Tuesday, July 22, 2008

Why did you buy that stock? [Kiwi Income Property Trust]

Kiwi Income Property Trust [KIP.NZ] was an addition to my portfolio earlier this year.

I wanted direct exposure to the commercial property market without actually buying a building outright.

Kiwi first came onto my horizon when I noticed they had ownership of the 40 level Vero office building in Downtown Auckland, and then my interest was piqued when their Sylvia Park shopping centre in Mt Wellington opened.

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That is all I knew about the company. I like what I saw in its two high profile assets and went digging a little further. Kiwi have a good mix of quality properties, shopping centres and office buildings from Auckland down to Christchurch, among them; Northlands Shopping Centre, Centre Place Shopping Centre, North City Shopping Centre, The Plaza Shopping Centre, Downtown Plaza Shopping Centre, Langdons Road, PricewaterhouseCoopers Building, The Farmers Building and Countrywide Building.

In a property company one of the number one things an investor should look for is good quality assets. For me Kiwi fit the bill, so that for me is the main reason for me to make my small purchase of shares.

Coming a close second is management. Good properties are only going to get good returns over a long period if they are managed well and Kiwi property certainly is.

Since its creation in 1993 the company assets have grown to over NZ $2 billion, it has a great occupancy rate for its properties and it increased profit to just over $63 million in 2008, from just under $48 million last year.

The mix, age, quality of construction and geographical spread of assets show how good management have planned ahead.

The Sylvia Park shopping centre is a case in point. New Zealand's largest retail centre, it has room and space to grow and has over delivered in terms of initial expectations.

The only problem that they have had, and this seems endemic with shopping centre planners, they under estimated the need for car parking, something they are now remedying with a multi story car park now under construction.

Now another reason I bought this stock was that it was cheap in comparison to its share price high, at just over $1.70 per share, and its net asset value to capital market price. Its current market cap of NZ$872 million is less than the net asset value of just over $1.1 billion, so I had to buy.

In the Why did you buy that stock? series I have to ask myself if I would still buy today. At the current share price of $1.13 it represents excellent value and I would like to add some more, should my wife stop taking me off overseas and making me pay for it!

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