Forum Archive Index - June 2001

[michgore <michgore@i4free.co.nz>]

Hugh,
Please excuse my ignorance - what is overrenting and how can a property be 
overrented?
I thought what you wrote here is very interesting.  Thanks  Michael (no cap 
props)

hugh webber wrote:

> 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
>
> ----------------------------------------------------------------------------
> http://www.sharechat.co.nz/          New Zealand's home for market investors
> ----------------------------------------------------------------------------
> To remove yourself from this list, please use the form at
> http://www.sharechat.co.nz/forum.shtml.


----------------------------------------------------------------------------
http://www.sharechat.co.nz/          New Zealand's home for market investors
----------------------------------------------------------------------------
To remove yourself from this list, please use the form at
http://www.sharechat.co.nz/forum.shtml.