of the Kiwi management business from Messrs Didsbury and Green in April 1998, along with first right of refusal on 15.6% of Kiwi Income stock held by founding unitholder FCMI Financial Corporation of Toronto. Lend Lease is in effective control, with the local founders conveniently maintaining their roles as spokesmen.

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International M&C hotel group does well but strain shows in NZ

Statistics show NZ well behind rest of world

In London, Millennium & Copthorne Hotels plc reported a very good 2000 result, with encouraging sounds for the next year. In Auckland, the CDL results were depressed by a big writedown on the Millennium Sydney and slower land development trade.

The magnate who heads the Hong Leong group, Kwek Leng Beng, should be pleased with the performances around the world, and with the groundwork put in to ensure long-term earnings growth is solid.

But Hong Leong’s trio of Auckland-based companies always seem to be struggling.

The local parent, CDL Hotels NZ Ltd, increased sales by 48% to $242 million (largely through the sales of apartments by Kingsgate International Corp in Sydney) and raised its operating surplus before unusuals and tax by 113% to $27 million. Then in came the Australian writedown, and the bottom line was down 77% to $1.45 million.

CDL Investments, 60.57% owned by CDL Hotels, held the fall in revenue to 4% for total operating revenue of $26.6 million, and the fall in operating surplus before unusuals and tax to 20.4% for a $6.1 million surplus. The bottom line was down 20.2% to $4 million.

Kingsgate International, 50.74% owned by CDL Hotels, increased sales 195% to $118 million, which flowed through to a 500% increase in operating surplus before unusuals and tax to $19 million, and a bottom line of $6.8 million, up 114%.

International group shows strong growth

M&C, now the worldwide parent of the Hong Leong hotel group, increased turnover (including acquisitions) by 101% to £691 million, increased group operating profit 78% to £172 million and pretax profit 55% to £129 million for a bottom line up 58% at £93 million and basic earnings/share up 16% to 33p.

M&C is 52% owned by Singapore-listed City Developments, which in turn is controlled by LB Kwek’s Hong Leong Singapore group.

The whole M&C group spent £64 million ($NZ221 million) last year on capital improvement, particularly in the US and Asia, and expects to maintain that level of spending this year.

The group now has 88 hotels, including the 29 under CDL NZ’s wing. M&C bought the US Regal chain in December 1999, planning to retain 12, which will be rebranded as Millenniums. It has sold eight and has four more sales to complete this year.

In Singapore, the group’s listed owner of four hotels, Republic Hotels & Resorts, increased net profit by 143% to $S17.3 million through the first full year’s contribution from the Seoul Hilton and an 11% rise in Singapore visitor numbers to 7.6 million.

Asia expected to big 2001 performer

M&C chief executive John Wilson said a significant portion of the group’s growth in 2001 should come from Asia, where economic strengthening should flow through to the hotel sector and the group reaps the rewards of capital spending.

The US economic slowdown affected the group’s New York hotels, but the refurbishment and rebranding should help the group.

Mr Wilson said the start to the year in Europe was encouraging, the improvement of the business in London was well ahead of the inflation level and the regional properties in Britain had started strongly. The subsequent impact of foot and mouth disease was not mentioned.

M&C has £2.387 billion of investments and £1.6 billion net assets. New Zealand is the only part of the group with a substantial investment outside the hotel sector (through CDL Investments Ltd).

Key operating statistics

Key operating statistics show a clear margin between the London hotels and the rest of the group. The Australian business is within range of the rest of the group on occupancy, way below on average room rate and yield/available room, but again in range for its gross operating profit margin.

The statistics are listed below:

Occupancy %
2000 1999, pro forma
London 85.7 81.7
Regional UK 74.1 73.3
Europe 69.8 63.7
US 67.8 67.1
Asia 68.9 64.0
Australasia 64.4 63.7
Group 69.9 67.9

Average room rate (in pounds)
2000 1999, pro forma
London 93.63 88.34
Regional UK 68.48 66.39
Europe 78.66 72.35
US 83.90 72.82
Asia 62.15 46.55
Australasia 30.02 31.46
Group 71.22 63.01

Yield/available room (in pounds)
2000 1999, pro forma
London 80.24 72.17
Regional UK 50.74 48.66
Europe 54.90 46.09
US 56.88 48.86
Asia 42.82 29.79
Australasia 19.33 20.04
Group 49.78 42.78

Gross operating profit margin %
2000 1999, not pro forma
London 55.0 53.5
Regional UK 38.1 40.4
Europe 36.4 27.2
US 35.7 46.2
Asia 39.4 37.1
Australasia 33.6 32.9
Group 39.5 42.9

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National bids for Newmarket trust again

6-for-10 offer prices Newmarket at 57c

The National Property Trust launched a 6-for-10 bid today for the Newmarket Property Trust, on the proviso that it also gains control of Newmarket’s management company.

Symphony Group Ltd, headed by Chris Minty & former Chase Corp executive chairman Colin Reynolds, has already made a bid for the management company, controlled by Sovereign Ltd, and has acquired 19.9% of the listed trust’s units from Sovereign in a price range of 43-51.6c.

National gave notice under the stock exchange’s listing rules notice & pause provisions that it intends to make a full takeover offer. Tuesday’s closing price of 95c for National equates to 57c/unit for Newmarket, whose units closed up 3c at 51c.

Conditions include 50% acceptance, exemption from the requirement to issue a prospectus, purchase of all shares in Newmarket Property Management Ltd.

National said it would have to issue 40.6 million units for a full takeover. Metropolitan Life Assurance Co of NZ Ltd (now part of Sovereign/ASB/Commonwealth Bank of Australia) has 38.01% of Newmarket and would hold 16.25% of National.

National said it would deliver its takeover notice on Monday 20 May, post offers to Newmarket unitholders on Tuesday 4 June and take acceptances until Friday 5 July.

When National tried to merge with Newmarket in 1999, National had a $55 million portfolio and Newmarket $61 million. Newmarket went to $82 million when it acquired the AA Centre in Auckland, which was to have been an acquisition for the new enlarged trust.

Now National has 11 properties worth $144 million while Newmarket has $80 million of property. That would rise to about $140 million if Newmarket bought the 2 buildings Symphony wants to sell it, the AGC building at Viaduct Harbour and Ericsson House on Carlton Gore Rd.

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Intellectual property fraud case nears end

Fraud charges from early 90s come to hearing

An elderly Auckland businessman, whose company claimed to have upwards of $A150 million of intellectual property assets, will learn this afternoon if he is to stand trial for the way he lured elderly investors to put money into the company.

At least some of the investment money went into buying clifftop Auckland properties, paying personal expenses, substantial consultancy and legal fees, and funding overseas trips for the businessman and his consultants, prosecutor Rhys Harrison QC said.

It is hard for anyone else to learn much about the businessman’s fate because his identity remains suppressed by a High Court order. When the man first appeared before a district court judge on seven charges of fraud and one of forgery in May last year he was refused name suppression, but appealed that ruling. The interim name suppression he was granted by that action was subsequently extended to the end of this week’s depositions hearing.

The Serious Fraud Office has now dropped the number of charges to seven, six of them relating to offer documents, an investment profile, and publishing a false financial position for the company with intent to induce people to invest in the company’s debentures and redeemable preference shares.

The SFO alleges the forgery arose through a company minute falsely indicating the man had sold $A20 million of intellectual property to his company, and that the purchase would be satisfied by the issuing of 10 million redeemable preference shares of $2 each.

Investors put $2.8 million into the company, which SFO forensic accountant Clive Hudson and leading Auckland accountant John Hagen said had never made a cash profit, showed no substantiation for the huge amount of intellectual property claimed as an asset, and only showed a balance sheet profit at the material time in the early 90s by writing back into the books $30 million of amortisation.

Mr Hudson said that under company law redeemable preference shares could only be repaid out of profit, of which the company had none, or out of a fresh issue of such shares.

Mr Hagen said he could find no rational or accounting basis for writing back the amortised sums on to the company’s books. “I have seen no evidence at all justifying such a writeback, and in any event it would be in breach of generally accepted accounting principles, which do not permit the reinstatement of expenses already stated or recognised.”

Mr Hagen could also find no documentation or other basis to give the claimed intellectual property any value.

The investors had not had their shares redeemed, raising their bill by another $2.6 million, and Mr Harrison said they stood only a slim chance of making any recovery.

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Bankrupts carried on trading

Builder bankrupted in 1998, new $24,000 debt in 1999

Master Anne Gambrill ordered a Manurewa builder and his wife bankrupted on Thursday for incurring a $24,000 debt at Benchmark 14 months after going into bankruptcy for previous debts.

“They’re out there trading. You and I will pay for it when next we go to Benchmark,” the High Court master said.

“The debt hasn’t been disputed, judgment has been entered, they have been served with all these papers, all of which points to their trading while bankrupt.”

Turning down a request for an adjournment by the lawyer for John and Kim Maree Ngaata, Master Gambrill said: “The concealment or lack of understanding of this [first] order is the very reason why this [second] order should be made.”

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Revaluations boost PFI profit to $18.7 million

1.7% rental gain, 1.8% profit rise before revaluations

Property For Industry Ltd increased net profit after tax by 1.8% to $11.6 million before revaluations, and added $7.1 million in unrealised revaluations for a total $18.7 million return, up 46.3%.

“The most outstanding aspect of this result has been the company’s ability to convert a modest gain in rental revenues into a more substantial increase in profits & dividends to shareholders,” chairman Peter Masfen said.

Rental income rose 1.7% to $21.9 million.

The final dividend of 1.7313c/share includes 0.6243c/share imputation credits. The full year’s dividends will top 7c for the 1st time, rising 4.7% to 7.31c/share.

Earnings after revaluations were 9.32c/share, up 45%. Net tangible assets rose 4.7% to 79.7c/share. Debt:total assets was 29%, below PFI’s self-imposed maximum of 35%.

During the year PFI bought 4 properties and completed a further 3 design-build projects with a combined value of $26 million. Mr Masfen said they would increase the rental flow by $2.4 million/year.

The company had 49 properties at balance date and has since settled on 2 more, taking the total portfolio to $240.1 million. It has a weighted average lease term of 6 years and was 100% occupied at year-end.

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Ryman expects growth to continue

Government funding shift will help

Retirement village operator Ryman Healthcare Ltd should follow its record net profit of $15.3 million in 2003 with more growth, chairman David Kerr told the annual meeting in Christchurch on Friday.

“The results for the 1st quarter confirm that ongoing earnings have certainly lifted,” he said.

Ryman sits around No 34 on sharemarket capitalisation and should join the NZSX50 late next month, after director John Ryder sold most of his interest, enabling a widening of shareholding.

Managing director Kevin Hickman said a change in government funding would improve care for the elderly. The Government will devolve funding of aged from the Ministry of Health to the 21 district health boards on 1 October.

“We believe this will create further opportunity for Ryman as 1 of the most efficient providers of long-stay resthome & hospital care,” he said.

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Migrant inflow continues

April net inflow 2200, April year inflow 42,000

The net migrant inflow continued in April with 2200 more arrivals than departures, taking the annual net inflow to 42,000 in the April year.

The net inflow for the previous year was 28,100. Statistics NZ said the latest increase resulted from more arrivals, up 8300 to 98,200 for the year, and fewer departures, down 5700 to 56,100 for the year. NZ citizen departures fell 7100 and non-NZ citizen arrivals rose 6400.

Significant net inflows were from China (15,400), India (6300), South Africa & Japan (both 2300), Korea (2100) and Fiji (1900). The net inflow from Britain nearly doubled, from 3900 to 7700, and the net outflow to Australia continued to drop, from 31,100 in the April 2001 year to 15,400 in 2002 and to 10,600 in the latest year.

Statistics NZ pays more attention to the timing of Easter (in March last year, in April this year) in its statistics on short-term travelers, combining March & April figures in some cases.

Short-term overseas visitor arrivals in April rose 5%, or 6500, to 150,400. Combining March & April, the 344,300 visitors were less than 1%, or 2100, lower.

In those 2 months in the previous 3 years, visitor numbers rose 5-11%.

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Force and MTM back in High Court

Question to be decided: which plan should completion be based on?

Force Corporation and the MTM Entertainment Trust of Australia were back in court today to resume their dispute which will decide who must own the Force Entertainment Centre on Queen St in Auckland.

Force developed the centre, used MTM money in doing so and had an agreement to sell it to MTM. The price was to be determined after practical completion. When work began it was touted as a $75 million project and when MTM floated in 1998, the centre accounted for 35% of the new trust’s assets at $A62 million, which translated to $NZ71 million on the exchange rate used.

MTM Funds Management Ltd, the management company which ran this trust and another MTM trust which owns a single Sydney office block, has also been embroiled in a battle to retain its job running the office trust this year, finally losing out to James Fielding Investments Ltd, set up by Paladin founder Greg Paramor and Rod Leaver.

Practical completion was required by 30 December 1999. A certificate of practical completion was filed that day by the project architect, Ashley Gillard-Allen of Walker Co Partnership, but MTM took Force to court claiming practical completion was not achieved. Weeks later, MTM filed more proceedings alleging deficiencies in the certificate as well as failure to complete.

In the High Court this week, the parties are seeking to resolve what constitute the plans on which the practical completion decision would be based.

Once that basis is decided by Justice Hugh Williams, a nominated architect, Russell Hawken, will decide the practical completion issue. Only then can the ownership position be decided.

Neither party is jumping at the prospect.

MTM Funds Management, already minus its office trust after a performance which didn’t satisfy magnate Kerry Packer, is fighting to survive in a tough Australian trust management market. The entertainment trust declared an $A29.6 million loss for the year to June, while Force declared an $NZ7 million loss.

One of the attractions of the Queen St centre, the Imax big screen, proved a troublesome feature when its management company, Cinema Plus, went into receivership on both sides of the Tasman, and the other major feature, Planet Hollywood, struck financial trouble back in the US and couldn’t find a local partner. Force is managing both businesses in Queen St.

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