Property Trust Announces $93 Million Redevelopment
NZX & MEDIA RELEASE
21 February 2008
Kiwi Income Property Trust Announces $93 Million Redevelopment Of The Plaza Shopping Centre In Palmerston North
Kiwi Income Property Trust today announced the $93 million redevelopment and expansion of The Plaza Shopping Centre in Palmerston North to meet growing retailer demand for high-quality retail space.
Chief Executive of the Manager of the Trust, Angus McNaughton, said â€œthe redevelopment will substantially increase the size of The Plaza and consolidate the Centreâ€™s position as the leading retail destination in the Manawatu-Wanganui region. The Plaza will increase in area by nearly 60% from 19,700m2 to 31,200m2, and the completed redevelopment will feature a new two-level 6,800m2 Farmers department store.â€
The $93 million total estimated capitalised cost of the redevelopment also includes the refurbishment of the existing Centre, the construction of a new foodcourt, and the creation of additional space to accommodate around 40 new specialty retailers. The preferred contractor to undertake the construction project is Lockwood Naylor, a joint venture between Naylor Love and Palmerston North firm, McMillan & Lockwood.
The first stage of the project, involving construction of a three-storey car parking building, will commence in March 2008 and the entire redevelopment is scheduled for completion in the second quarter of 2010. Upon completion, The Plaza is projected to have a value of approximately $209 million, providing a projected yield on the capitalised cost of 7.5%, rising to more than 8.5% in the third year post completion. The projected IRR (internal rate of return) is 9.8% per annum over eight years.
Mr McNaughton said â€œthe decision to redevelop and expand The Plaza was supported by growing demand for high-quality retail space from local, national and international retailers.
â€œThe Plaza is situated in the heart of the Palmerston North CBD and is the strongest performer in the Trustâ€™s portfolio on a sales per square metre basis. The Plazaâ€™s trading success can be attributed to the strength of key merchandise categories such as fashion and this dominant market position will be consolidated with a further 40 specialty retailers taking space in the completed redevelopment,â€ Mr McNaughton said.
â€œThe opportunity to accommodate a greater number of retailers in The Plaza is highlighted by Palmerston Northâ€™s low ratio of retail centre space per capita compared with other metropolitan centres,â€ he said.
â€œThe city is a major distribution centre and is supported by a strong agricultural base, a significant presence of armed-forces personnel and a broad education sector including Massey University, New Zealandâ€™s largest institution for agriculture, life sciences and horticulture,â€ he said.
Palmerston North City Council has granted resource consent for the $93 million redevelopment which represents less than 5% of the Trustâ€™s $2 billion in total assets.
In a separate transaction in December 2007, the Trust purchased the Countdown Supermarket adjoining The Plaza for $14.5 million from Macquarie Countrywide of Australia.
Mr McNaughton said that â€œthe acquisition of Countdown made long-term sense for the Trust given that the supermarket is an integral part of the overall site.â€
The redevelopment and the acquisition will be funded through a new $100 million, five-year committed bank debt facility finalised in late 2007. The commercial terms for the new facility are in line with the Trustâ€™s existing debt facilities. With the additional $100 million, the Trust now has total committed bank debt facilities of $750 million. The facilities, provided by ANZ National, BNZ, CBA and Westpac, have a broad spread of maturities of between two and five years and a weighted average term to maturity of three years. The first tranche is scheduled for renewal in April 2009 and represents less than 10% of the $750 million in total debt facilities.
Mr McNaughton said â€œupon completion of The Plaza redevelopment in 2010, the Trust will remain conservatively geared at around 34% of total assets.
â€œThe Trustâ€™s strong operating performance has continued into 2008 and the Trust is in a position to confirm the projected full cash distribution payable to Unit Holders of 9.00 cents per unit for the financial year to 31 March 2008, an increase of 7.9% over the previous year,â€ he said.