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Kiwi Income Property may be able to reverse $143.9 million tax hit

Friday 12th November 2010

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Kiwi Income Property Trust had to wear a $143.9 million tax bill as part of the government’s changes to rules on claiming depreciation, though the hit may be reversible.

The property investor made a net loss of $118.5 million in the six months ended September 30 compared to a loss of $18.2 million a year earlier, the Auckland-based trust said in a statement. Distributable profit, the preferred measure for property investors which strips out unrealised movements in fair value, rose 10% to $33 million. The tax hit meant the trust forfeited future tax deductions, but these won’t be realised, even if an asset is sold, it said. 

"The International Accounting Standards Board has recently issued an exposure draft which contains provisions which would have the effect of reversing the requirement to provide deferred tax on items which will not crystallise," the trust said. "Should this exposure draft be approved, as proposed, the one-off adjustment will reverse."

This week the trust extended $302.5 million of bank debt facilities that was due to expire next year, lifting the weighted average cost of debt about half a percentage point. Kiwi Income, whose properties include Sylvia Park shopping mall in Auckland, has some $800 million of debt facilities with ANZ, Bank of New Zealand, Commonwealth Bank of Australia and Westpac.

Net operating income rose 7.3% to $68.2 million with improved margins on Sylvia Park and The Plaza Shopping Centre.

The trust’s portfolio was worth $1.86 billion as at September 30, up from $1.83 billion a year ago. That gain was driven by its retail properties, which gained 4.5% to $1.11 billion. The value of its office space shed $22 million to $688 million.

The trust’s manager, Kiwi Income Property, was paid $5.1 million in the period, up from $4.7 million a year earlier when it agreed to rebate $449,000 in relation to the construction of Sylvia Park. Kiwi Income has resisted changing its management structure, where the company is paid a base fee of 0.55% on the average gross value of the trust’s portfolio, plus a performance fee for unit holder returns exceeding 10%.

Investors will receive a distribution of 3.5 cents per unit. The shares were unchanged at $1.04 in trading today and have decreased 1% this year.

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