Pandemic hits landlord’s asset values
Kiwi Property says profit slump masks solid revenue rise
New Zealand’s largest NZXlisted landlord suffered a big turnaround from last year’s $138.1 million net profit, slumping to a $186.7m loss due to write-downs.
The business said its result for the full year to March 31, 2020 had been affected by portfolio revaluations due to uncertainty arising from the Covid19 pandemic.
Kiwi had previously announced it had suffered a $290m asset devaluation when property valuations fell 8.5 per cent so its assets were worth $3.1 billion at the end of March, down from $3.39b before the outbreak.
Clive Mackenzie, Kiwi chief executive, said the valuations had been heavily impacted by coronavirus.
However, the company’s full-year revenue to March 31 remained largely unaffected, with net rental income up 3.4 per cent to $186.8m, contributing to an operating profit before tax of $129.7m, up 4.2 per cent on the year before.
“From our perspective, the key number is our funds from operation which rose 6.3 per cent from $106.9m last year to $113.6m,” Mackenzie said.
“The valuers came in at the height of the pandemic and valued at March 31 and they made a decision . . . that our assets were overvalued and that meant the net loss for us after tax. But it is a paper loss. The operating business is tracking well,” Mackenzie said.
Kiwi has delayed the opening of its new upstairs Galleria shopping and dining area as part of its $258m Sylvia Park expansion.
Instead of opening in this year’s third quarter as planned, the new area now won’t open till the fourth quarter, Mackenzie announced yesterday, but that would still be in time for Christmas “and it will be a progressive opening. The key anchor tenants are supportive and we’re talking to the smaller retailers about their timing”.
New carparking spaces “will be all finished this weekend so that for this coming Queen’s Birthday weekend, we’ll have 5000 car parks available. And while we’re talking about Sylvia Park, our foot traffic across all our shopping centres is now down only 5 per cent on last year. Customers are back and they’re feeling comfortable”, Mackenzie said.
The pandemic prompted Kiwi to suspend all non-essential capital projects and operating expenditure. Directors, Mackenzie and executives took a temporary 20 per cent pay cut. Employee salaries have been frozen indefinitely.
Kiwi has also extended its $361m bank debt facilities on three and fiveyear terms and says it has $291m in undrawn credit. Despite the valuation drops, its gearing is at 32 per cent, within target range.
The business says it is working with its tenants, giving rent abatements and deferrals. Abatements in the first quarter of the March 31, 2021 financial year are expected to amount to around $20m.
On its outlook, Kiwi said “New Zealand is facing an unparalleled challenge and the full impact of Covid-19 on the country or Kiwi Property is still unknown”. But it reassured shareholders it was committed to creating value.
Plans for a new Sylvia Park office block were going ahead, though it hadn’t made any decisions on a start date. Mackenzie sees no need to change open-plan or floorspace layouts in that planned block in response to pandemic fears.
It is also working on plans for a mixed-use community at Drury where it owns 51 hectares. The Government’s plans to invest $2.4b in new infrastructure at Drury could allow construction to begin in 2023.
Rents in the year just gone grew across its portfolio, though growth from its retail properties was a scant 0.9 per cent. Rents from its office properties grew 7.3 per cent while rents from its mixed-use properties were up 5 per cent.
Financially, Kiwi is in a solid position with no bank debt maturing until full-year 2023, $291m in undrawn credit facilities and gearing at March 31 of just 32 per cent.
Kiwi won’t pay a final dividend, as previously advised, and chair Mark Ford said it was a difficult decision.
When Kiwi resumes paying dividends, they will be 90 per cent to 100 per cent of adjusted funds from operations. “Our aim is to resume paying a dividend . . . once the financial impact of Covid-19 is clear,” Ford said.
Kiwi shares closed yesterday at 96 cents compared with per-share net asset backing of $1.26. They have fallen 39.1 per cent year to date.
Customers are back and they’re feeling comfortable. Clive Mackenzie, Kiwi chief executive