Close eye on Sylvia Park risks

Angus McNaughton says Kiwi Income Property Trust's retail portfolio has been particularly strong. Picture / Glenn Jeffrey

Investors will cast a close eye over the development risk that New Zealand's biggest listed property vehicle, Kiwi Income Property Trust, is taking at Sylvia Park in Auckland.

Announcing its bottomline profit yesterday - an increase of 7.3 per cent on the previous year - the trust said it would "at this stage" retain 100 per cent ownership of stage one of the development.

Stage one - the retail part - will include a 62,000sq m shopping centre and cost $363 million.

That compares with the trust's assets of $1.26 billion.

Angus McNaughton, the chief executive of Kiwi's management company, said the development would be part-funded with an issue of $110 million to $140 million of mandatory convertible notes.

The issue is likely to open early next month.

The company would also use existing debt facilities and the proceeds of the sale of the AUT Building.

McNaughton said some shareholders would be concerned by the level of development risk at Sylvia Park but he thought they would be reassured by measures including:

* Guaranteed maximum price and fixed lump contracts for construction work.

* The trust's securing of key resource consents and control of "all the land we need".

* The signing up of four anchor tenants: The Warehouse, Foodtown, Pak'N Save and a Hoyts multiplex cinema.

Higher rental income and high occupancy rates helped to push the trust's full-year profit up.

The company said growth in its underlying earnings resulted in a profit of $52.7 million for the year to March, with pre-tax profit up 18.5 per cent to $66.47 million.

The trust will pay a final dividend of 4.31c a unit on June 17, bringing the gross dividend for the year to 8.65c.

Kiwi said the level of earning for the year had allowed it to retain 5 per cent of net earnings to assist with ongoing financing requirements.

The chairman of the trust's management company, Sean Wareing, said the "'outstanding" result was due to extensive leasing activity, strong rental growth, and focused, strategic portfolio expansion and redevelopment.

"The result marks a highly successful year for the trust, which continues to deliver consistently on its objective of maximising income and providing long-term sustainable returns to unit-holders," he said.

The trust's total assets increased by $163 million to $1.26 billion over the March year, while its total interest-bearing debt rose to $341 million, representing 27 per cent of total assets.

McNaughton said the result had been achieved through excellent performances from the retail and office portfolios - particularly retail.

Occupancy levels across the trust's retail properties had remained high at 99.3 per cent.

In the office portfolio, occupancy levels rose to a record 99.6 per cent.

The trust bought three properties during the year: Unisys House for $44.1 million, the NGC Building for $19.4 million and Intergen House for $4.2 million. The buildings are adjoining properties in Wellington's central business district.