KIP: Portfolio valuation and distribution guidance

NZX & MEDIA RELEASE

2 April 2012

Portfolio valuation and distribution guidance

Kiwi Income Property Trust today reported an increase of $58.7 million (+3.0%) in the value of its portfolio of prime office and retail assets for the six-months ended 31 March 2012. After taking into account the reduction in value that was reported in the first half of the financial year, the Trust recorded a net reduction of $33.5 million (-1.6%) in the value of its portfolio over the full financial year to 31 March 2012. The overall value of the Trust’s property portfolio now stands at $2.0 billion.

The valuations were determined by independent valuers, are subject to final audit and will be confirmed in the Trust’s financial results for the year to 31 March 2012.

The Trust also announced that it has reached agreement in principle with the Trust’s insurers regarding its insurance claim for the PricewaterhouseCoopers Centre in Christchurch, which is currently being demolished. The agreement, which is subject to formal documentation, will result in the Trust receiving total insurance proceeds of $69.3 million, which includes payments made to date totalling $6.3 million. This settlement is broadly in-line with the amount of insurance proceeds recognised in the Trust’s interim financial statements.

Mr Mark Ford, Chairman of the Manager of the Trust, said: “It is pleasing to note the positive valuation outcomes recorded for the Trust’s retail portfolio which, in combination with a satisfactory settlement of our insurance claim for the PricewaterhouseCoopers Centre, have put us in a positive position at year end where we can record an increase in underlying net assets per unit.”

As at 31 March 2012 the net bank debt gearing ratio was approximately 34% and the Trust’s undiluted net tangible asset backing per unit was approximately $1.10, up from $1.07 in the prior year. Adjusting the 31 March 2012 net bank debt gearing ratio for the receipt of the balance of the insurance proceeds would have the effect of reducing the gearing ratio to approximately 32%.
Retail portfolio valuation

In the year to 31 March 2012, the value of the Trust’s retail portfolio increased $23.4 million (+1.8%) to $1.3 billion, driven by the Trust’s Auckland shopping centres. The Trust’s flagship asset, Sylvia Park, increased in value by $27.4 million (+5.8%) to $500 million due to its strong trading performance, and LynnMall, which was purchased by the Trust in December 2010 for $174 million, has shown value growth of $7.3 million (+4.1%) over the prior year.

The value of Northlands in Christchurch has recovered following a solid year of retail trading, despite a recent announcement by the Trust that earthquake strengthening works are to be undertaken to parts of the Centre. The estimated cost to reinstate a portion of the Centre containing 14 shops has been estimated at $12 million including loss of rental income. These costs have been incorporated into the valuer’s assessment but offset by a 50 basis point firming in the Centre’s capitalisation rate from 8.50% to 8.00%. The Centre’s value now stands at $214.2 million, up $5.0 million (+2.4%) over the prior year.

The competition-affected Centre Place Shopping Centre in Hamilton, currently undergoing redevelopment, was the only retail asset to post a negative valuation outcome for the year, declining in value by $19.7 million (-16.6%). The Centre’s value declined $30.2 million (-25.8%) to $86.5 million at 30 September 2011 but recovered in the second half to a year-end value of $98.8 million. The value improvement followed the announcement of a $39.9 million Centre redevelopment which features a new Farmers department store on a 15-year lease.

On a like-for-like basis, the weighted average capitalisation rate for retail assets firmed 12 basis points, from 7.56% to 7.44%.

Mr Chris Gudgeon, Chief Executive of the Manager of the Trust, said: “It is pleasing to see the growth in value of our shopping centres, consistent with the 8.8% increase in retail sales we recorded over the year to 31 December 2011.”

Office portfolio valuation

In the year to 31 March 2012, the value of the Trust’s office portfolio decreased by $67.5 million (-10.6%) caused predominantly by a $26.8 million write-off of the Trust’s investment in the PricewaterhouseCoopers Centre in Christchurch and a $34.6 million write-down in the value of The Majestic Centre in Wellington, which followed the November 2011 announcement of a $35 million earthquake strengthening program.

These two write-downs, together with the Centre Place value decline, accounted for the majority of the first-half portfolio value reduction.

The overall value of the office portfolio now stands at $567.0 million with a like-for-like weighted average capitalisation rate of 8.32%, up 8 basis points on the prior year.

Excluding the PricewaterhouseCoopers Centre and The Majestic Centre, the balance of the office portfolio recorded a like-for-like decline in value of $6.0 million (-1.2%), with a modest increase in the value of Auckland assets offset by declines in Wellington values, reflecting a weaker office market in the capital city.
Mr Gudgeon concluded, “While the Trust experienced some challenges across the property portfolio during the year, predominantly attributable to direct and indirect effects of the Canterbury earthquakes, it is pleasing to note the Trust’s strategic emphasis on prime retail shopping centre assets has delivered a good year-end valuation result.”

Distribution guidance

The Trust’s distributable profit after tax for the year ended 31 March 2012 (excluding the balance of the insurance proceeds) is expected to be slightly in excess of previous guidance given at 7.00 cents per unit. Consistent with the interim distribution, it is anticipated that Unit Holders will receive a final cash distribution of 3.50 cents per unit, taking the full year cash distribution to 7.00 cents per unit.

“We are encouraged that the positive performance of New Zealand’s rural sector and the sound outlook for the country’s export sector is beginning to feed through to the broader economy, as evidenced by the recovery in retail sales in our shopping centre portfolio,” said Mr Ford.

“We do however see the need to remain cautious in the current environment and take into account the cost and income impacts of our earthquake strengthening requirements, notably at Northlands Shopping Centre and The Majestic Centre. Based upon the outlook for the Trust and subject to a continuation of reasonable economic conditions, we are projecting the distributable profit after tax, and distributions to Unit Holders, for the year ending 31 March 2013 to be approximately 6.60 cents per unit.”

A full valuation summary as at 31 March 2012 has been provided to NZX with this announcement.
ENDS

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