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Kiwi Property operations up as revaluation gains slashed

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).

Portfolio performs

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.

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Occupancy right sales lift Ryman

Ryman Healthcare Ltd said on Friday strong gains from the resale of occupancy rights drove its rising profits, as the company invested $525 million to meet demand.

Its underlying profit rose 13% to $178 million in the year to March, while valuation gains lifted audited reported profit after tax by 17% to $357 million. Total assets grew 24% to $4.9 billion.

The 9.3c/share final dividend lifts the total for the year by 13% to 17.8c/share, in line with the increase in underlying profit.

Ryman received consent during the year for 3 new villages with a combined value over $1 billion – Brandon Park in Melbourne, and Devonport & Tropicana in Auckland.

Ryman’s established villages ended the year with care centre occupancy at 97%, and only 32 of the 6000 units in its portfolio of townhouses, apartments & serviced apartments were available.

The company has increased its land bank by over 30% and now has 13 new villages in the pipeline in Australia & New Zealand.

Chair Dr David Kerr said the annual result was satisfactory given that 4 new villages were in the establishment phase during the year, and there was no development contribution from Melbourne.

“We are confident demand for our villages will continue to grow,” he said. “Our villages meet a real & growing need in the community, and remain affordable for residents to move in and free up capital.

“Our target is to open 5 villages in Melbourne by 2020. In the medium-term our goal is to be opening 4 new villages/year – 2 in New Zealand & 2 in Melbourne.”

Ryman has delivered 15 consecutive years of underlying profit & dividend growth. Dr Kerr said Ryman’s medium-term target remained to grow underlying profits & dividends by 15%/year, which means the company doubles profits & dividends every 5 years.

Annual result figures:

  • Underlying profit up 13% to $178.3 million ($157.7 million last year)
  • Total operating revenue up 10.8% to $289.2 million ($261.1 million)
  • Fair value movement of investment properties up 18.3% to $325 million ($274.6 million)
  • Total income up 14.6% to $614.2 million ($535.7 million)
  • Pretax net profit up 17.3% to $363 million ($309.3 million)
  • Net profit attributable to shareholders up 16.8% to $356.7 million ($305.4 million)
  • Earnings/share (basic & diluted) up 16.8% to 71.3c (61.1c)
  • Total portfolio 9249 units (8468)
  • New builds 781 units (869)
  • New sales, gross development margin (24% (28%)
  • Resales, gross margin 25% (22%)

Illness forces Challies to stand down

Simon Challies.

Managing director Simon Challies announced that he would stand down on 30 June for health reasons, but will continue as an advisor to the board until December 2018. He was diagnosed with Parkinson’s disease in 2011.

Deputy chief executive & chief financial officer Gordon MacLeod will take over as chief executive, and David Bennett, who joined Ryman 4 years ago as financial controller, will move up to chief financial officer.

Mr Challies joined the company as chief financial officer in 1999 and took over as chief executive in 2006 from Ryman cofounder Kevin Hickman. During his tenure, the portfolio of villages has grown from 12 to 31.

Mr MacLeod joined Ryman as chief financial officer 10 years ago and was promoted to deputy chief executive in 2014.

Mr Challies said of his illness on Friday: “I first noticed the symptoms about a decade ago, but it was still a huge shock to get my diagnosis in 2011. I’ve been determined not to let it beat me. This is a demanding job, and I’ve realised this year that my health was deteriorating and it was taking too great a toll on me personally, and on my family.

“I’m a great optimist and I think having Parkinson’s has made me a better MD of a healthcare company than I otherwise might have been. It has certainly me a degree of empathy & insight into the challenges our residents face, and it has taught me to make every day count. I’m sad to be leaving Ryman, but I’m looking forward to spending more time with my family and being able to contribute to the community in other ways.”

Attribution: Company release, accounts.

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Migrant tide turning?

You could sense an almost imperceptible turning of the tide: the net inflow of migrants slipped by 47 for the year in the rolling 12-month count released by Statistics NZ on Friday.

After 3 years of substantial rises every April from a negative 28 in 2013 to a gain of 2424 and up by 500 more in each of the next 2 years, the flow stopped.

The change occurred in Auckland too – up another 1788 in April, but that was only 92 more than in April last year; the previous April the rise had been by 352. Auckland was up another 4282 over 12 months to a net inflow of 35,864, but that annual growth was down from 5476 the previous year.

It becomes a political question: the Government has 3-plus years of economic growth from the migrant tide in the bag, and that growth will continue. And although the Government’s not the dictator of personal travel preferences, will an easing of the inflow in the 4 months to the election change public perceptions that record immigration has been a highly negative influence?

The immigrant flow rose again, as it’s done every April since 2012, this time by 261 to 8637. The emigrant flow had been decreasing, but this April it rose by 308 to 5231.

The immigrant flow for the year rose by 5110 to 129,779 – that’s over 45,000/year more than in each of the 3 years 2010-12, and a 3-year supply in 2 years. On the other side of the equation, emigration peaked at 87,813 in 2012 and slumped to about 57,000 over the last 3 years. In the latest 12 months, it was 57,894, up by 1325 on the previous year.

The net inflow in April was 3406 (3453 the previous April), and the net inflow for the year was 71,885 (68,110 the previous year).

Australia & the 5 big inflows

Exits to Australia peaked at 53,904 in the August 2012 year, and the net outflow was running at around 40,000 in that period. Now the flow each way is about 24-25,000 – in the latest 12 months, 24,680 out & 25,460 in for a net gain of 780, down from 1721 the previous year.

The other 5 big net inflows are from China, India, the Philippines, the UK & South Africa.

For the 12 months to April, the net inflow from China was up at 10,225 (9615 the previous period), India’s was sharply down at 7792 (12,218), the Philippines was down at 4532 (5151), the UK was well up at 6439 (3891) and South Africa was also well up at 4749 (2730).

NZ citizen moves

The net outflow of NZ citizens was up in April compared to the 2 previous years, but nowadays you’re looking at very small numbers – 1025 in April (2067 in, 3092 out; the net outflows the previous 2 years were 960 & 969). For the year, the net outflow continued to slide, dropping from 3560 to 1406. In 2012 that outflow was a net 39,491; it dropped by 5000, then 20,000, in the next 2 years.

The annual inflow of non-citizens, at 97,810 in the last 12 months, was 36,000 more than in 2012. 24,519 non-citizens departed, the highest annual figure since 25,825 left in 2012. Net immigrant numbers have grown from a low of 32,416 in the April 2010 year to 73,291 in the latest 12 months.

For Auckland, arrivals have been up by 5000 in each of the last 2 years, rising from 47,868 to 52,870 to 57,885. Departures have been stable in a range 21,288-22,021. The net inflows to Auckland over those 3 years were 26,106, 31,582 & 35,864.

Attribution: Statistics NZ tables.

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Goodman gives steer on development direction after solid year

The Goodman Property Trust’s net annual earnings dropped both before & after tax in the year to March, the result of a smaller fair-value gain on its portfolio.

[In my story on Friday, after a cursory look at the results, I wrote that pretax returns were “steady”. This article gives you a better look at performance.]

The trust’s investment portfolio made a $145.8 million fair-value gain last year, but that input dropped 21.3% to $114.7 million this year.

The 6.7% valuation gain in 2016 was a record, and the 2017 gain was 5.4%, lifting the investment portfolio 1.3% to $2.326 billion ($2.297 billion).

Pretax net profit fell 11.1% to $220.5 million ($247.9 million in 2016) and, after tax, it fell 8.3% to $213.8 million ($233.1 million).

Operating earnings rose 4% pretax to $121.7 million ($117 million) and, after tax, rose 8.1% to $106 million ($98.1 million).

Operating earnings/unit rose 1.1% to 9.51c (9.41c) pretax and 5.1% after tax to 8.28c (7.88c).

Net tangible assets rose 8.3% to 130.4c/unit (120.4c), the loan:value ratio was reduced by 10.6% to 29.3% (32.8%) and the look-through loan:value ratio was reduced to 30.6% (33.9%). The management expense ratio was trimmed by 6.4% to 0.44% (0.47%).

Management company Goodman (NZ) Ltd’s chair, Keith Smith, said on Thursday the most important features of the 2017 operating performance were the refinements to the portfolio and realisation of longer-term strategic objectives.

“The progression of the development programme, significant asset sales & selective acquisitions are all having a positive impact on the trust, lifting the quality of the portfolio and adding to its financial strength.”

Chief executive John Dakin said: “With more than $535 million of new projects since 2012, the trust’s development programme is transforming the portfolio. Funded through asset sales, it is a sustainable business activity that is investing in the latest building technologies in some of Auckland’s best locations.

“The increasing capital allocation to the Auckland industrial sector is a deliberate strategy that reflects the strong growth profile of the city and the positive investment characteristics of industrial property. It also positions the trust to benefit from the increasing demand for logistics space as a result of e-commerce.

“Online shopping is increasing the requirement for distribution warehousing in many global markets. It’s an emerging trend that is also adding to the attractiveness of industrial property as an investment class.”

Refining the portfolio

The trust managers secured 154,000m² of new customer lease commitments, representing 16% of the total rentable area, in the last 12 months, increasing the occupancy rate from 97% to 98% and extending the weighted average lease term from 5.7 to 5.8 years.

Mr Dakin said sustained customer demand was also facilitating an intensification of the trust’s development programme: “The trust has been able to accelerate the build-out of its land bank in recent years. With Highbrook Business Park now more than 75% complete, we have made substantial progress in the trust’s development programme.”

Completion of current projects will increase the trust’s investment in the preferred Auckland industrial & business park sector to 77% of total property assets and reduce its land weighting to just 7%.

Mr Smith said: “These favourable operating conditions are expected to continue over the short to medium term and the board believes the existing strategy, with its focus on portfolio quality & development-led growth, remains appropriate.”

Goodman is forecasting 9.0c/unit pretax operating earnings for the 2018 financial year. The reduction from this year’s 9.51c reflected the impact of asset sales & balance sheet deleveraging. Mr Smith said the trust should maintain cash distributions at 6.65c/unit.

Link: Goodman Property Trust annual report

Earlier story:
19 May 2017: Goodman profit steady

Attribution: Trust annual report, release.

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Evolve buys 6 South Island early childhood centres

Evolve Education Group Ltd has entered into a contract to acquire 6 early childhood education centres in the South Island, increasing its portfolio to 126 centres by June.

The 6 Little Wonders centres are in Dunedin, Oamaru, Timaru & Cromwell, where Evolve had no representation. Little Wonders are purpose built-centres, averaging 80% occupancy in areas of stable & growing demand.

Evolve chief executive Alan Wham said the 6 centres would settle in June and were expected to deliver annualised ebitda (earnings before interest, tax, depreciation & amortisation) of $1.3-1.5 million.

Mr Wham said that, to facilitate the acquisition, Evolve director Mark Finlay & associated interests would acquire the premises they operate in and lease them to Evolve: “The leases are on standard commercial terms for early childcare education centres, for an initial lease term of 12 years and an aggregate initial rental of $100,00/month.”

Mr Finlay was excluded from Evolve board decisions on these leases.

Evolve bought 2 mid-sized centres in Auckland & Canterbury in March and sold a smaller West Coast centre in April.

Attribution: Company release.

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Accor to run Chows’ Rotorua hotel

NZAX-listed property company Chow Group Ltd’s management company, CGML Ltd, has awarded the management contract for its Rotorua hotel to AccorHotels.

CGML bought the 30-year-old, 10-storey, 8000m² office Zens Centre at 1135 Arawa St in 2015 and is converting it into a 130-room hotel.

Director John Chow (pictured in front of the building with mayor Steve Chadwick) said it would carry a 5-star brand. Work on architectural plans has started and the conversion should start in July. It’s expected to open at the end of 2018 or early 2019.

AccorHotels already operates a Novotel in Rotorua and the ibis Rotorua Lakeside.

Ms Chadwick said the retail & tourism sectors were doing extremely well in Rotorua and its economy was performing above the national average: “Rotorua is growing & thriving. Our population now exceeds 70,000 and continues to grow, and unemployment is dropping. It’s important that we continue to build on these positive achievements, and projects such as the Chow Group’s new upscale hotel are critical to our success, improving our tourism infrastructure and creating work opportunities.”

Attribution: Company release.

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Goodman opens 75+25 bond issue

Goodman Property Trust opened a $75 million bond issue on Thursday, with the ability to accept up to $25 million in oversubscriptions.

The 7-year fixed-rate senior secured Goodman+Bonds will have a maturity date of 31 May 2024 and are expected to have an investment grade issue credit rating of BBB+ from Standard & Poor’s. The Goodman trust’s current corporate credit rating is BBB.

The indicative issue margin range is 1.55-1.70%/year. The issue margin & interest rate will be set following a bookbuild process on Friday 26 May. The bonds are expected to be issued on 31 May.

Attribution: Trust release.

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Genesis sets rate for long-term bonds

Genesis Energy Ltd has allocated $225 million of 30-year subordinated unsecured capital bonds in a bookbuild process. There was no public pool.

The interest rate from the issue date to the first reset date (9 June 2022) will be 5.70%/year, which was the minimum rate set out in the terms sheet. The margin has been set at 2.75%.

The offer will close on 7 June. The bonds will be issued on 9 June and will mature on 9 June 2047.

Attribution: Company release.

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7 leases around Shore

Bayleys agents on the North Shore have completed 7 lease transactions in Albany, Browns Bay, Rosedale, Takapuna & the Wairau Valley. They were also involved in 5 sales at Bayleys’ Total Property auction on Wednesday (reported separately, link below).

Leases:

North-east

Albany

28 Corinthian Drive:
Features: 256m² retail, 10 parking spaces
Rent: leased in May for $135,960, parking $35/space/week, net excluding parking $117,760/year, premises rental $460/m²
Agents: Alex Strever, Eddie Zhong & Dean Gilbert-Smith

3 William Laurie Place, level 1:
Features: 378.05m² office, 11 parking spaces
Rent: leased in May for $111,672.50/year et + gst, parking $$30/space/week, net excluding parking $94,512.50/year, premises rental $250/m²
Agents: Dean Gilbert-Smith/Jane Sims & Ryan Dannhauser

Browns Bay

76 Clyde Rd:
Features: 89.1m² retail
Rent: leased in April for $34,000/year net + gst, premises rental $382/m²
Agent: Steven Liu

Rosedale

9 Beatrice Tinsley Crescent, unit A:
Features: 408m² industrial unit – warehouse 266m², showroom 64m², office 78m², 7 parking spaces (not separately charged for)
Rent: leased in May for $66,000/year net + gst, premises rental $162/m²
Agents: Laurie Burt, Ranjan Unka & Ashton Geissler

Takapuna

433 Lake Rd, level 3:
Features: 48.4m² office, parking space
Rent: leased in May for $12,468/year net + gst, parking $35/space/week, net excluding parking $10,648/year, premises rental $220/m²
Agents: Jane Sims & Chris White

Smales Farm, B-Hive, level 1, suite 114B:
Features: 27m² office, no parking
Rent: leased in May for $32,560/year net, premises rental $1206/m²
Agents: Dean Gilbert-Smith

Wairau Valley

18 Link Drive, unit 15:
Features: 498m² industrial unit – warehouse 434m², other area 64m², 13 parking spaces (not separately charged for)
Rent: leased in April for $100,000/year net + gst, premises rental $201/m²
Agents: Steven Liu, Trevor Duffin, Alex Strever & Eddie Zhong

Related story: Updated: Wairau Valley car yard sells at over $2000/m² at Bayleys auction

Attribution: Agency release.

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12 Total Property auction sales south of Auckland

All 6 properties in Bayleys’ third Wellington Total Property auction for the year were sold under the hammer on Thursday, and another 6 on the Coromandel, Waikato & Rotorua were sold.

South of the Bombays

Coromandel

243 Colville Rd (pictured above):
Features: Shelly Beach campground, 5.0627ha beachfront site operating under Top 10 Holiday Park brand, 5km from Coromandel township, comprising a variety of camping facilities plus manager’s accommodation & house
Outcome: sold as freehold going concern for $3 million
Agents: Josh Smith & Belinda Sammons

Thames

458 Pollen St:
Features: 2836m2 mainstreet site, Mitre 10 the anchor occupant, 1659m2 of buildings earthquake strengthened to over 67% of new building standard, various lease terms to Mitre 10 running to 2021 with renewal rights, plus small upstairs office lease to Home IT Solutions
Rent: $145,500/year net + gst
Outcome: sold for $2.165 million at a 6.7% yield.
Agents: Josh Smith & Mary Walker

Rotorua

Mangakakahi

81 Pururu St:
Features: 1012m2 industrial site, large yard area, 471m2 high-stud warehouse & office building previously split into 2 tenancies
Outcome: sold vacant for $401,000
Agents: Mark Slade & Brei Gudsell

Waikato

Paeroa

56 Grey St:
Features: 9800m² site, 1150m² ex-bulk petfood-processing facility
Outcome: sold vacant for $1.2 million
Agent: Josh Smith

7 Station Rd:
Features: High-exposure 1062m2 corner site with 900m2 warehouse/factory, ex Lemon & Paeroa bottling plant
Outcome: sold vacant for $420,000
Agent: Josh Smith

Te Awamutu

355 Rickit Rd:
Features: 653m2 road-frontage site, 410m2 building, fully leased to 2 established electrical tenants
Rent: $56,000/year net + gst
Outcome: sold for $760,000 at a 7.4% yield
Agents: Alex ten Hove & Mike Swanson

Wairarapa

Masterton

5 Albert St:
Features: strengthened & refurbished 1356m² commercial building, 1006m² of mostly office space leased to Department of Corrections for 9 years from October 2015, 350m² at the front of the building is vacant
Rent: $118,216/year net + gst
Outcome: sold for $1.275 million
Agents: Andrew Smith, John Pritchard & Dave Wish

Wellington

Lower Hutt

444 Cuba St, Lower Hutt.

444 Cuba St:
Features: 1295m² corner site, 300m² rear parking & yard area, high-stud 1100m² refurbished retail building, Hunting & Fishing in occupation for over 20 years, current 6-year lease from October 2014 plus one 4-year right of renewal
Rent: $86,800/year net + gst
Outcome: sold for $975,000 at an 8.9% yield
Agent: Mark Sherlock

MacKay House, 92 Queens Drive, level 2:
Features: 326m² office floor needing renovation, in 1960s building adjacent to Queensgate Mall, part leased to 2 tenants, two-thirds vacant
Rent: $31,500/year gross + gst
Outcome: sold for $50,000
Agents: Paul Cudby & Andrew Smith

Ngauranga

17 Glover St:
Features: 603m2 business 2-zoned narrow, bare site, 300m2 flat usable area, excavation required for greater footprint, concept plans for 270m2 warehouse
Outcome: sold for $280,000 at $464/m2
Agents: Matt Gibbs & Fraser Press

2 Hartham Place South, Porirua.

Porirua

2 Hartham Place South:
Features: 380m², 2-level cbd commercial building, tenant parking at rear, ground floor leased to Pacific Radiology, first floor occupied by law firm & physiotherapist with leases until 2019 & 2020 plus rights of renewal
Rent: $50,350/year net + gst
Outcome: sold for $712,000 at a 7.1% yield
Agent: Jon Pottinger

Waikanae

108 Main Rd:
Features: 161m² purpose-built dental surgery on 1019m² residentially zoned site with large parking area, 5-year lease to Lumino the Dentist from October 2016, with one 5-year right of renewal
Rent: $33,280/year net + gst
Outcome: sold for $582,000 at a 5.72% yield
Agents: Jon Pottinger & Stephen Lange

Attribution: Agency release.

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