Ann: HALFYR: KPG: Strong growth in operating profit

• Release Date: 18/11/15 08:42
• Summary: HALFYR: KPG: Strong growth in operating profit
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					KPG
18/11/2015 08:42
HALFYR
PRICE SENSITIVE
REL: 0842 HRS Kiwi Property Group Limited

HALFYR: KPG: Strong growth in operating profit

Kiwi Property today announced that it has delivered an excellent interim
financial result, made good progress on strategic investments and positively
positioned itself to fund its future investment priorities whilst maintaining
a strong financial position.

For the six months to 30 September 2015, Kiwi Property delivered an after tax
profit [Note 1] of $36.0 million, up 51.3% from $23.8 million in the prior
corresponding period.  Operating profit [Note 1] increased $9.5 million
(+22.6%), to $51.6 million and distributable income1 grew to $42.4 million,
up $2.1 million.  This strong result was underpinned by solid rental income
performance from existing and recently acquired assets, and lower borrowing
costs due to active capital management.

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

Chair of the board, Mark Ford, said: "Our commitment to targeting superior
risk-adjusted returns over time through the ownership and active management
of a diversified high-quality portfolio has delivered another positive result
for our shareholders."

Chief Executive, Chris Gudgeon, said: "In line with strategy, we have
successfully progressed investments in attractive Auckland retail assets and
core government office accommodation in Wellington."

Key highlights include: the acquisition of a large format retail centre
currently under development in Auckland's north-west; the completion of a
dining and entertainment expansion project at LynnMall; signing fashion
retailer, H&M, with its first store in New Zealand at Sylvia Park; advancing
the evaluation of expansion opportunities at Sylvia Park; and, progressing
our 35,000 sqm government office accommodation project in Wellington.
"To assist with funding future investment and development opportunities,
including the potential expansion of Sylvia Park, we successfully completed a
1 for 9 entitlement offer in June, raising proceeds of $148.1 million (net of
costs).  The proceeds were initially applied to reduce bank debt, which has
led to substantial interest expense savings during the period," said Mr Ford.

Shareholders will receive an interim cash dividend of 3.30 cents per share,
up 1.5% on the prior period and in line with guidance. Looking ahead,
subject to a continuation of reasonable economic conditions, the board has
maintained cash dividend guidance of 6.60 cents per share for the year ending
31 March 2016.

"The balance of the 2016 financial year promises to be another busy period
for Kiwi Property as we execute on our present development activities,
progress our plans to develop Sylvia Park into a world-class retail centre,
and seek opportunities to create further investment value for our
shareholders," said Mr Gudgeon.

"From a property market perspective, we expect retail sales to grow at least
in line with GDP, while underlying demand matched with limited short-term
supply will be positive for the Auckland office market.  In Wellington our
focus on securing long-term government leases at our core office assets
positions us strongly for the future," said Mr Gudgeon.

THIS ANNOUNCEMENT SHOULD BE READ IN CONJUNCTION WITH THE SEPTEMBER 2015
INTERIM RESULT PRESENTATION AND SEPTEMBER 2015 INTERIM REPORT, ALSO RELEASED
TODAY.

STRONG FINANCIAL PERFORMANCE

For the six months to 30 September 2015, Kiwi Property delivered an after tax
profit of $36.0 million, up from $23.8 million in the prior corresponding
period.  Operating profit increased $9.5 million to $51.6 million and
distributable income grew to $42.4 million, up $2.1 million.  This strong
result was underpinned by lower borrowing costs and solid rental income
performance from existing and recently acquired assets.

Net rental income was $76.3 million, compared with $77.0 million in the prior
period.  This stable income performance was maintained despite several
properties undergoing development resulting in temporary loss of income.
Expansion works commenced at LynnMall in January 2015, 56 The Terrace has
been 100% vacant for refurbishment works since November 2014, additional
floors were held vacant at The Majestic Centre to facilitate temporary tenant
relocations, and, from June 2015, two floors are being held vacant at 44 The
Terrace to facilitate refurbishment works.

Offsetting this, positive contributions were provided from Sylvia Park's
lifestyle precinct where a full six months of rental income was received,
together with rental income growth at all properties not currently impacted
by development.
On a comparable basis, like-for-like rental income was up $2.3 million or
4.3%.

In June 2015, Kiwi Property completed a 1 for 9 entitlement offer, raising
$148.1 million (net of costs) to fund future potential development
opportunities, including the potential expansion of Sylvia Park.

Net interest expense reduced $10.7 million to $16.8 million reflecting lower
debt levels as a result of the entitlement offer, combined with favourable
interest rates and conversion of the mandatory convertible notes in December
2014.  The lower interest expense has contributed to a $9.5 million, or
22.6%, lift in operating profit to $51.6 million.

Non-operating expenses amounted to $6.6 million, comprising a combination of
fair value movements on interest rate derivatives and investment properties,
offset by litigation settlement income.

Income tax expense increased $6.3 million largely due to the tax credits
associated with the deductibility of the internalisation payment being
available in the prior period.

After adjusting for property and interest rate derivative fair value
movements, other non-operating items and income tax, an after tax profit of
$36.0 million was recorded, up 51.3% from $23.8 million in the prior period.

The 3.30 cents per share cash dividend to be paid to shareholders is in line
with previous guidance and up from 3.25 cents per share in the prior period.
Imputation credits of 0.78 cents per share will be attached to the interim
dividend.

The record date for the interim dividend is 3 December 2015 and the payment
date is 17 December 2015.  The board has determined that the Dividend
Reinvestment Plan is available for the period ended 30 September 2015, with a
discount set at 2%.  This means that eligible shareholders can acquire
additional shares in the Company at a 2% discount to the average price at
which the shares trade through the New Zealand Stock Exchange during the
pricing period.

At period end, the property portfolio was valued at $2.39 billion, up $115
million on March 2015. The increase reflects the acquisition of Westgate
Zone 7 and other capital expenditure over the six-month period.  No
properties were independently revalued at 30 September 2015.

Net tangible asset backing per share at period end was $1.21, in line with
the March 2015 position.

Kiwi Property has continued to maintain a strong balance sheet.  The gearing
ratio improved to 30.3% compared to 33.5% at 31 March 2015, reduced by the
lower level of bank debt following the entitlement offer.

At 30 September 2015, the weighted average cost of debt was 5.43%, down from
6.02% at 31 March 2015 and 6.27% at September 2014 due to the favourable
interest rate environment, together with the positive impact of the interest
rate hedging restructure.

In November 2015, all $775 million of Kiwi Property's bank debt facilities
were refinanced on improved terms.  The refinancing of these facilities has
extended the weighted average term to maturity by 1.3 years and reduced fees
and margins by approximately 20 basis points.

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

KEY STRATEGIC INITIATIVES DELIVERED

The Kiwi Property team remains keenly focused on delivering on our investment
strategy which favours:

> acquisitions and developments in the Auckland region (specifically
targeting expansion opportunities at LynnMall and Sylvia Park, and further
attractive retail investment opportunities in locations favoured by the
proposed Auckland Unitary Plan), and

> core government office accommodation in Wellington, supported by long-term
leases to the Crown.

This strategic investment focus is evidenced through our investment
activities.  Highlights for the current reporting period include:

> the acquisition of Westgate Zone 7, a large format retail centre under
development at Westgate, a new Metropolitan Centre in Auckland's north-west

> the opening of 'The Brickworks' dining and entertainment expansion project
at LynnMall in the New Lynn Metropolitan Centre

> agreement with international fashion retailer, H&M, to open its first store
in New Zealand at Sylvia Park, an important building block in our proposed
retail expansion plans for New Zealand's largest and most successful retail
asset, and

> the execution of new 12-year government leases for over 8,000 sqm at 44 The
Terrace in Wellington, taking the total Crown lease commitment at our 44 and
56 The Terrace office assets to 32,000 sqm, with a weighted average lease
term of 17 years.

We continue to evaluate a potential 20,000 sqm retail expansion of Sylvia
Park in response to the centre's strong market position, underlying retailer
demand and our desire to create a world-class retail offer, positioning the
centre as Auckland's most attractive retail destination.

We also continue to pursue the acquisition of assets with strong
fundamentals, in good locations and to consider joint venture opportunities
with capital partners. At the same time, we seek to recycle capital out of
non-core assets and in this respect, are continuing to work with parties who
have expressed interest in buying Centre Place South in Hamilton.

We continue to embed 'best in class' environment, social and governance
practices across our business. In early November 2015, we were the only New
Zealand company to be named as a 'Climate A-lister' in the 2015 CDP awards.
Only 113 out of 2,000 companies globally made the A List which has rewarded
our actions on climate change mitigation, adaptation and transparency.

FOR A FULL DISCUSSION ON THE DELIVERY OF KIWI PROPERTY'S STRATEGY DURING THE
INTERIM REPORTING PERIOD, REFER TO PAGES 6 TO 9 OF THE SEPTEMBER 2015 INTERIM
REPORT ALSO RELEASED TODAY.

POSITIVE RETAIL SALES AND QUALITY LEASING OUTCOMES

Kiwi Property's portfolio of shopping centres, large format centres and
office buildings was valued at $2.39 billion [Note 2] at period end.

NOTE 2: At 30 September 2015, includes properties under construction,
adjoining properties and development land which had a combined value of
$107.4 million (5% of total portfolio value).

Active asset management of the portfolio resulted in a high occupancy rate of
98.5%  [Note 3] and a long weighted average lease term (WALT) of 4.7 years.
The WALT will further lengthen by approximately one year at the conclusion of
all current development activity.

NOTE 3: Tenancies vacated for development works are excluded from the
occupancy statistics.  At 30 September 2015, excludes 1,100 sqm at The
Majestic Centre, all of 56 The Terrace and 1,500 sqm at 44 The Terrace.

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

Retail portfolio performance

Portfolio statistics:  30-Sep-15
Portfolio value:  $1,562.5m
Occupancy:  99.0%
Weighted average lease term:  3.5 years
> 288 rent reviews over 57,000 sqm providing an average uplift of 3.7%
> 101 new leases and renewals over 19,700 sqm, resulting in an average uplift
of 1.9% (excluding development leasing)

Portfolio statistics:  31-Mar-15
Portfolio value:  $1,531.8m
Occupancy:  99.3%
Weighted average lease term:  3.4 years

Retail sales performance:  30-Sep-15
Total retail sales:  $1,318.4m
Comparable retail sales [Note 4]:  $1,229.5m

Retail sales performance:  Variance
Total retail sales:  +4.6%
Comparable retail sales [Note 4]:  +4.7%
Specialty gross occupancy costs:  16.3% (excl. GST)

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

NOTE 4: Comparable sales provide a more normalised picture of sales trends by
excluding centres that have undergone redevelopment in either period of
comparison, in this instance Centre Place.

Active asset management over the period resulted in improved rents, along
with a stable portfolio occupancy rate and weighted average lease term.

In an active leasing period, 101 new leases were completed across all six
shopping centres, producing a weighted average lease term of 5.1 years and
resulting in a net rental increase of 1.9%.

Rent reviews across the retail portfolio continued to provide consistent
uplift due to the predominance of fixed and CPI-linked review mechanisms,
with the average 3.7% increase recorded to September 2015 translating to an
additional $1.4 million in base rental.

Shopping centres within the portfolio delivered total sales of $1.32 billion
for the 12 months to 30 September 2015.  This reflects positive total sales
growth over the prior year of 4.6%, or 4.7% if the effects of redevelopments
are removed.

Sales growth was delivered at all shopping centres.  Sylvia Park again
delivered a particularly strong performance with sales increasing 8.1%.
Sales growth was delivered in all spending categories.

Mr Gudgeon said: "It was particularly pleasing to see that positive results
have again been achieved in categories consistent with our strategy to evolve
the retail mix to include more dining, leisure and entertainment options and
to provide facilities and services beyond conventional retail."

Stronger category performers (on a comparable basis) include:
> cinemas +10.7%
> mini-majors/general specialty +5.3%: reflecting strong sales in retail and
personal services +8.1% and food +3.5%.  The general/other sub-category
(which includes home electronics and sound, books and music, giftware,
cosmetics and outdoor and leisure), increased 10.8%
> commercial services +15.2%: predominantly reflecting sales through our
mobile phone and travel stores, and
> department stores also performed strongly across the year, with sales up
+4.7%.

Combined, these categories account for around 75% of total portfolio sales.

Acquisition of large format retail centre at Westgate

In September, we acquired a large format retail centre currently under
development at Westgate in Auckland's north-west for $82.5 million.  The
centre, which is being developed by New Zealand Retail Property Group, will
be anchored by Harvey Norman, Briscoes, Rebel Sport, Freedom Furniture and
Hunter Furniture.  The centre is expected to progressively open during the
first half of 2016, with all stores open by mid-2016.

Westgate is a Metropolitan Centre under Auckland's Unitary Plan and we
believe it will emerge as one of Auckland's favoured large format retail
destinations, with positive attributes in terms of population growth,
household formation and motorway accessibility.  This acquisition follows our
purchase in December last year of the Sylvia Park lifestyle precinct
(formerly Apex Mega Centre), providing us further exposure to the large
format retail sector.

The centre is now 90% leased with a weighted average lease term of 8.1 years.

Office portfolio performance

Portfolio statistics:  30-Sep-15
Portfolio value:  $720.5m
Occupancy:  97.2%
Weighted average lease term:  8.0 years
> 15 new leases and renewals over 12,100 sqm resulting in an average uplift
of 15.8%
> 13 rent reviews for nearly 21,000 sqm providing an average uplift of 2.5%

Portfolio statistics: 31-Mar-15
Portfolio value:  $673.0m
Occupancy:  96.1%
Weighted average lease term:  7.6 years

The three new 12-year Crown leases at 44 The Terrace assisted with the office
portfolio occupancy and WALT statistics.  These leases have improved the WALT
to 8.0 years, the longest WALT in the office portfolio's history.  The office
portfolio WALT will increase by a further 1.7 years following completion of
the refurbishment activity and commencement of the Crown lease at 56 The
Terrace.

Office portfolio refurbishment and strengthening activity

A further key milestone was achieved in the seismic upgrade works at The
Majestic Centre with the on-floor strengthening works now complete and all
tenants relocated to their final tenancies.  The remaining tower works are
programmed to be complete by the end of 2015 and work on the podium will
continue until the third quarter 2016. The forecast cost remains on budget.

Refurbishment and strengthening works at 56 and 44 The Terrace are
progressing on schedule and on programme to conclude in time for the
respective lease commencements.

For a full update on development activity, refer to pages 16 to 22 of the
September 2015 Interim Result Presentation and pages 6 to 9 and 17 of the
September 2015 Interim 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 9519 5850

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 $2.39 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:00273619 For:KPG    Type:HALFYR     Time:2015-11-18 08:42:05