Kiwi Income drop rattles some analysts

Kiwi Income Property Trust, with real estate valued at $1.9 billion, is being hit by the retail spending downturn and has told investors they will get less money next year.

Sean Wareing, chairman of Kiwi's manager, said yesterday cash distributions would drop from this year's 8c per unit to 7.5c per unit next year, surprising some analysts who picked the payout to be higher.

Craig Tyson, ING investment manager, criticised the cut saying Kiwi should have used reserves to smooth this out.

"We're disappointed that Kiwi cut the dividend. We believe they should have held it by topping it up with dividend reserve.

"The distributable profit is lower due to a one-off tax item associated with depreciation on properties they sold," Tyson said.

The trust yesterday announced a $168.9 million loss in the year to March 31, 2009 compared with last year's $123 million profit but the loss was caused by unrealised revaluations in the property portfolio and adverse interest rate movements, Wareing said.

"Prospects for rental growth in the retail portfolio are inevitably constrained by current market conditions," Wareing said, also dismissing the prospect of big office rent hikes.

"Subdued economic and investment activity and potentially higher unemployment will likely bring an end to the significant rental growth enjoyed by the office sector.

"Vacancy rates are expected to increase over the next two years putting pressure on rental rates," he said.

Kiwi's giant Mt Wellington Sylvia Park mall took a big valuation hit from last year, falling from $471 million to $453 million.

Its tallest office block, the Vero Centre, has had $34 million wiped from its value, dropping from $334 million to $300 million.

Wareing emphasised that Kiwi's distributable profit fell only 1.8 per cent to $61 million. Kiwi's $50 million capital raising and asset sales of $38 million were all a move to strengthen the balance sheet by slicing into debt.

Jeremy Simpson, senior investment analyst at Forsyth Barr, praised Kiwi's result because it was in line with forecasts.

"Boring is good in this market," he said.

He had picked 7.8cpu as the 2010 payout and said next year's dividend guidance was slightly lower than he had picked but that was mainly due to the trust paying more tax next year.

"You should highlight the distributable profit because that's the important one for investors. Kiwi's result is very close to what we were going for and it's one of our recommendations," Simpson said.

He recommends Kiwi and Goodman Property Trust which yesterday released its annual result.

Stephen Ridgewell, an analyst at Macquarie Securities, rates Kiwi as one of the best trusts in the listed property sector because it offers good value on both a free cashflow and net tangible asset backing basis.

In a report out earlier this month, he expected Kiwi to keep next year's distributions fairly steady around 8cpu.

Ridgewell is also concerned about Kiwi's high exposure to retail, with Sylvia Park, Christchurch's Northlands Shopping Centre (was $258 million now $242 million), Palmerston North's Plaza ($133 million to $110 million) and other retail properties.

Kiwi's properties were valued at $2 billion last year but by the end of March were put at $1,866,529.

Units in the trust yesterday closed up 1c at 94c. Unitholders will get their next quarterly payment on June 24.