When a property company doesn’t boast about how wonderfully it’s performed – usually courtesy of general upward revaluation trends – you can be sure the result is bad. For Kiwi Property Group Ltd today, it was.
The company said this morning it increased pretax operating profit for the year to March by 4.2% to $129.7 million, but several paragraphs down it owned up: revaluations hit by the Covid-19 pandemic took the company to a $186.7 million net loss after tax.
The company’s $3 billion portfolio’s overall cap rate has risen from just under 6% to just over 6.1%.
Chief executive Clive Mackenzie said the operating performance was solid. Net rental income increased 3.4% to $186.8 million, contributing to the growth in pretax operating profit.
But the writedown in fair value sliced 8.5% – $290 million – off the portfolio value.
Mr Mackenzie said funds from operations, a key operating performance measure, rose 6.3% to $113.6 million.
He said all the company’s asset classes delivered rental income growth – office up 7.3%, mixed use up 5.0%, retail up 0.9%. At year-end, the portfolio was 99.5% occupied, and the weighted average lease expiry was 4.9 years.
Mr Mackenzie said the widespread economic uncertainty caused by the pandemic prompted valuers to soften their assumptions, resulting in the $290 million writedown. The portfolio was valued at $3.1 billion.
For the immediate future, Mr Mackenzie said Kiwi had offered tenants rent relief measures including rent abatements & deferments.
“Abatements apply to the first quarter of the 2021 financial year and are expected to impact funds from operations by $20 million ($14 million after tax), equivalent to around 8% of the gross rental income earned by the company in the 2020 financial year. This cost will be partially offset by the reintroduction of depreciation allowances for commercial buildings, which is expected to increase Kiwi Property’s after-tax earnings by about $4.5 million in 2021.”
Kiwi raised $193.7 million from investors last November, extended $361 million of bank debt facilities in March, has no bank debt maturing until the 2023 financial year and had $291 million in undrawn credit facilities & gearing of 32% at 31 March.
In property activity:
Construction of the Sylvia Park galleria is nearing completion, following a delay due to the nationwide alert level 4 lockdown. The development is now scheduled to open progressively from the fourth quarter of 2020, “featuring a carefully curated lineup of domestic & international retailers”.
Sylvia Park’s new south carpark will add 900 parking spaces and is due to open by the September quarter, taking total parking to 5000 spaces, the most of any shopping centre in New Zealand.
Planning is well advanced on a second commercial building at Sylvia Park, following the success of ANZ Raranga.
“The new landmark development is the next stage in Sylvia Park’s evolution into a mixed-use precinct, with construction due to begin in line with tenant demand & prevailing market conditions,” Mr Mackenzie said.
He said plans for a mixed-use community at Drury continued to take shape, with Kiwi Property’s 51ha landholding now recognised as the main town centre for the area, which is expected to become home to about 60,000 people.
“Following the Government’s announcement regarding its plans to invest $2.4 billion to build new infrastructure at Drury, Kiwi Property has now submitted a private plan change which, if successful, could allow construction from 2023.”
Key financial results:
Revenue, up 2.6% to $243.6 million
Net loss, a 235% decline in return to a $186.7 million loss
Investment portfolio value, down 4.4% to $2.89 billion ($3 billion)
Additional portfolio values – adjoining properties $154.7 million ($125.2 million), development and $60 million ($58.2 million)
Total portfolio, down 3.2% to $3.1 billion ($3.2 billion)
Weighted average capitalisation rates, 6.11% (5.99%)
Gearing, 32% (31%)
Net tangible assets/security, down 11.9% to $1.26 ($1.43)
Net rental income, up 3.4% to $186.8 million ($180.7 million)
Shopping centre specialty sales/m², up 3.1% to $13,200 ($12,800)
Attribution: Company release, presentation, annual report.