Expansion by growth - literally
The New Zealand Rural Property Trust has survived a wind-up threat and now wants to get on with improving the fund and its performance.
Friday, March 13th 1998, 12:00AM
The New Zealand Rural Property trust is planning to solve its cash flow problems and grow the trust by embracing forestry.NZRPT's cash flow problems were highlighted recently by a group of unitholders who unsuccessfully sought to have the $70.7 million fund wound up.
Their analysis of the trust's accounts showed that most of its income was paid to the management company, which is ultimately controlled by cornerstone unitholder Williams and Kettle, and the trustee, New Zealand Guardian Trust.
NZRPT chief executive Tim Ryan says the company is currently talking with a number of forestry trusts about some sort of arrangement.
He would not say who the trust was talking to, however speculation centres on the Flat Rocks Forest Trust which was recently put into receivership.
The idea is that if the trust held enough forests of different age classes it could generate sustainable cashflow from harvesting operations.
Besides buying forests the manager is intending to plant portions of farms it already owns in trees.
The trust hasn't outlined what percentage of its assets it intends to hold in forestry, however Ryan says it is likely to mirror New Zealand's primary industry sector.
At present NZRPT owns one forest, that is the 1124 ha Ngaruawahia Forest, which is five years away from harvest.
Management's other expansionary strategy is to increase the size of current properties. There is potential to do this now as land adjoining 10 of NZRPT's farms is currently on the market.
Although management has plans to expand the trust it won't be using debt to buy assets, Ryan says.
Such a move is possible, however the recent demise of Flat Rocks illustrates the problem with adding debt into the equation, he says.
Likewise there are no plans to list the trust, or make it a closed end fund.
Ryan say while everyone would like to list the trust there are two factors working against it. One is that it would trade at a discount to net asset value and the other is that the redemption option would have to be dumped.
Management's other plan to increase the value of the trust is to change the nature of the farm leases.
Instead of having long-term leases the manager wants to move to "evergreen" leases which could be terminated by either the manager or the lessee on 12 months written notice.
Currently the manager estimates the long-term nature of the present leases discounts the value of the trust's assets by $6.6 million, or 11c a unit.
With the "evergreen" leases that discount will decrease and the benefits will accrue to unitholders over the years 2002 to 2005.
Ryan says seven of the 32 leases have been converted to the new system.
He says the manager is keen to attract new investors into the trust, particularly younger people, as its long-term nature would suit people saving for retirement.
Besides using the financial planning community as a distribution source the trust is going to do some targeted direct marketing.
Ryan says direct marketing to young people won't conflict with planners as they tend to target older, lump sum investors. That is shown up by the age profile of the trust's unitholder register that is presently dominated by older people.
A new prospectus and an investment statement will be released soon.
Ryan hopes he unitholder dissatisfaction which culminated in a special general meeting can be put behind the trust now. He admits there have been problems and problems with communication, however the manager will try to improve in those areas.
"The trust has changed to what it was 10 years ago," he says.
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