Kiwi Income Property Trust’s $50 million placement is expensive "insurance" for unitholders, says Stephen Ridgewell, an analyst at Macquarie Equities.
"KIP management views the equity raising as a form of insurance against declining metrics in the direct property market – but this insurance will be expensive for unitholders," Ridgewell says.
"In addition to the dilutionary effect of a 9% increase in units on issue, KIP’s average effective interest rate will increase about 20 basis points as the funds raised will be used to pay down cheap floating rate debt at about 4.8% interest compared to KIP’s average interest cost of 6.5%."
He says KIP’s headroom, with its bank covenant gearing limit at 45% compared with 35.2% before the issue, was considerable.
He values KIP units at $1.10 and has a $1 12-month price target compared with the 87.9 cent per unit placement price.
Ridgewell, who has downgraded his KIP recommendation to "underperform," says the issue "opens the floodgates" and AMP Property Trust, Goodman Property Trust and ING Property Trust will be next in line to come to the market for fresh equity.
His concerns about KIP include its heavy exposure to the fortunes of the retail sector as well as continuing revaluation losses.
BROKER
CALL:
Macquarie Equities rates KIP
as UNDERPERFORM.
Comments from our readers
No comments yet
Add your comment:
Related News:
Kiwi Income Property Trust
Kiwi Income sells Queen St building to Australian firm
Kiwi Income Property may need to sell assets or raise equity to exit management contract
Kiwi Income manager stays mum on internalisation proposal, sees retail, Auckland office improving
Kiwi Income manager mulls Commonwealth Bank proposal to internalise contract
Kiwi Income Property sees smaller payout in 2014 as annual earnings fall 15 percent
Kiwi Income Property first-half pretax earnings fall 16 percent
Wellington's commercial property market to remain subdued: KIP
Kiwi Income Property Trust
Write-downs hurt Kiwi Income Property Trust but 1H distributable profit rose 9.1%
