Forum Archive Index - June 2001

["hugh webber" <hugh.webber@clear.net.nz>]

Well the report arrived yesterday and I've read it and its a classic in its own
way. Its an object lesson in a behavioural problem; company
executives want to build an Empire - bigger is better whatever the cost. But the
shareholder's interest is profitability - don't do it unless it increases net 
profit per
share.

At the same time I've been glancing at the special report to shareholders
on the takeover of Shortland Properties to confirm my suspicions - and they're
confirmed.

All the bad things in the present report come directly from the takeover.
City Tower, the overrented and overvalued problem in Wgton came from
Shortland. 
Oracle Tower and Shortland Towers the underlet problems in Auckland came 
from Shortland. All the alleged positive points (they didn't mention any of
the negative ones) in the Shortland document have turned to custard 
e.g. they promised that Shortland would raise earnings and dividends - 
it has, from overrenting.....for just one year.
But its then dumped earnings and dividends down below what they would have
been if they hadn't made the silly ego trip takeover.
I note that the operating profit is up only because the IRD tax take is
down otherwise it would be the same operating profit as last year..

The two aspects that frighten me are (a) they don't admit the Shortland
takeover
was a mistake (b) they talk about further acquisitions (have they learnt their 
lesson?
will they only buy acquisitions which permanently increase net earnings per 
share?).  

That said they look more stable than they have at any time since the
takeover;
They're paying off debt at $10 million a year, they're letting out the
vacant property quite rapidly (I haven't looked at what rent aspect yet). 
What they need is stability, ot self destructive takeovers, and to finish 
letting 
out the unlet property. Keep heir eye on the ball. It would have been nice to 
have 
had more realistic disclosure at the outset when they floated about overrenting 
as 2 of the 4 cases of overrenting
were from Shortland incl the biggest one but two were there in the portfolio 
floated.
KIP, with the biggest property portfolio in NZ managed an upward
revaluation this year of several million and a significant rise in earnings per 
share.

Unfortunately they don't give projections but I can't quite see why they
have to reduce dividend per share unless they have earmarked more revenue 
per share to inance cquisitions. Sigh. Who can you trust to look after the 
shareholders
interest if he directors refuse to but go on ego trips instead...

Um, really, I hate to say it but it looks as if they didn't bother doing 
their homework/due diligence on Shortland Properties. Maybe they were
left high and dry when Russell McVeagh pulled the plug on its occupancy
of Shortland Tower II - didn't they look at the tenancy agreement? didn't they
bother getting an undertaking concerning it? Did they not have any legal
remedy? Maybe you can argue all those away but they must have been 
quite capable of seeing that City Tower and the other Wellington property
were substantially overrented and that Oracle in Auckland was fairly
vacant and that the Auckland commercial property market for renting was quite
tight. They also seem rather surprised that another party built some more
office space in Auckland. Reminds me of BIL boasting how it had the hotel 
market in London all sewn up. Then some cad converted offices to hotels.
There was another bidder for Shortland - why didn't they just let them win
and pull down the other party's results instead of outbidding them?
The thrill of battle; the thrill of being a bigger frog in the pond.
My company is bigger than your company - Nyeh Nyeh Nyeh.

But my company is more profitable per share than your company even if
my company is smaller than your company (because my coy is smaller than
your coy?) is the one that counts.
Professional compay directors? Pshaw - high school entrants in the Business
Game would have done better than that.
(disclosure; sold my Cap Props earlier this year but my wife still holds some.
Still like the quarterly high gross yield dividends - if only the directors 
didn't
now have a credibility gap). 

cheers,
Hugh


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