NZSA concerned Kiwi Property paying too much in dividends

Friday 14th June 2019

The New Zealand Shareholders' Association says it is concerned that Kiwi Property Group is paying out more in dividends than it is taking in as cash.

When Kiwi reported its results last month, it said it would pay a final dividend of 3.475 cents per share on June 20 to those holding shares on June 5. That takes the annual per-share payout to 6.95 cents, up from 6.85 cents.

That’s 9 percent more than the 6.4 cents per share it reported in adjusted funds from operations, or AFFO.

The company is forecasting a 7.05 cents per share dividend for the current year, “absent material adverse events or unforeseen circumstances.”

NZSA says that as well as increasing the dividends for the year just gone, it is also raising the forecast payout for this year “despite lacking cash coverage.”

That means “dividends will require a degree of debt funding, at least until the Sylvia Park development is completed and fully contributes,” the group representing retail shareholders says.

Kiwi is in the middle of its $258 million expansion of the mixed-use shopping and offices complex at Sylvia Park which is due for completion in mid-2020.

“The company explained that it felt shareholders would like to see dividend streams smoothed, but, in our view, that is different to making increases without sufficient cash to meet the extra cost, particularly with a degree of uncertainty over future macro-economic activity,” NZSA says in its advice to members on how it will vote its proxies at Kiwi’s annual shareholders’ meeting on June 20.

Kiwi says the AFFO measure is commonly used by real estate entities to describe their underlying cash flows from operation in a particular year.

“As you may be aware, we recently disposed of two non-core properties – Majestic Centre in Wellington and North City in Porirua,” Kiwi told BusinessDesk.

“We are redeploying the proceeds from those asset sales into new development opportunities at Sylvia Park that offer better long-term returns for our shareholders,” it said.

“Those opportunities are ANZ Raranga – our new office building anchored by ANZ and IAG – and our Galleria retail expansion,” the company said.

“Understandably, the asset sales result in a temporary drop in earnings while the new developments come on stream,” it said.

“We have chosen to smooth the dividend during this transition period, rather than reduce it. We signalled this intent to our shareholders at our annual result in 2018 and noted that our intention was to grow our AFFO over the next couple of years (assisted by the income from the new developments) to cover our cash dividend. “

The shares were recently down 0.6 percent at $1.565, and have gained almost 15 percent so far this year.

(BusinessDesk)

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