Record Profit For Kiwi Income Property Trust

Record Profit For Kiwi Income Property Trust

Kiwi Income Property Trust today reported a record profit of $52.7 million for the year to 31 March 2005, representing an after-tax increase of 7.3% over the previous financial year. The underlying earnings growth was also strong, with pre-tax profit increasing by 18.5% compared to the previous financial year.

A final gross dividend of 4.31 cents per unit has been announced by the Trust, which includes imputation credits of 0.82 cents per unit. This brings the gross dividend for the year to 8.65 cents per unit, comprising a cash dividend of 7.02 cents per unit and imputation credits of 1.63 cents per unit. The level of earnings has also allowed for the retention of 5% of net earnings to assist with the ongoing financing of the Trust. The record date for the 2005 final dividend is 3 June 2005, and the payment date is 17 June 2005.

The Trust’s total assets increased by $163 million to $1.26 billion, with total interest bearing debt of $341 million, representing 27.0% of total assets. The increased level of borrowings was primarily due to property acquisitions, the stake in Capital Properties New Zealand Limited (CNZ) and costs associated with the Sylvia Park development.

Chairman of the Board of the Manager of the Trust, Sean Wareing, said the outstanding result was due to extensive leasing activity, strong rental growth, and focused, strategic portfolio expansion and redevelopment.

“The result marks a highly successful year for the Trust which continues to deliver consistently on its objective of maximising income and providing long-term sustainable returns to unit holders.”

Operating highlights

- Net profit after tax increased by 7.3% (over the same period last year) to $52.7 million.

- Net rental revenue increased by 22.0% to $88.1 million (excluding dividend income from the CNZ investment).

- Total assets increased from $1.10 billion to $1.26 billion.

- Record portfolio occupancy level of 99.5% achieved.

- The portfolio recorded a revaluation gain of $65.0 million.

- Net asset backing per unit increased by 9 cents to $1.27 (includes final dividend).

- A 19.4% interest in CNZ was acquired at a cost of $54.4 million. The value of the Trust’s investment in CNZ as at 31 March 2005 was $56.2 million.

- A new management fee structure was introduced resulting in lower overall fees and greater alignment of the Manager with unit holders’ interests.

- All development hurdles were met and construction commenced on the Sylvia Park development.

Portfolio management

Chief Executive of the Manager of the Trust, Angus McNaughton, said the year’s strong result had been achieved following excellent performances from both the retail and office portfolios.

“The retail portfolio in particular performed extremely well, providing clear evidence of the quality and dominance of these properties in their respective markets. Occupancy levels in our retail properties have remained high at 99.3%, and the retail portfolio overall returned an increase in net rental income of 34.2% over the previous year.

“Strong revaluation gains were recorded across the Trust’s assets, with standout performances in the retail portfolio from Northlands, which increased by $10.0 million, North City which gained $8.5 million and Centre Place, $5.5 million. Other highlights in the retail portfolio included completion of the $9.9 million remix of North City in September 2004, which achieved a project return for the year of 14.2%, well ahead of the forecast return.”

“The office portfolio also benefited from vigorous leasing activity, with occupancy levels rising to a record 99.6%. Major contributors to the rise were 21 Pitt Street (formerly Vodafone House) in Auckland, the PricewaterhouseCoopers Centre in Christchurch, and the Majestic Centre in Wellington, where the signing on 23 December 2004 of a 12 year lease for the Earthquake Commission completed a highly successful leasing programme.”

The strongest revaluation gains among the Trust’s office assets were recorded by the Vero Centre, which increased by $10.9 million, 21 Pitt Street which gained $7.3 million, the Majestic Centre, which gained $7.4 million, and the recently-acquired Unisys House which increased by $5.4 million. Rental growth and firming capitalisation rates also enhanced the value of the office portfolio. Net rental income from the office portfolio increased by 12.9% over the previous period.

In line with its continuous focus on strategic asset acquisition and divestment, the Trust purchased three properties during the year: Unisys House for $44.1 million, the NGC Building for $19.4 million, and Intergen House for $4.2 million. These three buildings are adjoining properties located in the heart of the government sector in Wellington. HP House in Auckland was sold in September 2004 for $25.8m, $0.4m above book value, and after year end, the Trust unconditionally sold the AUT Faculty of Arts Building in Auckland. Net proceeds from the sale are approximately $29.0 million, $1.8 million ahead of book value. Settlement is expected in July 2005.

In late 2004, the Trust acquired a 19.4% interest in CNZ. CNZ is an NZSX-listed commercial property company with a total portfolio of $537 million as at 31 March 2005. The CNZ portfolio has a high weighting in the government sector in Wellington and includes a substantial private sector office component, largely in Auckland. The Trust views its investment in CNZ as a strategic stake in a complementary property company and will continue to review its options with regards to this investment.

Sylvia Park

Mr McNaughton said a major highlight of the year had been the achievement of all the key development criteria for the Trust’s Sylvia Park project in Mt Wellington, Auckland, and the commencement of demolition and infrastructure works for the development in September last year. Mr McNaughton also announced that construction of the 62,000 m2 regional shopping centre had commenced.

“After the intensive planning and preparatory work of the past few years, we are delighted to be proceeding with this unique development, which is set to become a cornerstone asset of the Trust”.

“The rezoning of the land has been approved, key resource consents for the retail centre have been received, and all four major retail tenants have been secured on long term leases. Guaranteed maximum price and fixed lump sum construction contracts are in the final stages of documentation, with Multiplex Constructions the key contractor for the development. Specialty leasing is also underway by an experienced in-house leasing team, with strong demand for tenancies, and a number of both national and international retailers already committed”.

Key components of the retail centre include:

The largest regional shopping centre in New Zealand, with 62,000 m² of lettable area combining both covered and open public spaces.

Four anchor retail tenants - The Warehouse, Foodtown, Pak’n Save, and a Hoyts 10-screen multiplex cinema. These four tenants represent 49% of the floor space, and approximately 13% of the projected net income.

8 proposed mini major tenants, foodcourts and a restaurant precinct, and over 180 specialty retailers.

Integrated community uses and over 3,000 car parks.

A 35,000 - 45,000 m² office park with 5 medium rise (6 – 8 levels) buildings will also be developed over time in conjunction with tenant demand. There are also opportunities for education, and small scale residential uses to the north of the site. A key feature of the development will be the strong public transport infrastructure onsite including a proposed railway station at Sylvia Park.

The total project cost for the retail stage is $257 million excluding the land and infrastructure costs, or $363 million including these costs, with an approximate yield of 7 percent on completion. Annual specialty rent growth of 3 – 5 percent is projected. CB Richard Ellis has forecast the valuation of the Centre in March 2008 at $369 million, $384 million at March 2009, and $396 million at March 2010. The Centre will open in a number of stages over the next two years, from mid 2006 to mid 2007.

Having considered various options, the Trust has, at this stage, decided to retain 100% ownership of the retail component, reflecting the quality and prime investment nature of the opportunity that Sylvia Park offers.

Sylvia Park Funding

The Trust will fund the development utilising existing debt capacity, proceeds from the recent sale of the AUT Building, and the proceeds of a Mandatory Convertible Note (MCN) issue of between $110 million and $140 million. The MCN’s will be offered to existing unit holders through an entitlement offer and to both new and existing investors through a primary offer.

Full details of the offers, and the associated documentation, will be released in late May with the offers expected to open in early June. Goldman Sachs JBWere has been appointed lead manager and it is anticipated that the offer will be underwritten.

Outlook

Mr McNaughton said: “Looking ahead, property sector fundamentals are expected to remain resilient, underpinning continued rental and leasing activity in the Trust’s retail and office portfolios. The recent strong leasing results and record high portfolio occupancy levels provide a sound platform for the Trust going forward.”

Subject to a continuation of reasonable economic conditions, the Trust is projecting a gross distribution for the year ending 31 March 2006 of between 8.50 and 8.70 cents per unit, which takes into account both the Sylvia Park development and the MCN issue.

A summary of the final result follows:

Name of Listed Issuer: KIWI INCOME PROPERTY TRUST

For Full Year Ended: 31 MARCH 2005

This report has been prepared in a manner which complies with generally accepted accounting practice and gives a true and fair view of the matters to which the report relates and is based on audited financial statements.

CONSOLIDATED STATEMENT OF FINANCIAL PERFORMANCE - NZ$000

OPERATING REVENUE:

Trading revenue: $88,093 (2004: $72,196), up 22.0%

Other revenue: $2,262 (2004: $497), up 355.1%

Total operating revenue: $90,355 (2004: $72,693), up 24.3%

OPERATING SURPLUS BEFORE TAXATION: $66,465 (2004: $56,075), up 18.5%

Taxation on operating result: $13,813 (2004: $7,004), up 97.2%

OPERATING SURPLUS AFTER TAX: $52,652 (2004: $49,071), up 7.3%

Extraordinary Items: $Nil (2004: $Nil)

NET SURPLUS FOR THE FULL YEAR: $52,652 (2004: $49,071), up 7.3%

Net Surplus attributable to minority interests: $Nil (2004: $Nil)

NET SURPLUS ATTRIBUTABLE TO MEMBERS: $52,652 (2004: $49,071), up 7.3%

Gains on Realisation of Investment Properties: $418 (2004: $430), down 2.8%

INCOME AVAILABLE FOR DISTRIBUTION: $52,234 (2004: $48,641), up 7.4%

Earnings per share: Basic: 7.54 cps; Diluted: 7.54 cps

Final Dividend: 3.492 cps

Record Date: 3 June 2005

Date Payable: 17 June 2005

Imputation tax credit on latest dividend: 0.822 cps

ENDS

About Kiwi Income Property Trust

Kiwi Income Property Trust’s objective is to maximise returns for its unit holders through the careful acquisition, development and professional management of its property portfolio. The Trust is listed on the New Zealand Stock Exchange and is ranked within the top 15 on the NZSX50.

The total value of the Trust’s assets is $1.26 billion. Key assets are as follows:

Key Office Assets

Vero Centre Auckland
National Bank Centre Auckland
21 Pitt Street Auckland
Majestic Centre Wellington

Unisys House Wellington
BP House Wellington

NGC Building Wellington
PricewaterhouseCoopers Centre Christchurch

Key Retail Assets

Northlands Shopping Centre Christchurch

Centre Place Shopping Centre Hamilton

Downtown Plaza Shopping Centre Hamilton

North City Shopping Centre Porirua

The Plaza Shopping Centre Palmerston North

Kiwi Income Property Trust’s website address is www.kipt.co.nz

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