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Write-downs hurt Kiwi Income Property Trust but 1H distributable profit rose 9.1%

Wednesday 16th November 2011

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Kiwi Income Property Trust's first-half net profit fell to just $1.5 million from $13.7 million in the previous first half after write-downs in the value of its properties but distributable profit was up 9.1 percent.

The trust's manager said distributable profit after tax was $36 million in the six months ended Sept. 30, up from 33 million in the previous first-half. Property investors tend to prefer distributable earnings as a benchmark, as it strips out unrealised moves in the fair value of their portfolios that have to be recognised under accounting rules.

The manager is forecasting a full-year distribution of about seven cents per unit, in line with previous guidance.

The trust's outlook “continues to be impacted by the current moderate pace of economic recovery within New Zealand,” it said.

But it benefits from its diversified portfolio of retail and office properties, its sound and diverse tenant base and its high overall occupancy rate – 98.3 percent at September 30.

“These defensive characteristics, together with a strong financial position and an active management approach, should position the trust to continue delivering solid underlying operating earnings.”

KIP has claimed $94.9 million from its insurance company for damage to its PricewaterhouseCoopers Centre in Christchurch, which is to be demolished, and has rejected an offer from its insurer of $47.4 million.

The manager said it has treated $71.2 million of insurance proceeds as income, being the mid-point between its claim and the insurers offer.

It has also written of $25.8 million from the centre's book value and has recorded the land at the site at $4.5 million.

The trust's Centre Place shopping centre in Hamilton's value was written down by $30.2 million to $86.5 million after an independent valuation by Jones Lang LaSalle.

“The value reduction resulted from the continuing decline in sales and net income performance caused by increased competition,” the manager said.

The manager said it plans a $39.9 million redevelopment of Centre Place “to reposition it as a competitive CBD specialty centre anchored by a new 7,000 square metre Farmers department store.”

The Canterbury earthquakes led the manager to conduct a seismic review of the trust's core office portfolio and its Majestic Centre in Wellington has been assessed at meeting only 34 percent to 40 percent of the New Building Standard (NBS).

Although the building is above the 34 percent minimum required by law, the manager plans to spend about $35 million on strengthening it to 70 percent of the NBS and has therefore written $35 million off the Majestic Centre's value.

The trust sold two buildings in Palmerston North and in Wellington for a total of $6.4 million, just above book value.

Overall, the value of the trust's portfolio fell by $61.4 million to $1.92 billion in the six months. Bank debt at Sept. 30 stood at $760.5 million, up from $759 million at March 31. The trust also had $84.3 million of funds from its mandatory convertible notes on deposit which put net gearing at 33.5 percent.

The manager said post balance date it has extended $297.5 million of bank facilities due to expire in March and April next year to new maturity dates between April 2016 and April 2017.

A further $295 million of bank debt expires between April 2014, April 2015 and May 2016 and were each extended a further 12 months.

The average term to maturity of the trust's debt was thus extended to four years from two years previously.

The trust will pay an interim cash distribution of 3.5 cents per unit, in line with guidance, matching last year's first half distribution. This year's distribution has imputation credits of 0.65 cents per unit compared with last year's 0.49 cents per unit, taking the gross distribution to 4.15 cents from 3.99 cents.

The manager has reinstated the trust's distribution reinvestment plan allowing unitholders to use their distributions to buy additional units at a 2 percent discount.

KIP units fell 2 cents to $1.065 in morning trading, off their recent high at $1.11 but up from the 93 cent low in August.


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