National Property picked to frustrate

Wellington's St Laurence Property & Finance has marginally increased its holding in listed landlord National Property Trust from 11.6 per cent to about 14 per cent, taking up the extra units after underwriting a refinancing deal.

Associate St Laurence Group owns National's management contract and the financier told NZX yesterday the increase in the holding came after the recent capital-raising of $35 million.

St Laurence underwrote the issue, which was 84 per cent subscribed with St Laurence taking up the difference. The money was needed to reduce National's debt to meet the terms of its trust deed, which was breached after real estate values sank.

National's investors will hear today about their prospects when the trust releases its annual result.

Analyst Mark Lister, of ABN Amro, predicted little good news for investors.

"We believe National is likely to report a disappointing result after a period punctuated by downgrades, dividend cuts and breaches of the trust deed. We also see some further potential downside risk to asset values, albeit minor," he said, recommending clients hold their units.

"While National's longer-term prospects may look reasonable and an earnings recovery is likely next year, we see little evidence of any of these factors causing a re-rating in the short term. The market's low confidence in the trust's short to medium-term outlook is likely to continue until the new manager proves its ability to turn things around. Our discounted cashflow valuation and target price for National have decreased slightly from 75c to 73c as a result of minor downgrades to our forecasts. We retain our hold rating and are still reluctant to view the current discount to net tangible assets and likely high dividend yield next year as a buying opportunity.

"National may well become a turnaround story ... but given that this year's result is likely to disappoint ... and that there may be even further downside to asset values, we foresee no turnaround in the short term.

"The key risk to our target price is National's ability to keep occupancy levels and rental growth at appropriate rates if there is a significant slowdown in the economy."

After the capital raising, National executive chairman Kevin Podmore said the extra capital had restored the ratio of borrowings to assets and dividends, which had been suspended, would be reinstated this year.

The office and shopping centre landlord is banned from borrowing more than 45 per cent of its gross asset value. Podmore said this ratio would now fall to 32 per cent.

National units were trading yesterday around 72c.