Write-off hits Newmarket property trust

By ANNA GIBSON

The AA Centre in Auckland, owned by retail specialist Newmarket Property Trust, dropped 13 per cent in value during the past year, helping to slash the trust's bottom-line profit by 79 per cent.

The trust's unaudited after-tax profit for the year to June 30 fell from $7.4 million to just $1.5 million.

The fall was principally due to the $3.5 million devaluation of the trust's Albert St office block, which is now estimated to be worth only $21.5 million, a change that the trust's managing director, David Keys, says partly reflects the weakening of the leasing market in Auckland's CBD.

Other factors cited by Mr Keys for the overall fall in profit were an $87,000 write-off from the sale of the George Courts apartment building on Karangahape Rd and a buy-back of 8 per cent of the trust's units.

The trust bought the AA Building for $21 million and then revalued it to $25 million, before its latest move to revalue it down.

Across its portfolio the trust has reversed the previous year's healthy revaluation of $1.2 million by slicing the value of its holdings by $3.6 million.

After the devaluations, the value of the trust's properties stands at $82 million.

With its debt standing at $33 million the trust now has a 39 per cent debt-to-equity ratio.

It says that over the past year it devalued its building portfolio by 3.6 per cent.

This movement follows the devaluations recently announced by other property entities.

Last week, the AMP NZ Office Trust in Wellington announced a 5 per cent, or $24.4 million, cut in values; last month, Dunedin's National Property Trust devalued its holdings by $1.7 million or 2.6 per cent.

The bulk of Newmarket Property Trust's assets are in Newmarket. Its holdings there include the Rialto Heart of Broadway shops and cinemas, the former Westpac Tower (now renamed Grant Thornton House after a new accounting tenant) and the Rialto Carpark. These holdings have a total value of $60.3 million.

"The CBD has weakened much more than we thought it would," Mr Keys said, "although Newmarket seems to be okay still."

He said part of the reason for the substantial downgrading in the AA Centre's value was due to the low sale price of the nearby Gosling Chapman Centre.

This sold in July to a US investor for $10.25 million, making it one of the largest property sales so far this year.

But it was also one of the sorriest. The building had been valued at $17 million in December 1997, so the latest sale raises a serious question about the state of New Zealand's commercial property market.

"The Auckland CBD office market has weakened over the past year and vacancy rates have risen," Mr Keys said.

"While many tenants in the city are moving, net office consumption has been low.

"The key to the AA Centre is the re-leasing programme, which is under way.

"The valuers have taken a very conservative view. If, as has occurred in the past, we do better than the valuers expect, in terms of effective rental, the value of the building may rebound."

Newmarket seemed somewhat immune to the declining Auckland CBD fortunes.

Village Rialto Cinemas have just renewed their lease for six years and the former Westpac Tower has been re-leased with six new tenants.

Casual car-parking revenue had doubled since the car park was upgraded and Wilson Parking appointed to manage it.

The trust will pay a dividend of 9.5c per unit.

Looking at the wider future for Auckland retailing, Mr Keys said there was a range of problems.

He said the Auckland City Council "appears hellbent on approving any application" made by developers for new shopping centres throughout the region.

Some $1 billion worth of development was being planned, the projects including Kiwi Income Property Trust's 25ha at Sylvia Park, the Winstone/Brierley Investments redevelopment of the Mt Wellington quarry and AMP's Botany Downs.

"We have objected to those developments on the grounds that we believe the council is not fulfilling its role of looking at sustainability."

He questioned the wisdom of allowing that level of expansion in the wider region and said although Auckland was growing, there was not the population to support the activity. "I think the CBD will suffer very seriously in retailing terms, although there's not much left to be devastated."