Investors say trust should be selling

AMP NZ Office Trust, the biggest listed office landlord, has called for $201 million in cash. Photo / Supplied

Analysts and investors were yesterday shocked at AMP NZ Office Trust's $201 million call for cash, saying the listed landlord should have sold some buildings before raising new money.

Craig Tyson, investment manager of ING (NZ), which holds 12 per cent of the trust, was extremely critical of the renounceable rights issue and castigated the move.

"We've had a gun held to our heads. We're hurting, we're hurting." he said, explaining how the capital raising was good for new investors but extremely bad for existing unitholders like ING.

The trust had raised about $300 million in the past 2 years but only paid out dividends of about $100 million, Tyson said.

"This is not a great track record for yield-hungry investors. This plays right into the hands of the syndicators who criticise the listed sector and sceptics like Bruce Sheppard who say these structures are flawed and then you get this behaviour by the managers.

"This is the only vehicle that has not sold assets in the last year. We have a last-resort capital raising at these levels when the stock is so depressed. It will be incredibly popular with people who don't already own the units because they get the chance to buy in at a depressed level," he said.

The trust closed yesterday at 78c.

"We are taking up our rights because otherwise we get diluted out of the vehicle so we've had a gun held to our heads: nine new units for every 20 you have and if you don't take them up, you end up with a smaller share," Tyson said bitterly.

The trust should have been actively marketing and selling assets to shore up its balance sheet instead of going "cap in hand" to investors, he said.

ING is the trust's second-largest unitholder behind Abu Dhabi interests Haumi Company which owns 19.9 per cent of the trust and half the management. Haumi will take up its full entitlement.

Tyson said the trust's gearing levels were about to increase from 28 per cent to 35 per cent due to building devaluations but this would still have been well within trust deed covenants of 40 per cent. "We could have lived with 35 per cent. It would still have been very low."

Rob Lang, the trust's boss, said Tyson's criticisms were unfair because asset values had grown by $540 million in the last five years, distributions were up 4.5 per cent annually in four years and the trust was in the top three listed property entities.

"He's feeling bruised but he's wrong about selling assets," Lang said, saying market demand was in the sub-$20 million range.

Shane Solly and Carlie Eve of Mint Asset Management both said the size of the deal was "chunky" and had taken the market by surprise.

Rob Foster and Daniel Reynolds of ABN Amro Craigs said the move put management credibility in the spotlight because it came as such a huge shock to the market.

In a report headlined "A cannon to the head," they said the money was needed to shore up the balance sheet ahead of big trouble from building devaluations and declining rent roll as vacancies rise. The call for $201 million had taken the market by surprise, they said. One of the trust's few fans was market commentator and investment expert Arthur Lim who said the trust had made a sensible move.

"It's a prudent thing to do. APT is doing the right thing to ensure the long-term viability of the trust. It might be uncomfortable in the short term but a few years down the track it will prove to be the right move," he said, praising the trust's move to raise such a big sum after Kiwi Income Property Trust raised only $50 million. Lang described ABN's note as "very disappointing and ill-considered".

AMP NZ OFFICE TRUST
* Biggest listed office landlord.
* Has property valued at $1.5 billion.
* Offer opens on May 18, closes June 4.
* $201m needed to repay bank debt.
* $242.5m loan expires in October.