Trust hit by vacancies and low rents

Listed landlord National Property Trust is suffering from a rising amount of vacant space and charging too little rent for some of its real estate.

Jason Lindsay, research analyst at First NZ Capital, studied the trust's result which came out last week and noted the two issues.

The portfolio continues to be under-rented by around 9 per cent, equating to about $2.2 million in lost rental revenues, he said.

"Half of this is due to vacancy which now sits at 95.8 per cent versus 97.1 per cent in the previous corresponding period. Around $600,000 relates to under-renting," he said.

The trust owns properties valued at $266.8 million. It suffered a 9.1 per cent devaluation in the past year, slicing $28.1 million off the value of its real estate.

That devaluation, coupled with unrealised fair-value swap losses of $8 million at balance date, resulted in an after-tax loss in the year to March 31, of $21.3 million.

In the 10 months to the end of March 2008 the trust made a net profit of $18.4 million.

The trust made dividend distributions in the year to March of 5.01c per unit but will pay investors less next year. It forecasts 4.5cpu for the current financial year.

Lindsay said the trust was unlikely to be able to correct the under-renting and vacancy problems in the near future due to the state of the market.

The under-renting could not be changed for a number of years due to historic unfavourable lease terms, he said.

However, a Tauranga and a Napier property could boost earnings next year, he predicted.

"While we are forecasting a small $300,000 increase in net rental revenue for the year to March 31, 2010, this is primarily a result of the full-year impact of increased revenues on Oceans Boulevard (Napier) and Goddards Centre (Tauranga)," he said.

The amount of vacant space in the trust's portfolio could rise soon, he said, forecasting no contract rental growth in the year to 2010 due to market conditions. First NZ had adopted property consultants' CB Richard Ellis valuation predictions which were pessimistic, Lindsay said.

The trust could have only 89 per cent of its portfolio leased under this scenario. Market rents could also decline by as much as 9 per cent but this would not filter through to longer-term contract rents, he said.

Kevin Podmore, chairman of the trust's manager, said last week that the result was driven by solid underlying operating performance. The market was challenging and difficult conditions were expected to prevail for some time but the trust had defensive attributes which came into play in these times.

Lindsay praised the trust for renegotiating its bank debt facility which runs until November 2011.

PORTFOLIO

National Property Trust:

RETAIL
* Eastgate Shopping Centre, Christchurch
* Rialto Centre, Newmarket, Auckland
* Goddards Centre/Dumbarton, Tauranga
* Ocean Boulevard, Napier
* Avonhead Shopping Centre, Christchurch
* HWMC Warehouse, Christchurch

COMMERCIAL
* AA Centre, Albert St, Auckland
* Baldwins Centre/AMI Plaza, Wellington
* Torrens House, Christchurch
* Carlton DFK Tower, Auckland
* Sel Peacock Dr, Auckland
* Liardet Street, New Plymouth

INDUSTRIAL
* Print Place, Christchurch
* Heinz Watties Warehouse, Hastings