Ann: FLLYR: KPG: 13.7% lift in profit and potential expansion of Sylvia Park

• Release Date: 18/05/15 08:30
• Summary: FLLYR: KPG: 13.7% lift in profit and potential expansion of Sylvia Park
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					KPG
18/05/2015 08:30
FLLYR
PRICE SENSITIVE
REL: 0830 HRS Kiwi Property Group Limited

FLLYR: KPG: 13.7% lift in profit and potential expansion of Sylvia Park

Kiwi Property today announced a very positive annual result for the year
ended 31 March 2015, capping off a year of transformational change in which
the business moved from a trust to a company structure and rebranded as Kiwi
Property.
In its first full year of operation as an internally managed entity, the
Company produced an after tax profit [NOTE 1] of $115.2 million for the year
ended 31 March 2015, an increase of +13.7% on the prior year.

NOTE 1: Refer to Appendix 1 of this announcement for definitions.

Operating profit before tax [NOTE 1] was $89.0 million, up 13.1% on the prior
year and a record in our 21-year history.  This was driven by positive
leasing, rental growth and occupancy outcomes across our portfolio, cost
savings delivered through internalisation and corporatisation, and interest
savings secured through capital management initiatives.

NOTE 1: Refer to Appendix 1 of this announcement for definitions.

Chair of the board, Mark Ford, said: "The 2015 financial year was another
period marked by positive change for Kiwi Property.  In December 2014, our
investors overwhelmingly approved our proposal to move from a trust to a
company structure."

"Internalisation of management in December 2013, coupled with corporatisation
in December 2014, is enabling us to deliver benefits to shareholders,
including cost savings.  I am pleased to report that we have exceeded our
pre-tax net expenditure savings target of $8 million per annum, as projected
at the time of internalisation. Our business is now underpinned by both a
lower cost management platform and by a strategy that is singly focused on
achieving our shareholder goals."

"Shareholders will receive a full-year cash dividend of 6.50 cents per share,
up from 6.40 cents per share a year ago.  Looking to the 2016 financial year,
the Company is well positioned relative to its shareholder goals. We project
an increased dividend of 6.60 cents per share for the 2016 financial year,
subject to a continuation of reasonable economic conditions," said Mr Ford.

Commenting on Kiwi Property's future plans, Chief Executive, Chris Gudgeon,
said: "Our investment strategy favours the Auckland region and we are
particularly excited about the potential expansion of Sylvia Park as part of
our town centre vision for that site.  We are currently evaluating a 20,000
sqm retail expansion, at an estimated cost of $150 million and with a
possible opening date in 2018. This would accommodate new international
retailers and additional specialty and department stores.  The redeveloped
centre would offer a world-class experience and cement the centre's position
as Auckland's most attractive retail destination.  We are also investigating
the development of high profile office space, tapping into our onsite rail
and bus public transport links and benefitting from the amenity and services
on site. The initial 7,500 sqm building under consideration is estimated to
cost $45 million.  Any retail expansion or office development will be subject
to commercial viability."

FOR A FULL DISCUSSION ON KIWI PROPERTY'S STRATEGY REFER TO THE ANNUAL REVIEW
STARTING ON PAGE 9 OF THE 2015 ANNUAL REPORT, ALSO RELEASED TODAY.

FY15 HIGHLIGHTS

CORPORATE HIGHLIGHTS

> Corporatisation successfully executed; Kiwi Property renamed and rebranded
> Organisational efficiency review completed
> Governance further enhanced with the appointment of two independent
directors

FINANCIAL HIGHLIGHTS

> Operating profit before tax of $89.0 million, up $10.3 million, +13.1%
> After tax profit of $115.2 million, up $13.9 million, +13.7%
> Distributable income [NOTE 2] of $79.7 million, up $3.4 million, +4.5%
> Full-year dividend of 6.50 cents per share, up from 6.40 cents per share a
year ago
> Property assets of $2,275.8 million, up $145.6 million
> Gearing ratio2 of 33.5%, down from 35.2% at March 2014
> Net tangible asset backing per share of $1.21, up 4 cents per share
> $875 million in bank debt refinanced
> Successful issue of $125 million in seven-year fixed rate bonds

NOTE 2:  Refer to Appendix 1 of this announcement for definitions.

OPERATING HIGHLIGHTS

> Settlement of insurance claim for Northlands Shopping Centre at $60 million

> Divestment of the final 50% interest in 205 Queen, with property management
services retained
> Strategic acquisition of Apex Mega Centre (subsequently rebranded as Sylvia
Park's lifestyle precinct), a large format retail asset adjacent to our
flagship shopping centre, Sylvia Park
> Total retail sales of $1.29 billion, up 4.3%, reflecting a recovery in
discretionary spending
> Total rental uplift of 3.2% from new leasing and rental review activity in
our office and shopping centre portfolios
> Commencement of construction on a new $39 million dining and entertainment
precinct at LynnMall Shopping Centre in response to customer demand
> Commencement of construction on an expansion and refurbishment project at
56 The Terrace ahead of an 18-year government lease

FOR A FULL SUMMARY OF FINANCIAL RESULTS, REFER TO APPENDIX 1 OF THIS
ANNOUNCEMENT.  THIS ANNOUNCEMENT SHOULD BE READ IN CONJUNCTION WITH THE 2015
ANNUAL RESULT PRESENTATION AND 2015 ANNUAL REPORT, ALSO RELEASED TODAY.

FINANCIAL PERFORMANCE

Kiwi Property delivered a positive operating profit before tax [NOTE 1] of
$89.0 million, up $10.3 million (+13.1%) on the prior year.  This record
operating profit was driven by positive leasing, rental growth and occupancy
outcomes, cost savings delivered through internalisation and corporatisation,
and interest savings secured through capital management initiatives.

NOTE 1:  Refer to Appendix 1 of this announcement for definitions.

This improved operating result, combined with favourable property valuations,
led to a profit after tax of $115.2 million for the year, an increase of
$13.9 million (+13.7%) on the previous year.

Despite the Company returning to a tax paying position in the second half of
the financial year, distributable income was $79.7 million, up $3.4 million
(+4.5%).

Underpinning the result, net rental income rose $6.6 million (+4.4%) to
$155.3 million.  Positive contributions resulted from the inclusion of a full
year of income from ASB North Wharf, Centre Place and Northlands following
completion of development activity in the prior year, another strong
performance from our flagship retail asset, Sylvia Park, along with three
months of rental income from Sylvia Park's lifestyle precinct following its
purchase in December 2014.

Another positively contributing factor was the absence of property management
fees, previously payable to an external manager, which added a further $8.3
million to rental income in the current year.

These increases were partly offset by the sale of the Company's remaining 50%
interest in 205 Queen in June 2014, and reduced income at The Majestic Centre
and 56 The Terrace while refurbishment and strengthening projects take place
at those assets.

Net interest expense reduced $4.1 million (-7.4%) as a result of capital
management initiatives implemented during the year and the conversion of the
mandatory convertible notes in December 2014.

The current tax expense increased $5.4 million, due to the Company returning
to a tax paying position following utilisation of tax credits associated with
the internalisation payment made in the prior year.

Shareholders will receive a final cash dividend of 3.25 cents per share,
taking the full-year cash dividend to 6.50 cents per share.  The record date
for the dividend is 26 May 2015.  Shares will therefore only trade
cum-dividend prior to the ex-date of 22 May 2015.  The board has suspended
the Dividend Reinvestment Plan in respect of the final dividend.

At year end, the Company had total assets of $2.30 billion, up $59.8 million
(+2.7%) on the prior year.  Shareholder funds rose by $194.1 million (+16.3%)
to $1.38 billion, with the conversion of 120 million mandatory convertible
notes into shares contributing to this increase.  Net asset backing per share
rose by +3.4%, from $1.17 to $1.21.

Mr Gudgeon said: "We have delivered a high-quality result for our
shareholders, exceeding our targets of providing long-term total returns
greater than 9% per annum and growth in pre-tax distributable earnings per
share greater than 2% per annum."

At 31 March 2015, the Company's total return since inception was 9.7% [NOTE
3].

NOTE 3: Excludes reinvestment of imputation credits.

STRONG BALANCE SHEET MAINTAINED

Chief Operating Officer, Gavin Parker, said: "A key element of our strategy
is to maintain a strong financial position with appropriate diversity of debt
capital sources."

"In June, we refinanced $875 million of our bank debt facilities, which led
to immediate interest savings, improved terms and an extension of the
weighted average duration of our bank debt.  We followed this up in August
with the successful issue of $125 million in seven-year fixed rate senior
secured bonds, which further diversified our debt capital structure and
increased the duration of our funding sources."

In December 2014, the 120 million mandatory convertible notes issued in 2009
converted into 103 million new shares at a conversion price of $1.1696.  The
$120 million in funds raised under this issuance were used to fund the
development of a world-class head office for ASB Bank.

This completed development, ASB North Wharf, is now an iconic landmark on the
Auckland waterfront, providing investors with a long-term income stream
secured by an 18-year lease to a blue-chip tenant.

At 31 March 2015, the Company's weighted average cost of debt was 6.02%, down
from 6.27% at September 2014, with a weighted term to maturity of 3.6 years.

Subsequent to year end, we completed a partial restructure of our interest
rate hedging portfolio at a cost of $8.0 million (after tax).  Based on a 31
March 2015 position, the restructure has increased the weighted average term
to maturity of the interest rate hedging portfolio from 3.3 years to 3.7
years, and reduced the weighted average cost of debt by approximately 50
basis points.  The restructure reduces the level of fixed rate cover from 81%
to 61% (based on the 31 March 2015 position) but increases the level of cover
in outer years.

At year end, Kiwi Property's gearing ratio1 was 33.5%, down from 35.2% a year
ago, assisted by reduced bank debt from the proceeds of the sale of 205 Queen
and the Northlands insurance claim settlement, together with improved
property portfolio valuations.

COMMITMENT TO OUR STRATEGY DELIVERS SUCCESSFUL OPERATIONAL PERFORMANCE

Kiwi Property's portfolio of shopping centres and office buildings was valued
at $2.28 billion at year end, a record value in our history.

The portfolio benefitted from high occupancy rates from leasing successes,
stronger retail sales at key assets and a general improvement in market
conditions.

Common market factors driving value growth include firming capitalisation
rates due to strong investor demand, particularly in Auckland, and a
reduction in insurance premiums.

Independent valuations undertaken as at 31 March 2015 resulted in a net gain
in the value of the portfolio of $58.3 million (+2.6%), with the weighted
average capitalisation rate for the portfolio firming 26 basis points to
6.92%. Overall, portfolio rental rates were assessed to be at market levels.

Active asset management of the portfolio resulted in net rental income growth
for the year of 4.4%, a high occupancy rate of 98.4% and a long weighted
average lease term of 4.5 years.

The portfolio continues to be supported by a high level of structured rental
increases, underpinning income growth and performance. Eighty per cent of
our leases are either on fixed or CPI-linked review structures.

RETAIL PORTFOLIO PERFORMANCE

PORTFOLIO STATISTICS: 31-MAR-15
Portfolio value: $1,531.8m
Weighted average cap rate : 6.97%
Occupancy: 99.3%
Weighted average lease term: 3.4 years

PORTFOLIO STATISTICS: 31-MAR-14
Portfolio value: $1,390.2m
Weighted average cap rate : 7.17%
Occupancy: 99.4%
Weighted average lease term: 3.8 years

> 597 rent reviews over 112,200 sqm providing an average uplift of 3.8%
> average uplift of 0.2% (excluding development leasing)

RETAIL SALES PERFORMANCE: 31-MAR-15
Total retail sales: $1,285.8m
Comparable retail sales: $1,200.8m
Speciality gross occupancy costs: 16.5%

RRETAIL SALES PERFORMANCE: VARIANCE
Total retail sales: +4.3%
Comparable retail sales: +3.2%

Note: Tenants within Sylvia Park's lifestyle precinct do not report sales.

Kiwi Property's portfolio of shopping centres delivered 3.5% comparable
income growth over the year (excluding property management fees), with total
retail sales up 4.3%.

VALUATIONS

The retail portfolio is now valued at $1.53 billion, resulting in a
revaluation gain for the year of $58.0 million, driven by strong performances
at our centres where they dominate their catchments, such as Sylvia Park
(+$31 million), Northlands (+$14 million), The Plaza (+$10 million) and
LynnMall (+$10 million).  The weighted average capitalisation rate of the
retail portfolio firmed 18 basis points to 6.97%.

LEASING ACTIVITY

Overall, rentals achieved through new leasing and rent reviews delivered
growth of $2.9 million (+3.3%) for the year.

Rent reviews continue to provide consistent uplift due to the predominance of
fixed and CPI-linked review mechanisms.  The 597 rental reviews completed,
representing 75% of tenancies by number, provided an average rental uplift of
3.8%, translating into an additional $2.9 million per annum in base rental.

Kiwi Property's leasing team had another very active year, executing 133
leasing deals (including 89 renewals by existing tenants) equivalent to
almost 17% of the total number of tenancies in our retail portfolio.
Overall, new leases delivered rental growth of 0.2%.

The portfolio ended the year in a strong position, with 99.3% occupancy and a
weighted average lease term of 3.4 years.

ACQUISITION

During the year, Kiwi Property added to its retail portfolio with the
strategic acquisition of Apex Mega Centre (subsequently rebranded as Sylvia
Park's lifestyle precinct), located immediately opposite its flagship retail
asset, Sylvia Park.  Acquisition of the centre will enable Kiwi Property to
provide customers with a broader, complementary and more compelling retail
mix in the Sylvia Park locality.  The asset was acquired for $64.0 million,
with a projected yield of 7.0% and a projected 10-year internal rate of
return of 9.1%.

SALES

Kiwi Property's shopping centres delivered total sales of $1.29 billion over
the year, with growth over the prior year of 4.3%, or 3.2% on a comparable
basis once the effect of redevelopments is removed.

Sales growth was delivered at all shopping centres and across all key
merchandise category groupings.

Sylvia Park once again delivered a strong performance (+6.0%), assisted by
the successful implementation of extended trading hours.

On a category basis, it was pleasing to see strong growth in the
discretionary spending categories, including cinemas (+8.0%), mini-majors and
specialty stores (+3.8%) and commercial services (+8.4%).

LYNNMALL REDEVELOPMENT

A highlight for the year was the start of construction on a $39 million
dining and entertainment precinct at LynnMall. Development works are well
underway, with completion expected in November 2015.

The redevelopment responds to shopper demand and involves the construction of
a new eight-screen multiplex cinema, operated by Reading, and the creation of
an outdoor dining lane, named 'The Brickworks'.  This north facing landscaped
laneway will provide dining options which include a gastro bar, a wood fired
BBQ offer, Asian fusion, Japanese and Vietnamese food and a caf?.  As part of
the redevelopment, 4,000 sqm within the existing centre is also being
reconfigured and re-leased.

The redevelopment concept has been strongly supported by retailers. Including
post year-end leasing activity, the development space is now 86% leased by
area and 81% leased by budgeted income.

The projected value on completion has increased to $263 million, providing
value uplift of $42 million over the $221 million invested in the centre
(acquisition price and subsequent capital expenditure and redevelopment).

OFFICE PORTFOLIO PERFORMANCE

PORTFOLIO STATISTICS: 31-MAR-15
Portfolio value: $673.0m
Weighted average cap rate: 6.80%
Occupancy: 96.1%
Weighted average lease term: 7.6 years

PORTFOLIO STATISTICS: 31-MAR-14
Portfolio value: $674.6m
Weighted average cap rate: 7.23%
Occupancy: 95.1%
Weighted average lease term: 6.4 years

> 19 new leases and renewals over 10,400 sqm resulting in an average uplift
of 6.7%
> 24 rent reviews over 32,900 sqm providing an average uplift of 1.9%

The office portfolio, which comprises five office buildings in Auckland and
Wellington, delivered comparable net rental income growth of 2.3% (excluding
property management fees) over the year.

LEASING ACTIVITY

Successful leasing outcomes in both Auckland and Wellington have driven
significant improvements in portfolio occupancy and weighted average lease
term.  Occupancy has lifted to 96.1%, the highest in five years, and the
weighted average lease term extended to 7.6 years, the longest in over 10
years.

Vero Centre now only has only 490 sqm (1.2% of the building's area) of
vacancy. New leases were negotiated for 6,200 sqm of office space (16% of the
building's area), with an average lease term of five years.

At The Majestic Centre, 4,200 sqm of new leases (17% of the building's area)
were executed over the year, for an average term of 9.7 years. This activity
takes total leasing completed in the building since commencement of the
seismic strengthening project in 2011 to 16,700 sqm (68% of the building's
area). Wellington tenants continue to require premium seismic performance
for their business accommodation, highlighted by the strong demand for space
at The Majestic Centre.

VALUATIONS

The office portfolio ended the year with a value of $673 million, a decline
over the prior year due to the divestment of 205 Queen and an increase in
seismic project expenditure.  The weighted average capitalisation rate for
office assets firmed 43 basis points to 6.80%.

Auckland office buildings provided a value gain of $33 million, reflecting
investor demand, low vacancy rates and prospects for rental growth.  Positive
valuations were recorded at Kiwi Property's premium assets, Vero Centre
(+7.4%) and ASB North Wharf (+6.5%).  Over the past three years these assets
have provided a combined revaluation gain of $79 million.

Wellington office assets reduced in value by $37 million due primarily to the
$29.9 million cost increase for the seismic remediation project at The
Majestic Centre, as recognised in the September 2014 interim results.

Other decreases were recorded for 56 The Terrace (-6.4%) due to a forecast
$4.8 million cost increase for the refurbishment project currently underway,
and 44 The Terrace
(-14.1%), due to impending lease expiries.

POTENTIAL NEW LEASES AND REFURBISHMENT PROJECT

By mid-year Kiwi Property expects to conclude new 12-year lease agreements
with the New Zealand Government for 8,059 sqm of space in our office building
at 44 The Terrace, Wellington, equivalent to 84% of the building's office
area.  The existing Crown occupiers, Tertiary Education Commission, Commerce
Commission and the Energy Efficiency and Conservation Authority, are expected
to recommit to the building with individual leases commencing in July 2015.
New proposed rents would provide an uplift on existing rentals of
approximately 23%, commencing from completion of staged floor refurbishments.

The new long-term leases would provide a secure rental return on the $12.6
million project cost to upgrade and refurbish the 28-year old building.  The
works include refurbishment of base build finishes, the upgrade of building
services and the seismic strengthening of the building to 80% of New Building
Standard.

FOR FURTHER INFORMATION ON KIWI PROPERTY'S OPERATIONAL PERFORMANCE, REFER TO
THE PROPERTY COMPENDIUM STARTING ON PAGE 25 OF THE 2015 ANNUAL REPORT, ALSO
RELEASED TO TODAY.

SUSTAINABILITY ACHIEVEMENTS REFLECT A 10-YEAR FOCUS

At Sylvia Park, Kiwi Property unveiled New Zealand's largest solar array
during the year.  Covering an area of 3,000 sqm - about the size of 12 tennis
courts - some 1,134 solar panels will generate enough clean energy to power
the equivalent of 59 New Zealand homes annually.  This equates to around 16%
of Sylvia Park's common area energy consumption.  Sylvia Park also became the
first shopping centre in the country to install free electric vehicle
chargers for its customers.

During the year, Kiwi Property's Wellington office building at 44 The Terrace
was awarded a 4.5 star 'excellent' NABERSNZ energy rating.

"It's all part of Kiwi Property's ongoing sustainability programme," Mr
Gudgeon said.  "Our focus on cost minimisation through environmental
initiatives is an important component of our value proposition."

FOR FURTHER INFORMATION ON KIWI PROPERTY'S SUSTAINABILITY ACHIEVEMENTS, REFER
TO PAGE 16 OF THE 2015 ANNUAL REPORT, ALSO RELEASED TODAY.

KIWI PROPERTY LAUNCHED

In conjunction with corporatisation, the new Kiwi Property brand was launched
in December 2014.  Mr Gudgeon, said: "The positive changes made in our
business have given us the opportunity to refresh our name and brand. Our new
brand identity is an expression of our commitment to create exceptional
places and deliver exceptional results for our investors."

ORGANISATIONAL EFFICIENCY REVIEW COMPLETED

Following the internalisation of management, Kiwi Property completed a review
to ensure the Company's organisational structure was optimally configured
with the right accountabilities and capabilities to deliver on its corporate
objective, goals and strategy. As a result, Gavin Parker was appointed to
the newly created role of Chief Operating Officer, moving from his prior
position of Chief Financial Officer.  He now oversees the provision of
corporate services across the Group whilst maintaining responsibility for
overall management of the Company's financial position, and corporate and
capital structure. Stuart Tabuteau, formerly Financial Controller, was
appointed to the role of Chief Financial Officer.

Kiwi Property also welcomed Christopher Hermann to the role of General
Management Development, combining responsibility for both retail and office
development.

PEOPLE AND REMUNERATION

During the year, a new remuneration framework for employees was developed and
implemented, based on market best practice. New short-term and long-term
incentive schemes were introduced from 1 July 2014 and, post year end, an
Employee Share Ownership Plan was established.

Chair, Mark Ford said, "These incentive schemes are designed to strengthen
the alignment between management reward levels and the achievement of our
investor goals."

FOR FURTHER INFORMATION ON KIWI PROPERTY'S REMUNERATION FRAMEWORK, REFER TO
PAGE 93 OF THE 2015 ANNUAL REPORT, ALSO RELEASED TODAY.

> ENDS

CONTACT US FOR FURTHER INFORMATION

Chris Gudgeon
Chief Executive
[email protected]
+64 9 359 4011
mobile +64 21 855 907

Gavin Parker
Chief Operating Officer
[email protected]
+64 9 359 4012
mobile +64 21 777 055

Stuart Tabuteau
Chief Financial Officer
[email protected]
+64 9 359 4025
mobile +64 21 912 247

Mathew Chandler
Investor Relations and Communications Manager
[email protected]
+61 458 110 042
direct +61 2 4377 1590

ABOUT US

Kiwi Property (NZX: KPG) is the largest listed property company on the New
Zealand Stock Exchange and is a member of the NZX15 Index.  We've been around
for more than 20 years and we proudly own and manage a $2.28 billion
portfolio of real estate, comprising some of New Zealand's best shopping
centres and prime office buildings.   Our objective is to provide investors
with a reliable investment in New Zealand property by targeting superior
risk-adjusted returns over time through the ownership and active management
of a diversified, high-quality portfolio.  To find out more, visit our
website kp.co.nz
End CA:00264388 For:KPG    Type:FLLYR      Time:2015-05-18 08:30:05