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Strong result from Capital Properties

By Chris Hutching

Friday 23rd May 2003

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Top-listed property performer Capital Properties enjoyed a share price boost this week after reporting a jump in earnings and values thanks to buoyant office markets in Wellington and Auckland over the past year.

The company posted an operating surplus after tax of $15.9 million ($13.9 million last year) but this was boosted by unrealised property value increases of $17.9 million or 4.6% of the total portfolio, giving a final surplus after tax of $33.8 million.

The share price this week rose from 91c to 95c, a premium to the 90c a share net asset backing.

The higher earnings came from increased rental from some properties and lower interest costs after debt reduction paid from proceeds of a 1:3 rights issue last year.

The revaluations arise from increased rentals of 10/sq m to $15/sq m in Wellington. For example the Bowen Hse rent review of Parliamentary Services Corporation for its lease of 12,118sq m of office space and 55 carparks in Bowen House increased from $2.14 million to $2.67 million in December 2002.

The strong property market means there are few bargain buys for Capital Properties just now so the company is focusing on adding to the portfolio by building on its three Thorndon development sites.

Capital Properties shareholders are being rewarded with a fourth quarter gross dividend of 2.25c a share, taking the total dividend for the year to 9.9c a share, representing a yield for the year of just over 10%.

Another property trust reporting this week was Colonial Property Trust, which has traditionally focused on maintaining a steady dividend yield for shareholders at 10.5% but which disappointed unitholders when it posted its result last week.

A few months ago the company lost general manager Lloyd Cundy who departed to pursue his own interests and another Colonial First State appointee, John Dakin, took over the reins.

Mr Dakin has forecast downgraded earnings for 2003/2004, blamed on "the impending sale of two further properties and timing issues associated with the refurbishment and re-leasing of some assets."

As a result the directors are forecasting a fall in distributions over the coming year to about 9c to 9.5c per unit, "inclusive of cash, imputation credits and an element of retained earnings."

The trust reported an after-tax surplus of $8.4 million, well down on last year's $14.9 million for the March year-end result.

The property portfolio was valued at $225.4 million at the end of the period, down from $250 million last year partly because of asset sales of $21.4 million and $2.2 million in capital expenditure but the balance is attributable to downward revaluations in the portfolio of 2.3% ($5.4 million).

The fall in value arose from over-renting, uncertainty around major lease expiries and significant capital expenditure requirements in some properties.
The trust has moved to a policy of rotating valuers to carry out its annual valuation of its assets.

"Expectations are for a slowing economy in 2003 and therefore a more competitive environment within which to secure tenants," Mr Dakin said.

"However the low interest rate environment coupled with a sound balance between supply and demand in most property markets is likely to see continuing support for investment real estate."

But he noted that the trust recorded a total pre-tax return (combining dividend income and share price appreciation over the year) of 13.4%, ahead of the JB Were Property Index which recorded a total return of 11.2% and the NZSE40 gross index, which fell 2.8% over the year.

Net tangible asset backing fell from 99c a share to 95c a share while this week the share price followed suit and fell $1.14 a share to 99c a share.

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