DNZ expects higher profit than forecast

DNZ Property Fund is expecting a bigger profit than previously forecast, although the value of its portfolio slipped back nearly 2 percent.

DNZ listed on the NZX last August, after it had brought management functions in house.

Today it said its distributable profit for the financial year to the end of March would be ahead of the $19.2 million forecast in the July 2010 offer document by about $1.6 million to $1.9 million, or 8.3 percent to 9.9 percent.

A key factor in the result was reduced finance expenses.

DNZ also said the annual independent market valuation of the company's property portfolio showed a reduction in the portfolio value of 1.88 percent, or $11.8m, to $637.7m as at March 31.

DNZ chairman Tim Storey said the decline was largely a reflection of softening rentals and occupancy pressure in the office sector, particularly in Wellington.

The value of our office portfolio overall was down 4.4 percent or $11.7m, with DNZ's Wellington office portfolio accounting for 69 percent of the fall with a 6.3 percent or $8.1m decline.

Retail sector values fell 1.1 percent, and bulk retail down 0.7 percent, while industrial rose 1.2 percent.

DNZ chief executive Paul Duffy said a strategy of maintaining a diversified property portfolio by sector and location had softened the impact of location specific events such as the Christchurch earthquake, or sector specific valuation movements.

DNZ's preliminary occupancy rate was 98 percent as at March 31, up from 96.1 at the end of last September.

Today's guidance on expected distributable profit did not take into account tax benefits relating to a ruling from IRD on the tax treatment of the payment for the termination of the management contract when the manager was internalised last July.

The IRD had ruled the payment was deductible for tax purposes, and the board was reviewing how to best use the resulting benefit of the tax ruling. It planned to provide guidance on the matter when it announced the company's financial year end results in May, Mr Storey said.

The buyout of the DNZ management contract cost $32m.