Big landlord's result gets pass mark from analysts

Sylvia Park in Mt Wellington, Auckland, rose in value by $22.7 million to $474 million, according to Kiwi Income Property Trust figures. Photo / File

New Zealand's largest listed landlord has pushed up distributable profit and issued a stable outlook, leaving analysts relatively satisfied.

The $2.1 billion Kiwi Income Property Trust, run by Colonial First State, made $68.8 million cash to pay unit-holders for the March year.

But a net after-tax loss of $26.4 million, mainly due to destructive Christchurch property devaluations, pushed it further into the red.

The earthquake damaged its 21-level Christchurch PricewaterhouseCoopers Tower and Northlands Mall at Papanui. There is speculation that Kiwi might demolish the office block, taking the insurance payout to reduce debt.

Goldman Sachs & Partners NZ's Buffy Gill has a sell recommendation on the stock and said the better-than-expected result was driven by lower costs from tax and interest rates. She had forecast $65 million distributable profit and said yesterday's result was slightly ahead of expectations and up 12.5 per cent on last year.

"The slightly stronger result was, however, purely driven by lower current tax and interest costs versus our expectations, with net rentals actually slightly softer [-1.5 per cent] than our forecasts," she said.

Kiwi's tax bill fell from last year's $10.7 million to $8.6 million.

Shane Solly of Mint Asset Management said the rental result was a little below expectations.

But the overall result it was slightly better than expected because of the lower interest and tax costs, he said. Confirmation of next year's 7c dividend was positive but dividends were likely to be flat for a few years.

Mark Lister of Craigs said the result "exactly" met expectations, hence the lack of change on the unit price. "I'm not worried about the headline loss, that's just a result of property valuations falling. It's the distributable profit that is the main focus."

Last year, Kiwi's total assets were valued at $1.98 billion. It made a distributable profit of $68.8 million for the year to March 31 this year, up $7.7 million or 12.6 per cent on last year's $61.1 million distributable profit.

But it recorded a bottom-line net after-tax loss of $26.4 million (previously $8.5 million), mainly because it took a big hit on property revaluations.

Property values fell by $82.4 million (previously down $74.7 million).

Kiwi's gearing must be below 40 per cent and now stands at just above 30 per cent. The trust has borrowed $759 million. The managers' fees increase from $9.7 million to $10.4 million.

Sean Wareing, chairman of Kiwi's manager, predicted distributions would remain the same.

"While the manager remains cautious in the current economic environment, based upon the outlook for the trust and subject to economic conditions, we are projecting a distributable profit after tax for the year ending March 31 2012 of approximately 7 cents per unit."

Kiwi's PWC tower in Christchurch has been devalued by $20.8 million to just $32 million. This reflected the valuers' assumptions on the restoration of access and services to the CBD and the extent of remediation works, the trust said.

Northlands at Papanui took a $31.1 million valuation hit, down 13 per cent to $307 million. But Sylvia Park rose in value by $22.7 million to $474 million.

KIWI INCOME PROPERTY TRUST
Full year to March 31
Gross rental income
2011: $191.6m
2010: $186.9m
Net rental income
2011: $137.8m
2010: $133.7m
Pre-tax operating profit
2011: $76.4m
2010: $73.4m
Property revaluations
2011:(-$82.4m)
2010: (-$74.7m)
Net after-tax profit (loss)
2011:($26.4m)
2010: ($8.5m)
Distribution
2011: 7cpu
2010: 7.5cpu