Archive | Sectors

Hotel occupancy picks up

America’s Cup comparison will make Auckland gain short-lived

Hotel occupancy improved in September after 6 tough months, with a 3.4% gain in guest nights & 2.6% rise in occupancy rate on a 0.6% rise in capacity.

Across the whole short-term accommodation sector, Statistics NZ said guest nights were up 4.7% & occupancy up 3.7% on a capacity rise of 0.2%.

Total guest nights were 2.05 million, occupancy (excluding camping/caravans) was 48.5%.

Hotel occupancy was 52.8%, just ahead of motels at 52.5%. The motel occupancy rate was up 3.4% on a 6.5% rise in guest nights & 2.2% capacity gain.

In the backpacker sector, occupancy rose 0.2% to 40.3% on a 5.6% rise in guest nights & 5.8% capacity gain.

Auckland occupancy (excluding camping/caravans) was 58.7%, up 2.5%. It’s likely to be well down over the next couple of months because of the influence of the America’s Cup last summer.

Northland occupancy rose 10.6% to 35.1%, Taranaki, Manawatu & Wanganui 5.7% to 43.5%, Wellington 6.8% to 61.3%. Otago occupancy was 2.8% ahead at 54.8%. Nelson, Marlborough & Tasman occupancy fell 5.4% to 39.3%.

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Hospitality investor survey

Stampede out not likely yet

John Smith, managing director, Sonnenblick-Goldman (Australia): “A stampede out of the industry doesn’t look a likelihood at this time. We think this is a very positive analysis.”

On return rankings, resorts come a long last. This is the 1st time the resort markets of Queensland have appeared in the rankings.

On capitalisation rates: “The most frequently nominated, lowest capitalisation rate at which investors would consider a hotel purchase was 8% for a 5-star Sydney hotel.”

[I’ll have more on this survey, and other aspects of the Australia/NZ hotel investment conference, this week.]

This story is part of a series from the Horwath Asia Pacific, Blake Dawson Waldron and Sonnenblick-Goldman hotel investment conference held in Sydney on 11 June.

This story is part of a series from the Horwath Asia Pacific, Blake Dawson Waldron and Sonnenblick-Goldman hotel investment conference held in Sydney on 11 June.

Below are links to the other stories:

Industry insights: Top-level trio look beyond the gloom

Hotel performance: Numbers, Australia 1st, NZ 2nd

Horwath seminar: Airline outlook: Back to normal in Q1 2004

Hotel investment conference an information-packed affair: 1-day seminar, 3½ weeks ago, part 1 of (hopefully) 2

Fast-forward hotel investment conference: Roundup on sessions topics

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Pye family buys six TasAg farms

Buyer wants land rotated

South Canterbury farmer Alan Pye has bought six of Tasman Agriculture’s farms in Canterbury for $34.25 million.

Listed farm company Tasman Agriculture, two-thirds owned by Brierley Investments, sold another six farms at auction for $18.1 million last month, and sold one Mid-Canterbury farm and two in North Otago for $12.24 million, for a total $64.59 million on 15 farms.

The Pye family has interests in a number of South Island dairy units, and also has interests in agricultural properties in both Australia and New Zealand. The family operates one of the biggest potato-growing businesses in the two countries.

Mr Pye said today he intended to keep existing dairying operations going, with the same sharemilkers in place — but with a difference: he wants to put an area of each unit in potatoes every year, rotated with a cereal crop then regrassed for dairying. He said this would renew pastures for enhanced dairy production and increase the economic use of the properties.

The six properties he bought cover a total 1744ha. The sale price equates to $19,640/ha and, for the top property, $22,700ha. The farms produced 2.09 million kg of milk solids for the 2000 season.

Tasman Agriculture is now negotiating to manage the dairy operations on the Pyes’ behalf.

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Economy robust, time to think industrial property, says CJ

Design-build market strongest in decade, says Cooper

Don’t believe what you read in the papers, the New Zealand economy remains in a reasonably robust state with strong underlying prospects for growth, says Colliers Jardine in an economic overview for its latest industrial property campaign, The Space Race.

The campaign launch this weekend is in booklet and web page form— click on External links/Agency/Colliers Jardine industrial to see the properties and editorial views.

“With the continuing strong performance of New Zealand’s major trading partners, moderate interest rates and an historically low exchange rate, economic activity is expected to remain at reasonably strong levels in the foreseeable future,” the economic overview states.

The consultancy says confidence levels should become positive in the short to medium term — and, of course, there is a lead time for deciding, and getting, what you want to lease: “As the use of industrial space becomes increasingly sophisticated and the range of warehousing and distribution options more complex, it is vital that tenants allow sufficient lead time to assess their property requirements prior to the expiry of existing leases.”

Colliers Jardine’s industrial director, Charles Cooper, calls The Space Race collection “a specialised portfolio of large-scale, high-tech industrial properties for owner-occupation or lease… the key options.”

Export growth and the industrial property market are closely related: “The market for design-build property is the strongest it has been for over 10 years.” He expects 30 design-build projects with floors bigger than 1000m² to have been completed, be under construction or be committed by Christmas

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SEA’s Lu says Weiss liquidation plan for Trans Tasman ill-conceived

This report: The history, the performance, the future

Trans Tasman Properties Ltd’s controlling shareholder, Jesse Lu of SEA Holdings Ltd, Hong Kong, said on Wednesday the proposal by GPG plc director Gary Weiss to liquidate Trans Tasman was ill-conceived.

Dr Weiss has been attacking Trans Tasman’s position as major shareholder at Australian Growth Properties Ltd for some time. Auckland GPG representative Tony Gibbs fronted at Trans Tasman’s annual meeting a year ago but did not speak (This website’s report on the Trans Tasman annual meeting in 2001).

This year, still with 3% of the equity against the 54.8% held by Mr Lu, they’ve chosen to propose a course which Trans Tasman has already been carrying out — liquidation of assets — but with 2 variations.

1 is that Dr Weiss & Mr Gibbs want to be in charge of the liquidation process, although they seem quite happy with current management’s ability to secure the sale of 4 Wellington properties at book value (the buyer has until the end of this month to complete).

The other is that they want the whole company liquidated, including sale of its 50% of Australian Growth Properties Ltd.

This course could have been proposed at any time since the merger of Seabil NZ Ltd and Tasman Properties Ltd (the former RJI/Robt Jones Investments Ltd) in 1995. That merger combined the over-rented Brierley/Fletcher portfolios which had been listed with the support of institutions & brokers for its cashflow, and the Jones portfolio, which looked like it might start producing capital growth after several years of limping along.

The combination suited Mr Lu, whose investments in the 2 separate businesses had proved disastrous. His preference was to put the 2 different entities together and hope for a market upturn.

In the early post-merger period sales could have been made, but at serious discounts to book value. The New Zealand portfolio’s value has been written down annually — by $32.6 million in 2000 & $60.9 million in 2001, with a corresponding fall in net asset backing, to 70.2c in 2000 & 58.7c in 2001. Selling at a more realistic book value doesn’t look so bad.

Dr Weiss has proposed nothing better than that for the New Zealand portfolio.

Meanwhile, policy at Trans Tasman has changed. The company has picked up on the trend for property investors to become involved in development, pocketing some (or, on Trans Tasman’s Maritime Square project, all) of the developer’s margin but effectively becoming a proactive manager instead of merely a passive receiver of rent.

The company has, at last, been able to sell more time-consuming smaller properties, which will reduce future property management costs. It has also spent heavily on refurbishment, so that in a market upturn it should recoup costs with better rental returns.

The good days, of course, don’t necessarily come when you want them to. The property market has been waiting since the start of 1987 for an upturn. Kiwi Income Property Trust’s managers thought they’d picked the right moment when they decided to build the Royal SunAlliance Centre, but the value of their site-specific development trust was held down by poor market perception of new property & its value.

In another field, Fletcher Challenge thought its pulp & paper business would gain tremendously from major upgrades carried out during the downturn, but the downturn continued. It happens.

Turn back to Trans Tasman, and the annual report shows the leases signed in 2001 were at an average $275/m², compared to $261/m² in 2000, an increase which can be attributed partly to market upturn and partly to a change in portfolio profile.

The New Zealand portfolio occupancy rate is unchanged from a year ago at 91% — low compared to some other portfolios but the same as the biggest listed portfolio in the world, Equity Office Property Trust’s of the US.

Trans Tasman’s annual report shows it reduced total assets (in both Australia & New Zealand) by $207 million to $1.1 billion in 2001 (including the writedowns, which transfer directly to a cut in equity, and including New Zealand sales at less than book value), turned $41.4 million of equity-ranking notes into debt in the form of secured bonds, but also cut external borrowings by a net $130 million.

The company has got its weighted average borrowing rate down from 7.734% to 5.996%, which compares favourably with Property For Industry Ltd’s 6.78% average at December 2001.

All up, Trans Tasman’s management is probably working its smaller portfolio better than it was able to for several years with the cumbersome baggage of a multitude of small tenants to handle, and it now has the prospect of better earnings from projects such as the next Viaduct Harbour one.

You can argue that that’s a good time to sell, especially as the share price remains so heavily discounted and, as Dr Weiss pointed out, overall returns to investors since the Seabil/Tasman merger “have been appalling,” turning $1 into 44c in 6 years.

The share price climbed from 22c to 28c in April (and back to 27c on Wednesday) , perhaps helped up by the attention given to GPG’s proposal. You can also argue, as Jesse Lu has done, that better returns will come eventually.

Mr Lu wrote: “Given that the TTP group is financially viable and much more can be achieved by building on the group’s existing base, we do not see the benefit of a winding up. We should recognise that investors may have held their shares for many years and that GPG’s breakup proposal will clearly not be attractive to those investors because it will curtail TTP’s longer-term plans.

“We do not believe that investors — whether long-term or short-term — bought their shares in the expectation that TTP would be broken up, nor that they would be locked into a potentially illiquid investment pending a distribution in the winding up.

“Shareholders who do not have a long-term horizon or who do not agree with TTP’s direction are currently able to dispose of their shares on the stock market. We would expect these shareholders to exit the company by disposing of their shares on the market rather than attempting to impose their will on the other shareholders, who may, like ourselves, have longer-term objectives.

“Apart from imposing illiquidity on all investors, a liquidation would deprive long-term investors of the opportunity to maximise their investment over a timeframe of their own choosing.

“Accordingly, we believe that a winding up (or even the proposal to wind up) is ill-conceived, potentially risky, disruptive to TTP’s business and, therefore, damaging to all shareholders.”

Trans Tasman’s annual meeting will be held at WestpacTrust Stadium (the Caketin) in Wellington on Monday 20 May at 10am.

Trans Tasman’s web page

Trans Tasman’s 2001 annual report

This website’s report on the Trans Tasman annual meeting in 2001

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Calan discount still a worry but balance sheet changes should help

New ceo gives straight answer on closing discount gap

Through the formal speeches at Calan Healthcare Properties Trust’s annual meeting, unitholders heard that the trust’s management company was going to do something about the disparity between asset backing & unit price.

But it was vague, there was a sense that not much was likely to happen at all.

It was the same with Calan’s structure. A trust was deemed the way to go when it listed in 1999, but the board was examining other options and chairman Bruce Davidson leaned towards the listed company instead of trust.

But there was no timetable, no pressure to act, and unitholders were going to head home deeply uncertain about the future shape & performance of the business.

Simple explanation, says Wentworth

And then came Miles Wentworth (left), promoted from chief operating officer to chief executive after managing director Martin Lyttelton resigned on 30 June.

To a unitholder asking why the huge discount, Mr Wentworth went boldly where the nation’s company directors have steadfastly refused to go at scores of annual meetings I’ve attended. He gave a simple answer: “The development land has suppressed our income. We are and have turned those into yielding investments. When our book is fully yielding you will see that gap close.”

More straight-talking like that combined with clear analysis of the books for investors and less navel-gazing about the corporate structure, and Calan will be trading at a premium.

Calan took its substantial unlisted business to a compliance listing in 1999, opening with a unit price range of $1.13-1.19 compared to asset backing of $1.11. Asset backing has held up ($1.09 last year and $1.08 in this year’s annual report), but the unit price dived after the trust’s managers over-extended themselves, establishing good assets but not cashflow.

When unitholders met last year the unit price had just risen 3c to 81c; this year it was 84c, a 22% discount to asset backing.

Calan’s meetings get unusual quality of questions

Calan’s annual meetings are unusual for the high quality of questioning from numerous elderly investors, generally seeking to elicit a better performance from the management company’s board rather than browbeating directors. The trust also has numerous financial advisors as unitholders, in their own right and as advisors to clients. They also ask questions, something sharebrokers refrain from doing.

Chairman Bruce Davidson said the prime driver for reviewing the structure was to increase the unit price. He’d like to see the structure issue resolved in the next calendar year. Mr Davidson didn’t buy the argument from analysts that the price was being held down at the moment because investors were pouring their money into fixed deposits.

A Tauranga advisor expressed surprise that Mr Davidson couldn’t offer an opinion on why the discount. A key element was risk, and the advisor perceived a lack of confidence & trust in the trust’s managers. “A little more clarity about what you might do would help,” he said. “Today we’ve heard a fairly waffly outlook on what you’re going to do. We haven’t heard, for example, what you’re going to do with money from the Waitemata Private land sale, or on distribution. A lot of these things would be helpful to the market.”

Such questioning from advisors indicates the board has failed to get its message across, even if Mr Davidson was correct in saying some of the points had already been answered.

The chairman said the money Calan would receive, once buyer Metlifecare Ltd got resource consent for its proposed retirement village on the Waitemata Private site, would be applied to the Epworth Eastern project under way in Melbourne. Metlife is to pay $12.825 million, $8.5 million immediately and the rest over 4 years.

Another unitholder said North Shore land prices had risen sharply since Metlife signed to buy the site, and Calan would lose out from a long settlement. However, Mr Davidson said the transaction price was well above prevailing land values and Mr Wentworth said Calan would get interest payments on the balance to come from Metlife.

Balance sheet much stronger

Having more than 20% of the trust now held by institutions has probably given the board a hurry-up on finding a solution to the unit price discount. The answer is available in a few figures & comments in the annual report, and in the addresses by Mr Davidson & Mr Wentworth to the annual meeting.

Mr Davidson didn’t feel the heavy investment in capital projects was a bad ploy – and the trust had since rationalised its portfolio. The annual report shows Calan got its ratio of debt:assets down from 29.6% in 2002 to a conservative 23.8% this year ($50 million liabilities against $194.8 million total assets).

The board’s strategic review “confirmed a continuing investor demand for a low-risk/medium-return healthcare property fund comprising a diversified portfolio of quality properties & quality tenants, involving essential healthcare facilities with long leases with financially sound tenants.

“For the trust to be adopted by the markets as the fund of choice for this purpose, the board has adopted key strategic objectives to be implemented over the next 5 years.

“1 of the key imperatives is for the trust to grow in size [target unstated, and nobody asked], and management is actively seeking new opportunities, principally in New Zealand. The range of opportunities are encouraging but the board is determined growth will only be where quality of property & benchmarks of return are achieved.

Trust no longer a developer

“The board also does not intend to get involved in new developments where it carries the cost of acquiring land and then creating the project. It will no longer be a developer but more of a pure investor.”

I finished my report on last year’s annual meeting by saying this would make Calan a dull beast, and questioning the mostly elderly investors who wanted fixed-interest-type returns when Calan’s proposed higher returns clearly came from project risk.

The same points apply 1 year on. 1 unitholder was perturbed to hear the people round him at the meeting were happy Calan had turned from developer into investor only, but Mr Davidson said the trust had discovered “putting together hospitals was very complex and you couldn’t balance the negative [of high holding costs].” As an investor, Calan would no longer be in the position of having to find large upfront payments.

Mr Wentworth said Calan had sold 8 of its 10 non-strategic or non-yielding assets, realising $26.2 million, had Brighton Private due to settle in March for $6.6 million and Metlife’s contract on Waitemata Private. The trust would raise $46 million from all these sales.

The trust also has the Artemis medical centre in Auckland on the market and has begun marketing the Ascot Clinics project.

Calan now has a 16½-year lease on the Ascot Hospital (right) with improved review terms, and will have a 20-year lease at Epworth Eastern, generating a 9.5% headline return, worth $A4 million rent/year.

The Ascot Hospital operator, Ascot Hospital & Clinics Ltd, had picked up its performance but Calan’s 20% equity stake was still a non-yielding asset, not core to the trust’s business and Calan wanted to exit it. Its current carrying value is $6.7 million.

Among other points raised at the meeting, Mr Davidson said the management company was unlikely to agree to a return of the termination fee from the present 1 year’s salary ($1.5 million in fees) to the original $50,000 set in 1999, “but I can ask.”

He expected related-party transactions to drop by ⅔, possibly more, this year.

And he rejected criticism of directors who are leading the charge to get the unit price up but don’t hold any stock: “I have a personal view that there is an inherent conflict and I have never held securities in any of the companies I’ve been involved with as a steward.” He said there were plenty of examples of fiduciary failure at large companies where directors held large stakes, and there wasn’t necessarily a link between holding a stake and performing.

Last year’s annual meeting story: Mea culpa at Calan

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Retail centres big earners, cbd office poor

Shopping centres the strong growth sector, capital declines hit office

Returns from shopping centre ownership looked very good in the year to June and industrial property returns were healthy, but in the cbd office sector falls in capital values took away most of the income gains.

The Property Council research, conducted this year by Nicole Humphries, shows a strong income stream from the office sector — 8.11% in the Auckland cbd, 10.4% in Wellington and 8.3% in non-cbd Auckland.

But in both Auckland and Wellington cbds the capital movement was negative, by 7.2%, with a 3.45% negative movement in non-cbd Auckland.

That left the overall office sector up 1.66% for the year, the Auckland cbd’s total return up 0.62%, Wellington cbd up 2.79% and non-cbd Auckland up 4.71%.

The industrial sector performance mostly reflects Auckland activity, which showed an income return of 10.11%, capital fall of 1.68% for a total return of 8.35%. Christchurch industrial property showed an 8.26% income return and no capital movement.

In the retail sector, income return from shopping centres was 9.6%, capital gain 4.99% for a total return of 14.83%. Returns from bulk retail were 10.36 income, 2.58% capital for a total 13.07%.

The Property Council’s performance indices reflect returns filed by 21 property owners and managers on 338 properties worth $4.32 billion and covering 2.2 million m² of net lettable area.

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Trans Tasman bids for Australian Growth

Takeover offer at A85c

Trans Tasman Properties Ltd issued an offer on Friday for the 49.8% of Australian Growth Properties Ltd it doesn’t already own.

The offer at A85c/share values the minorities at $A128 million, the whole company at $A256 million. Trans Tasman proposes paying from its own resources and a new $A105 million HSBC facility.

The bid, through subsidiary Trans Tasman Properties (AGP) Pty Ltd, has a closing date of 14 November.

It’s been lodged before AGP’s board completes a strategic review of the options for the Australian company, which also has to be considered by Trans Tasman but has no delivery date. AGP has sold 75% of its assets, including 363 & 345 George St, Sydney, sold to German funds manager Deka for $A397 million. AGP’s remaining portfolio has a book value of $A65 million.

At high end of market range, 17% discount to nta

The offer was made at the closing share price on 21 August, A85c, which was towards the high end of the price range of the past 12 months, A66-90c.

The offer is subject to a number of conditions, including 1 for 75% acceptance. Trans Tasman said if it gets 75-90% of AGP it would maintain the Australian company’s listing. Beyond 90% it would move to compulsory acquisition.

At the half year, AGP’s net tangible asset backing was $A1.02/share, up from A99c a year earlier. The market & bid price is a 16.7% discount to nta.

SEA Holdings Ltd, of Hong Kong, headed by Jesse Lu, owns 55.16% of Trans Tasman and also owns the AGP management contract. Trans Tasman is run inhouse.

Floated in 1997

Trans Tasman floated AGP in 1997, and tried but failed to float a trust in New Zealand containing its main assets on this side of the Tasman. It has since sold the bulk of its unwanted New Zealand assets and is getting on with a change in its roll, introducing some commercial development and carrying out an industrial land subdivision near Auckland International Airport, to be followed by a 2nd subdivision on neighbouring land.

Trans Tasman said it supported the sale of properties to Deka, “as it believes that the Australian commercial
property market is currently near the top of the valuation cycle. Trans Tasman considers that a softening of the property market is likely to lead to stagnant or lower market prices.”

Trans Tasman said it appreciated not all AGP shareholders might take the same view of AGP’s activities as Trans Tasman (which include not liquidating AGP), and some might wish to exit their investment in AGP even before the results of the strategic review are available. “The cash offer provides the opportunity of an alternative for those shareholders in AGP who wish to sell their shares, in addition to selling through the stock market where the depth of the market will vary.”

The offer rates as a major transaction under NZX listing rules, so Trans Tasman has to call a shareholder meeting. The date hasn’t been given.

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Multiplex & Malaysian group to list investor in syndicates

Acumen Capital is fund promoter & manager

Acumen Capital Property Securities Fund is scheduled to list in Australia on 8 July with an $A24.7 million portfolio of investments in 11 unlisted property syndicates as its initial assets.

Perth-based Acumen Capital Ltd is aiming to raise $A40 million in public subscriptions in a float due to close on Wednesday 25 June.

The fund will have no debt initially, and will only use debt (up to 30%) short-term to assist investment. The main reason for the absence of debt in this vehicle is that the trusts & syndicates it invests in will generally be highly geared themselves.

The initial portfolio is made up of 3 Deutsche Bank Real Estate syndicates, 2 Centro Property Group syndicates & 5 of Investa Property Group’s (3 based on locality – Collins St, Brisbane & North Sydney — & 2 industrial trusts) & 9.5% of a trust Acumen Capital formed in October 2001 to buy a building on St George’s Terrace, Perth’s main business street. The overall historical yield of these syndicated funds is 10%.

On top of fees already charged by the syndicate managers, Acumen intends to charge 0.5% of gross assets plus a 0.2% performance fee if it outperforms the stock exchange property accumulation index.

Acumen is a property funds management company owned by Multiplex Constructions Pty Ltd and Selangor Properties Berhad subsidiary the Hawaiian Group. Most of the $A1 billion of property Selangor and its managing director, Wen Chiu Chi, & his family have in Australia is in Perth, where Multiplex is also based.

The responsible entity will be owned by Acumen Capital Securities Ltd & Western Pacific Portfolio Planning Pty Ltd. Western Pacific managing director Rob Rayner, formerly of Armstrong Jones, will head the responsible entity, and Western Pacific clients are providing the 1st $A24.7 million.

Multiplex, Hawaiian Management Pty Ltd & a 3rd Perth-based company, the Wyllie Group Pty Ltd, bought the World Square site in Sydney, between Pitt & George Sts on the edge of Chinatown at Goulburn St, in 2001 to develop the $A600 million Latitude project, a 55-storey tower with Ernst & Young as the main tenant, followed by a 21-storey tower which will include retail space. The World Tower apartment building is being erected beside these and work has started on the main Latitude building.

Websites: Acumen Capital
Wyllie Group

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Anglovaal wants to buy rest of MacDow

Financial woes plague ex-NZ company

McConnell Dowell Corp Ltd’s 63% shareholder, Aveng Ltd (a subsidiary of Anglovaal Industries Ltd, South Africa), wants to buy out the minorities at $A1.54/share & A20c/executive option (the margin between the share offer & the option exercise price).

Directors said the buyout arose through MacDow’s financial difficulties.

The former New Zealand company, now listed in Australia and for a time controlled from the US before being sold to South Africa, is making the buyout move through schemes of arrangement.

MacDow said when it released its December half result the company faced difficult, insurance, bonding & banking conditions, which required it to obtain substantial financial support from Aveng, including $A20 million of loans so far.

MacDow offers specialist building, heavy civil, mechanical, electrical & instrumentation and pipeline engineering & construction services to a geographically diverse selection of clients.

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