Listed Kermadec Property Fund has posted a full year result with distributable earnings were down 34% on the previous year to $3.5 million but it has asset sales under contract to reduce its gearing further.One of contributing factors to the lower distrib
Listed Kermadec Property Fund has posted a full year result with distributable earnings were down 34% on the previous year to $3.5 million but it has asset sales under contract to reduce its gearing further.
One of contributing factors to the lower distributable earnings was higher borrowing costs, up in the second half of the year, reaching 8.5%. This compares to an average of 8.15% last year.
Unrealised losses totaling $11.9 million included $4.9 million from the value of its property portfolio in revaluations. Its assets are now worth a total of $120.1 million, compared to $134.5 million last year.
Kermadec’s net rental income decreased from $10.6 million last year to $9.2 million, which it said was due to having sold some buildings as well as lower occupancy. At 94%.
“We have successfully arranged eight new leases with an annualised increased rental of $0.9m. However the company also faced six lease expiries/surrenders, and one tenant failure during the year which on an annualised basis represented $1.0 million of rental income,” said Chris Francis, director of the managemend company Augusta Funds Management.
“Leasing interest has improved and we have achieved 100% occupancy at our 7 City Road office building. However, the overall market remains subdued and we expect the recovery to be slow.”
During the year it sold two buildings for a total of $14.7 million. Earlier this month Timaru syndicator Commercial Investment Properties successfully oversubscribed the Coca Cola Palmerston North distribution centre which it bought from Kermadec for $6.5 million, well below its March 2009 valuation of $10.65 million.
The fund used the money to repay bank debt, and said it has a further $11 million coming in by next month from further sales.
“This strategy does have an earnings impact with a reduction in rental revenues from sold properties. There is also a cash earnings impact from currently high rental incentives payable to new and renewing tenants and longer time taken to re-let vacant space,” Mr Francis said.
“From the 2012 financial year distributable income will be impacted by the change to tax depreciation rules. Accordingly we will be adjusting our distributions to shareholders to match our operating cash earnings, less a reasonable buffer for capital expenditure.”
Its gearing is now at 39%, compared to 41% last year. It aims to get this down to between 29% and 33% by the end of June.
“Our expectations are that the distribution level will reduce from 5.0cps to 4.0cps for the 2011 financial year,” Mr Francis said.
Kermadec Property Fund owns assets including the Berekley Cinema complex in Auckland’s Takapuna, Manukau Business Park and the Finance Centre in Durham Lane at Auckland’s CBD.
At press time its shares were trading at 48 cents each.
