Kiwi Property Group Ltd lifted operating earnings by 13% in the year to March, but a $135 million cut in revaluation gains put paid to any rises on other financial statistics.
Don’t feel sorry for the company though: Kiwi was very happy to bask in the glow of that revaluation windfall last year. When the company announced its 2016 result, chief executive Chris Gudgeon said: “We have this year seen the benefit of our long-term strategic initiatives, with asset values rising on the back of rental growth, leasing success & development activities, combined with improved market conditions.”
Carefully ignoring revaluations meant that, this year, Mr Gudgeon could focus on other aspects of the business, many of them more positive for the long term than a market shift in portfolio assessments.
But first, those key figures:
- Net rental income up 16.6% to $182.5 million ($156.6 million)
- Funds from operations up 12.9% to $102.8 million ($91.1 million)
- Net fair value gain on investment properties $41 million ($175.9 million)
- Net fair value gain/(loss) on interest rate derivatives $9.7 million ($17.6 million loss)
- Total income down 35.7% to $290.6 million ($391 million)
- Pretax profit down 36.8% to $171.7 million ($271.7 million)
- After-tax profit down 43% to $143 million ($250.8 million)
- Basic & diluted earnings/share down 45% to 11.10c (20.15c)
- Investment properties up 11.2% to 2.97 billion ($2.67 billion)
- Gearing ratio 34.5% (30.3%)
- Net asset backing/security up 3.7% to $1.39 ($1.34)
- Weighted average cap rate down 3.2% to 6.40% (6.61%)
- Occupancy rate 98.8% (98.7%)
- Weighted average lease term 5.6 years (5.1).
Mr Gudgeon said the rise in funds from operations, the company’s key operating measure, was driven predominantly by rental income from completed developments & acquisitions.
He said in the company results announcement today that Kiwi’s strategy in recent years had been to substantially rebalance its portfolio weighting towards Auckland: “We’ve invested in high quality office buildings & retail centres in locations favoured by the Auckland unitary plan, and we increasingly see ourselves as town centre investors, creating diverse, engaging environments for New Zealanders – exceptional places for exceptional people.
“Outside of Auckland we have invested in dominant regional shopping centres and in the creation of a core Government office precinct in Wellington, supported by long-term Crown leases.
“At year end, we retained a strong balance sheet. Our gearing ratio stood at 34.5% and our net tangible assets/share increased from $1.34 to $1.39, reflecting positive asset revaluations. Our overall cost of debt reduced 27 basis points to 4.61% after we took advantage of favourable debt market conditions to refinance.”
He said the company continued to diversify its revenue base, growing third-party assets under management to $400 million. It added The Base at Te Rapa & Centre Place South in Hamilton to its external assets under management.
Other key outcomes for the year included:
- opening New Zealand’s first H&M and Zara stores at Sylvia Park
- starting construction works on a new office building at Sylvia Park, which will seamlessly integrate with a ground-level extension to the existing dining lane. Kiwi will also build a new 600-space carpark building
- completing the 35,000m² core Government office precinct in Wellington (44 The Terrace & The Aurora Centre), with tenants now in occupation, providing a weighted average lease term of 15 years
- completing the seismic strengthening work at The Majestic Centre, which achieved a seismic performance rating of 100% of new building standard on the office tower, and securing new lease agreements over 2800m² with Summerset and OMV
- assuming management of The Base under the joint venture agreement with Tainui Group Holdings
- securing a new 12-year lease with Suncorp for 5991m² of office space at the Vero Centre
- the rollout of further electric vehicle charging stations at shopping centres, taking the total to 22 at 5 centres, and
- being named the best performing New Zealand company for carbon disclosure.
Post-balance date, the company announced it had acquired, or secured acquisition agreements, for 51ha of future urban land at Drury, 35km south of the Auckland cbd.
Link: Property compendium
Attribution: Company release, accounts.