Forum Archive Index - June 2001

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

I was intrigued to find that today's Sunday Star Times contained 
an article on Capital Properties Annual Report "Property Firm sets
new disclosure standards" (pE2) by one Chris Castle which very much
looks like it was commissioned by the Cap Props directors in answer
to my article in Sharechat "a closer look at Capital Properties Annual
Report" Sharechat 19/06/2001. On the positive side - 
What a compliment to Sharechat!

Anyway to get to the nub of his rejoinder  "Ironically, Capital Properties 
was criticised for increasing the risk profile of its property portfolio. To
my mind the reverse was true - the Shortland Properties diversification
reduced geographical and tenant risk". Pardon? Excuse me?

Lets see, prior to the Shortland takeover Cap Props owned government
tenanted buildings in the centre of Wellington and no Auckland or commercial
property. After the takeover Cap Props also owned commercial property 
in Auckland and Wellington. By Cap Props own admission in reports to
shareholders the rent and value of government tenanted buildings in Wellington
has been steadily increasing.
Now maybe Mr Castle doesn't know Wellington - I happen to know it extremely
well - was born there, lived there until I was 31, can trace myself back to one
of the first settler children born in Wellington in 1840 & & &.
The point is government departments and organisations want to work within
walking distance of Parliament and each other, its been that way since the 
capital
moved from Auckland and it shows no sign of changing despite the tech bubble.
There's a limited amount of space particularly given the Bolton St cemetery, the
motorway, other dedicated buildings such as the Railway Station, the old 
government buildings (largest wooden buildings in the Southern hemisphere
rhubarb rhubarb) and Cap Props has got most of it sewn up. In other
words it had what Warren Buffett calls a 'consumer monopoly'. What it needed 
to do was to imaginatively defend that, stick to its knitting and buy up any
government tenanted buildings in central Wellington that came on the market
at a reasonable price (or perhaps even at a high price).

Instead it went on a mad adventure that has now bitten it in the bum. Mr Castle
doesn't disclose that Cap Props has announced its intention to reduce dividends
by one fifth (oops, I forgot Mr C doesn't own any Cap Prop shares so perhaps
he didn't realise). You can't tell me that Cap Props didn't realise there was 
any
over renting in the Shortland portfolio as Mr C implies - the document sent to 
the
shareholders for voting on it disclosed the rent and the lease term. Sadly, I, 
like
the other shareholders thought the directors knew what they were doing and voted
for it. Its now apparent that they didn't. This brilliant Shortland portfolio 
Mr Castle
mentions contained the worst over renting cases and all the vacant property
(Auckland) and is the reason for the reduction of dividends and the property 
downwards devaluation hit.

cheers,
Hugh 



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