Capital Properties Announce Record Annual Result

See attached file.

Capital Properties New Zealand Limited
Level 11, The Bayleys Building
Cnr Brandon Street & Lambton Quay
PO Box 1690, Wellington
New Zealand

11 May 2005

Capital Properties Announce Record Annual Result

Capital Properties New Zealand Limited today announced an operating profit after tax, but before property revaluations, of $18.1 million for the year to 31 March 2005, representing a 15% increase on last year's operating profit after tax of $15.7 million.

Including the unrealised increase in investment property values of $79.1 million the net surplus for the year to 31 March 2005 was $97.1 million (compared with $35.7 million last year).

Net property income was up 6% at $42.3 million (2004: $39.8 million). Excluding the effect of acquisitions, the increase was 4%.

The increase in unrealised property values represents an increase of 18.5% on the portfolio value a year earlier, which resulted from an increase in market rents, a reduction in market capitalisation rates, improved rental performance and a fuller recognition of the value of the Company's development sites.

Commenting on this record result, Capital Properties Chairman Colin Beyer said the rise in rental income and the value of the Company's assets was an endorsement of its investment strategy.

"It is with pleasure that I note our shareholders have enjoyed a gross return of approximately 30% per annum over the last 2 years."

Net profit before tax was up 17% at $21.6 million (2004: $18.5 million) after allowing for total interest costs of $ 16.1 million (2004: $18.4 million) and administration expenses of $4.6 million (2004: $2.9 million).
Lower interest costs resulted from the one-for-three rights issue to shareholders in the 2004 financial year and the reversal of previous non-cash provisioning of $0.9 million (pre-tax) for net interest costs on interest rate swap contracts for which there was no matching debt as at 31 March 2004.
Administration expenses were affected by the inclusion of legal & advisory costs associated with the management rights process ($0.75m), and expensing of legal costs associated with the New Defence building lease ($0.35m).

Balance Sheet

As at 31 March 2005, the overall value of the Company's portfolio was $536.6 million. This represents an increase of $108.8 million over the value of the portfolio as at 31 March 2004, essentially comprising an annual revaluation gain of $76.6 million and the inclusion of Centre City Shopping Centre purchased in December 2004 for $32 million.

On this basis, net tangible assets per share (NTA) have increased to $1.29 as at 31 March 2005 from $0.95 a year earlier.

The portfolio net income yield is 8.9%, occupancy levels are 99% and the weighted average lease term is 4.2 years.

Over the course of the year, shareholders funds have increased by $82.3 million to $306 million, representing 55% of total assets. As at 31 March 2005, capital notes financed 24% of total assets, but following the repayment of $57 million of the capital notes that matured on 15 April 2005, this reduced to 14%. After repayment of the capital notes in April, bank debt stood at $168 million, financing 30% of total assets.

During the year, the Company put in place new bank funding facilities with the ANZ National Bank and with the Bank of New Zealand totalling $230 million with maturities of 3 - 5 years. These new facilities have resulted in a reduction in the Company's borrowing costs and provide funding to complete the New Defence building project. The New Defence building is forecast to add $72.5 million to the value of the Company's portfolio upon commencement of the 18 year lease in early 2007, at a total development cost of $59 million (including capitalised interest and a notional land cost). This development has a reported value at 31 March 2005 of $16.0 million comprising expenditure of $13.5 million, and a development margin recognised to date of $2.5 million which has been included in the total unrealised revaluation gain reported.

Dividend

Pre tax earnings per share (excluding revaluations) increased by 7% to 9.1 cents from 8.5 cents the previous year.

The Company also announced a fourth quarter gross dividend of 2.25 cents per share made up of 1.75 cents cash and 0.5 cents imputation credits. This results in a gross dividend for the year ended 31 March 2005 of 9.0 cents comprising cash of 7.4 cents and imputation credits of 1.6 cents.

The record date for the dividend is 27 May 2005 and the payment will be made on 10 June 2005.

It is expected that the gross dividend for the financial year ending 31 March 2006 will be 10 cents per share.

Leasing and Development Activity
A productive and active year saw the following major lease agreements completed:

Tenant
Building
Area (sq.m.)
Term
NZ Defence Force
Ministry of Defence
NZ Security Intelligence Force
New Defence Building
18,300
New 18 year
lease
Ministry of Health
William Clayton Building
8,025
6 year renewal
State Services Commission
SSC Building
6,698
6 year renewal
Ministry of Justice
Charles Fergusson
4,925
6 year renewal
GCSB
St Pauls Square
3,320
3 year renewal
Ministry of Education
Vogel Building
2,312
New 6 year lease
Kensington Swan
Novell House
2,311
New 9 year lease
Meredith Connell
Forsyth Barr Tower
2,245
New 12 year lease
Symantec New Zealand
University of Otago Building
1,928
5 year renewal
Pronto Print
Vogel Building
1,199
3 year renewal

The Company continues to focus on the Wellington government office sector as its main area of investment, development and leasing activity. Government tenants contributed 47% of net rental revenue as at the end of March 2005.

Construction is proceeding toprogramme on the New Defence Building in Thorndon, Wellington, with completion due in September 2006 and Defence expected to take occupation in February 2007.

Outlook

Over the past year market conditions have led to a significant increase in the value of the Company's shares, underpinned by an increase in the net assets per share to $1.29 following the revaluation of the property portfolio as at 31 March 2005.

Capital Properties CEO Chris Gudgeon said "The most significant factor in the revaluation uplift was the growth in market rents, accounting for 36% of the total gain. This lift in market rents means we can reasonably project higher future net rental income performance as upcoming rent reviews fall due.

Consistent with this the Company has issued projections indicating that pre-tax earnings per share should rise by over 20% from 9 cents for the March 2005 financial year, to 11 cents by March 2007."

Capital Properties Chairman, Colin Beyer said Capital Properties was positioned to deliver further strong returns for shareholders.

"Our primary focus on the Wellington government sector should provide low risk rental growth with promising development prospects and our preferred exposure to mid grade office space is rewarding us with strong growth in rents."

ENDS

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