Contract exit costs bite into profits

Haley Van Leeuwen
Haley Van Leeuwen
Extraction from a management contract with Commonwealth Bank of Australia has cost Kiwi Income Property Trust $52.3 million, with its full-year after-tax profit down 7.7%, from $109.8 million to $101.3 million.

Kiwi Income Property, the country's second largest listed property company, is following the sector trend into self-management, unit holders having vote in favour for the move to self-management.

Craigs Investment Partners broker Peter McIntyre said the result was ''as expected and with no surprises,'' in reference to the well signalled management exit costs.

Kiwi Income Property shares finished the day up 0.4% to $1.16. Mr McIntyre said property values for the year had increased from $2.07 billion to $2.13 billion. Operating profit before other income and tax, was up $9.3 million, or 13.4%, to $78.7 million from the previous year.

Forsyth Barr broker Haley Van Leeuwen said Kiwi Income Property's distributable profit of $76.3 million was up 24.7% on last year.

''This was driven by the internalisation [management contract exit] payment being tax deductible, and there remains a further $11 million of deductions to carry forward.''

Ms Lan Leeuwen's full year 2015 outlook said the company would complete earthquake strengthening at the Majestic Centre in Wellington and also start redevelopment of 56 The Terrace, formerly Unisys House, in Wellington.

She also said Auckland City Holdings Ltd was exercising its right to buy the remaining 50% of 205 Queen St, the price being the March valuation of $56.3 million, to be settled in early-June.

Mr McIntyre said rental income was up, the company benefiting mainly from the Auckland market and in particular, office space rentals.

The overall lease term had been pushed out to 4.7 years, with office space terms increasing from 4.8 years to 6.4 years, while retail rentals were down slightly, to 3.8 years.

Mr McIntyre said the interest rate derivative revaluations, with a $28 million gain, and insurance income from a Christchurch earthquake payout of $64.3 million, to some extent off-set the cost of terminating the previous management contract, which was $52.2 million of a total $72.5 million in restructuring costs towards becoming self managed.

Chairman of the manager of the trust, Mark Ford, said moving to self management would reduce operating costs and provide investors with greater control and better alignment of interests.

He said during this year a ''corporatisation'' proposal would go to investors, which involved moving from a trust to a company structure, with expectations a successful proposal could take effect in late December.

He said investors would benefit from a streamlined corporate structure, cost savings and greater protections under the Takeovers Code and Companies Act. Chief executive of the manager of the trust Chris Gudgeon said net rental income of $148.7 million was up $13.2 million, or 9.7%, on a year ago.

That was driven by the inclusion of the new ASB North Wharf building (Auckland) into the portfolio, completion of the Centre Place Shopping Centre (Hamilton) redevelopment, reinstatement of 11 stores at Northlands Shopping Centre (Christchurch) and solid rental growth from the Sylvia Park Shopping Centre (Auckland).

Key retail assets
Sylvia Park Shopping Centre: Auckland
Lynn Mall Shopping Centre:Auckland
Centre Place Shopping Centre: Hamilton
The Plaza Shopping Centre: Palmerston North
North City Shopping Centre: Porirua
Northlands Shopping Centre Christchurch

Key office assets
Vero Centre: Auckland
ASB North Wharf :Auckland
205 Queen St (50%): Auckland
The Majestic Centre: Wellington
Unisys House: Wellington
44 The Terrace: Wellington

Source: Kiwi Income Property Trust. Kiwi Income Property Trust


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