Kiwi Trust earns praise in shaky times

Sylvia Park Shopping Centre in Auckland increased in value by 5.8 per cent to $500 million. Photo / Steven McNicholl

Institutional investors praised Kiwi Income Property Trust's annual result yesterday which turned last year's $26.4 million loss into an $89.2 million annual net profit after tax.

Although that turnaround largely reflected the insurance payout on its PricewaterhouseCoopers building in Christchurch, OnePath's Craig Tyson and Mint Asset Management's Shane Solly said the business had done well.

Tyson was particularly happy with the good operating result "following a tough year in which there was little other good news apart from perhaps the insurance payout on PWC, a building they were trying to sell prior to the Christchurch earthquakes," he said.

"Other new information in the result was guidance on further strengthening work, in addition to the $45 million to be spent on Northlands in Christchurch and Majestic Centre in Wellington, of $30 million to $40 million over the next 10 years. Unfortunately all this expenditure is a sunk cost and is unlikely to result in a lift in rent or portfolio valuation."

The outlook was likely to remain challenging for Kiwi as mall-based retailers faced rising costs from rates in Auckland, insurance and the increase in the minimum wage, Tyson said. "Office looks a little better with improving absorption and lower vacancy forecast," he said.

"Kiwi has high-quality assets and is likely to remain reasonably resilient in the year ahead, however gearing at 35.6 per cent is a little high relative to covenants and the sector."

Solly said Kiwi had survived an unusually demanding year, particularly with earthquake activity.

"While the trust is in reasonable order, the Kiwi Income Management team have a lot on their plate over the next year with the completion of key earthquake-related works, completion of developments and the execution of several key lease expiries," Solly said.

"We expect Kiwi to benefit from improving physical property market conditions in New Zealand but the Kiwi management team will still have to work hard to deliver a reasonable outcome for investors." Mark Ford, chairman of the trust's manager, said the highlight of the year was the positive sales performance of the shopping centre portfolio, with sales growth of 8.4 per cent to $1.43 billion for the year.

This flowed through to a positive revaluation result for the retail portfolio, highlighted by the Sylvia Park Shopping Centre in Auckland, which increased in value by 5.8 per cent to $500 million, he said.

Kiwi Income continued to make progress with the development of the ASB Bank head office in Auckland.

Unitholders will get 7c a unit, in line with previous guidance and the final distribution will be sent out on June 19.

Kiwi units were yesterday trading around $1.10.