Archive | Securities – NZ

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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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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Goodman profit steady

Goodman Property Trust reported pretax profit of $220.5 million for the March year, down on last year when revaluations are included, up by a small margin when they’re excluded.

Management company Goodman (NZ) Ltd chair Keith Smith said: “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 completed since 2012, the trust’s development programme is transforming the portfolio and delivering essential business infrastructure into a growing city.”

Highlights included:

    • Pretax operating earnings of $121.7 million, 9.51c/unit, consistent with earlier guidance and 1.1% higher than a year ago
    • A 15.9% increase in cash earnings to 7.08c/unit and full-year cash distributions of 6.65c/unit
    • $220.5 million pretax profit (including revaluations of $114.7 million), compared to $247.9 million (including revaluations of $145.8 million) in 2016
    • $278.8 million of assets sold
    • 8 new development projects started, with a total project cost of $97 million and yield on additional spend of 8.7%
    • Greater balance sheet capacity, with a look-through loan:value ratio of 30.6% (33.9% last year)
    • An 8.3% increase in net tangible assets to 130.4c/unit (120.4c/unit).

I’ll return to this result later today, after having no time to analyse it yesterday.

Attribution: Company release.

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Ryman unveils plan for 6th Australian village

Ryman Healthcare Ltd announced its intention on Monday to build its 6th Australian retirement village, an $A100 million development in Geelong, 75km down toward the mouth of Port Phillip Bay from central Melbourne.

The 3.2ha village on South Valley Rd in the Geelong suburb of Highton will offer a range of retirement living options as well as aged & specialist dementia care.

Development manager Andrew Mitchell said Geelong, Victoria’s second biggest city, had been on the company’s radar for some time. He said Ryman would consult locals before submitting plans for the village.

Attribution: Company release.

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Goodman-GIC joint venture adds Bayleys House to portfolio

The joint venture between the NZX-listed Goodman Property Trust & Singapore sovereign wealth fund GIC Pte Ltd has added Bayleys House in the Wynyard Quarter to its portfolio.

That acquisition for $62.3 million, and the $86.2 million purchase of the neighbouring Datacom Building, which settled on Friday, take joint venture company Wynyard Precinct Holdings Ltd’s portfolio to 7 buildings worth over $470 million.

The recently completed 6-storey 8106m² Bayleys House backs on to the Fonterra Centre, also in the portfolio. Fonterra at 109 Fanshawe St, and Bayleys at 30 Gaunt St, also front Halsey St in the VXV Precinct which has been developed by ASX-listed Goodman Group on leasehold land owned by Viaduct Harbour Holdings Ltd.

The 7-storey 16,735m² Datacom building is across VXV Plaza from Bayleys, on the corner of Gaunt & Daldy Sts.

John Dakin, chief executive of the Goodman trust’s manager, Goodman (NZ) Ltd, said the partnership strategy provided scale for the trust and gave it greater exposure to Auckland’s fastest-growing commercial precinct.

“Featuring large flexible floorplates and incorporating sustainable architectural elements & energy-efficient building systems, the lowrise office property is designed to a 5 green star rating. It is also expected to achieve a 5-star NabersNZ base building rating when assessed in 12 months’ time.”

Predominantly leased to real estate specialist Bayleys, technology provider IBM & law firm Mayne Wetherell, Bayleys House’s leases incorporate fixed review structures and have a weighted average term of 9 years. The ground-lease obligations are structured for a period of 15 years.

Goodman Group undertook the development on a build-to-lease basis. The purchase price reflects an initial yield of 7.6% on contract rentals, and additional fitout rent increases the passing yield to 8.8%.

The acquisition, which remains conditional on the approval of the landowner, is expected to settle in June.

On settlement, the joint venture’s portfolio will contain 88,000m² of office space for about 20 tenants. When future lease commitments are incorporated, the portfolio will have an occupancy rate of 96% and a weighted average lease term of over 9 years.

Earlier stories:
27 March 2015: Fletcher & Goodman sign up for new Wynyard Quarter building
7 November 2014: Goodman Group buys another Wynyard development block

Attribution: Company release.

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