Kiwi Property's Interim Results

Kiwi Property released its interim results for the six months ended 30 September 2023 (1H24) today, announcing a robust asset performance and further momentum on its portfolio transformation programme, despite economic headwinds.

The company made solid progress on its strategy of creating and curating retail-led mixed-use properties at key transport nodes in 1H24. The location and favourable zoning of key strategic assets including Sylvia Park, LynnMall, The Base and Drury are expected to accelerate their densification and growth, helping to boost valuations and asset performance over time.

Kiwi Property’s asset sales programme delivered over $127 million in 1H24, following the disposal of Westgate Lifestyle and the Sylvia Park IKEA site. Chief Executive Officer, Clive Mackenzie, said the company’s capital recycling activity would help create a higher quality and more profitable asset base.

“By disposing of our non-core, capital-intensive assets and reinvesting the proceeds into opportunities such as Drury and build-to-rent, we will build a greener, more resilient and lower-risk portfolio. While this capital recycling activity has resulted in a temporary decline in revenue, the steps we’re taking will promote greater tenant demand, better rents, lower seismic costs and improved returns for our shareholders.”

Kiwi Property experienced a 16.2% reduction in net rental income to $89.1 million in 1H24 following the aforementioned asset sales, while operating profit before tax decreased 26.7% to $52.4 million and adjusted funds from operations (AFFO) was down 25.4% to $48.6 million.

When viewed on a like-for-like1 basis however, net rental income rose 2.5%, while AFFO declined a marginal 0.2%, highlighting the company’s resilience through the first half of the financial year. Like-for-like operating profit before tax decreased by 1.0%, driven by higher interest costs.

Capitalisation rate increases underpinned a 2.5% or $81.1 million reduction in the fair value of the company’s investment portfolio for the six months ended 30 September 2023. Mixed-use was down 1.1% or $21.3 million, while global sector challenges saw the office portfolio decrease 5.9% or $52.4m. The decline in asset values contributed to a net loss after tax of $36.5 million. Kiwi Property’s mixed-use, office, retail and other properties were worth $3.1 billion as at 30 September 2023.

“The reduction in the valuation of our investment portfolio is disappointing but reflects the downturn in the property cycle,” said Mackenzie. “On a more positive note, it’s great to see the continued resilience of our mixed-used asset values, including at The Base, which defied the economic conditions to increase in value by 3.7% through the period.”

Sales across Kiwi Property’s mixed-use and retail assets rose to a record $2.1 billion in the preceding 12 months (+14.9%), while total customer visits increased 20% to 36.6 million. Rental growth also increased, with Kiwi Property delivering a 4.5% total uplift on new mixed-use leases and rent reviews. New office leases and renewals were also up an impressive 13.9%.

“While high interest rates and the mounting cost of living have caused a dent in consumer confidence, Kiwi Property’s mixed-use centres continue to go from strength to strength, recording strong sales and rental uplift. Our ability to drive rents in the current economic environment is a testament to the performance and productivity of our assets,” said Mackenzie.

Work on Kiwi Property’s build-to-rent (BTR) development, Resido, continued at pace during the period and is on track to open at Sylvia Park from May 2024. Strong inbound migration, high borrowing costs and a decline in building consents are expected to promote demand for rental accommodation, accelerating growth in the BTR sector.

Kiwi Property will pay a cash dividend of 1.425 cents per share for the second quarter of FY24 on 20 December 2023, taking the interim cash dividend payment to 2.85 cents per share. The dividend reinvestment plan will not operate for Q3 FY24 and will be reassessed on a quarterly basis. Kiwi Property today also reiterated its dividend guidance at 5.70 cents per share for FY242, which is expected to be within its target payout range of 90-100% of AFFO.

Looking ahead, Mackenzie said: “As always, we’re committed to maintaining a robust balance sheet and will continue to take steps to put the company in an even more resilient financial position. The successful delivery of our Resido and Drury developments remain a priority as we work towards executing our transformation into a creator of retail-led mixed-use communities.”

ENDS

Financial results at a glance:

• Net rental income: $89.1m (-16.2%. +2.5% like-for-like)
• Operating profit before tax: $52.4m (-26.7%. -1.0% like-for-like)
• Net loss after tax: -$36.5m (+75.8%. +76.6% like-for-like)
• Adjusted funds from operations: $48.6m (-25.4%. -0.2% like-for-like)
• Net tangible assets per share: $1.17 (-4.9% )
• Interim dividend: 2.85 cents per share (+0%)

Notes:

General note:

Net rental income, operating profit before tax and adjusted funds from operations are non-GAAP performance measures. Refer to the Kiwi Property Interim Results Presentation for the six months ended 30 September 2023 for details.

1:

Like-for-like results exclude the impact of asset sales and COVID-19 adjustments.

2:

Dividend guidance and payments are contingent on the company’s financial performance through the financial year and barring material adverse events or unforeseen circumstances.

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