KEY POINTS:
Falling property values and interest-rate problems hit listed real estate investor Kermadec Property Fund, turning last year's $2.1 million profit into a $3.7 million loss.
Kermadec, reporting its half-year result, blamed the result on a $4.5 million paper loss from its property revaluations and a $1.9 million unrealised loss on interest rate swaps.
Both the problems were "non-cash charges", Kermadec emphasised.
If these problems were excluded, the business had a solid operating performance and made a net profit after tax of $2.57 million which was an increase on last year's result.
Kermadec's total assets rose from $136.4 million last year to $142.9 million this year. Its liabilities also rose, from $52.4 million last year to $64.3 million this year.
Assets increased because Kermadec bought property but the value of those holdings has sunk somewhat.
The value of Brookfields House in the city fell from $25.2 million last year to $25 million, a property on the corner of Nelson and Cook Sts in Auckland fell in value from $11 million to $9.4 million, 7 City Rd from $20.3 million to $19 million, Berkeley Cinemas at Takapuna from $8.1 million to $7.5 million, a Manukau property from $13.5 million to $12.9 million and a Palmerston North property from $12.1 million to $11.5 million.
Kermadec is selling an industrial/office property in Hamilton for $4.5 million and settlement is due at the end of this month. The sale will reduce the company's debt ratio to 38.3 per cent, Kermadec said.
A consultant to the business said Kermadec had also renewed a major banking facility.
Kermadec has a $50 million loan facility with ASB and renewed that until December 2010. It was paying 7.98 per cent fixed interest including margins and fees but will be paying 8.53 per cent when the loan rolls over next month.
"Another interesting point is that they have sold a non-core property asset at a price that is above valuation of $4.5 million compared to a book value of $4.4 million. So transactions are happening and it does prove the value of assets.
"Gearing is expected to go from 40 per cent to 38 per cent as a result," the consultant said.
"Clearly Kermadec has not been immune from the market fallout and that is reflected in the net tangible assets per share falling from $1.14 to $1.04 and the reporting of a headline loss due to two non-cash one-off items."
On November 14, Kermadec will pay a distribution of 2.02c a share for the three months to September and plans to distribute 7.8c a year in 2009.
But shareholders were told yesterday that the company was restricting that payout next year. Kermadec's board has capped distributions to no more than 100 per cent of operating cash flow. Previously, it could distribute 112 per cent.
Chris Francis, director of Augusta Funds Management which manages Kermadec, welcomed falling interest rates and said the board was optimistic. He said steps taken to reduce the debt ratio were appropriate.
Kermadec was trading at 49c yesterday, down from a 92c annual high.
KERMADEC PROPERTY FUND
Six months to September 30
Rent
2008 - $5.2m
2007 - $4.8m
Pre-tax profit (loss)
2008 - ($3.7m)
2007 - $3.1m
Net profit (loss)
2008 - ($3.7m)
2007 - $2.1m
