The $3 billion retail, office block and soon-to-be-apartment landlord Kiwi Property Group recorded lower losses in its latest half-year, partly due to less-savage property writedowns.
The owner of New Zealand’s largest shopping centre, Sylvia Park, recorded a $36.6 million net loss after tax in the six months to September 30, 2023.
That is 114 per cent below the previous $151m net after-tax loss, mainly due to devaluations, which previously dropped by $219m, falling only $81m in the latest half-year.
Total revenue fell 15 per cent from $132m in the September 2022 half-year to $117.7m in the latest period.
Kiwi said of the property writedowns: “Fair-value loss on investment properties during the period reflects further softening of capitalisation rates by valuers in the wake of increasing interest rates.”
Kiwi’s investment property portfolio now stands at $3.1 billion, down 3 per cent from the $3.19b previously.
The business has quit properties lately in a programme that brought in $127m after selling the Westgate Lifestyle Centre and the Sylvia Park Ikea site.
The Westgate property is opposite Costco and includes the huge Harvey Norman store, while the Ikea site is on the other side of the train tracks from Sylvia Park.
One of Kiwi’s biggest transformations as a business is its entry into the build-to-rent market, developing nearly 300 new apartments in three towers built by Naylor Love and due to open about the middle of next year.
Another huge transformation is its development of ex-dairy Drury East land into a new town centre beside Auckland’s motorway north of Pukekohe.
Chief executive Clive Mackenzie said the company’s capital recycling activity would help create a higher-quality and more-profitable asset base.
“By disposing of our non-core, capital-intensive assets and reinvesting the proceeds into opportunities such as Drury and build-to-rent, we will build a greener, more-resilient and lower-risk portfolio. While this capital recycling activity has resulted in a temporary decline in revenue, the steps we’re taking will promote greater tenant demand, better rents, lower seismic costs and improved returns for our shareholders,” Mackenzie said.
On a like-for-like accounting basis, which strips out various one-off items including asset sales, Mackenzie said net rental income actually rose 2.5 per cent.
“We discussed that with analysts today,” he said.
Retail asset sales rose 14.9 per cent in the latest year and Sylvia Park precinct sales were $915m for the latest 12 months ended September 30, 2023 and that rose 18.1 per cent on the prior year.
On Black Friday last week, there were problems at Sylvia Park which has 5000 spaces.
“It was reasonably minor but at a busy time of year when we attract lots of customers. We put on our website and social media links to illustrate the best parking locations, particularly at Sylvia Park. Staff are also in car parks to help guide shoppers to available parks and the best locations to park. This will happen all the way up to Christmas and also into early January,” Mackenzie said.
On property writedowns, he said: “The reduction in the value of our investment portfolio is disappointing, but reflects the recent downturn in the property cycle. On a more positive note, it’s encouraging to see the increased stabilisation of our mixed-used asset values, where rental growth has helped offset capitalisation rate softening. For example, The Base has defied the economic conditions to increase in value by 3.7 per cent through the period.”
Kiwi Property completed almost 350 leasing transactions in the latest six months, delivering a 4.5 per cent total uplift on new mixed-use leases, renewals and rent reviews. New office leases and renewals were up 13.9 per cent.
Shortland St’s Vero Centre, ASB North Wharf on the waterfront and new office blocks at Sylvia Park are all owned by Kiwi.
At Drury East, Kiwi, Fulton Hogan and Oyster Capital are planning to develop a city about the same size as Napier, with about 60,000 people living on a 330ha site that will have a town centre, employment, schools and perhaps a hospital. Kiwi has started on its site and will continue earthworks there in the summer. Kiwi is more advanced than the other two companies, with consented earthworks starting last October on ex-dairy land.
Earthworks are now underway again at Drury East although construction is around two years away, beginning on residential superlots which will be sold to group house builders, Mackenzie said.
Large-format retail sites would be sold to tenants to begin construction on that phase around 2026.
Selling sites at Westgate and Sylvia Park resulted in a 16.2 per cent reduction in net rental income to $89.1m.
Beside Sylvia Park, Kiwi’s three apartment towers with 295 units are now being fitted out after being topped off in August.
The opening is scheduled for next May.
“Strong inbound migration, high borrowing costs and a decline in building consents are expected to promote demand for rental accommodation in the short-to-medium term, accelerating growth in the BTR sector,” Kiwi said today.
Resido is Kiwi’s new apartment brand, due to be launched soon.
“The aspirational proposition will be advertised across a range of marketing channels and consumer touch points, helping to stimulate tenant demand. Kiwi Property expects the lease-up of its Sylvia Park BTR project to take 12-18 months,” it said of its rental apartments beside the huge mall.
The Sylvia Park apartments will be called Resido Lynton, named after one of the streets surrounding the blocks. The New Lynn residential development is yet to begin but that is on land beside LynnMall.
On December 20, shareholders will get a cash dividend of 1.425cps for the second quarter, taking the interim cash dividend payment to 2.85cps. The total annual dividend will be 5.7cps.
On the outlook, chairman Simon Shakesheff, said: “We’re pleased to maintain our dividend, despite the challenging economic conditions, in line with our focus on delivering for our shareholders. Our like-for-like operational results reflect the resilience of the business and it’s encouraging to see leasing spreads and pedestrian counts rising. The retail sector continues to perform better than many had expected, and we’re well positioned to benefit from this trend, given our excellent portfolio of retail-led mixed-use assets.”
Shares are trading near 84¢, down 7 per cent annually, less than the reduction for many other property stocks.
Anne Gibson has been the Herald’s property editor for 23 years, has won many awards, written books and covered property extensively here and overseas.
The store is one of the most profitable and popular in Foodstuffs' North Island co-op.