Kiwi Income Property Trust hints at pumping quake cash into retail

The owner of a quake-damaged Christchurch office tower is hinting it might divert its huge insurance payout into retailing.

Demolition of the 21-storey, Kiwi Income Property Trust (KIPT)-owned PricewaterhouseCoopers Centre started earlier this month and is expected to take 40 weeks.

KIPT announced to the stock exchange today that a cash insurance settlement of $69.3 million (excluding demolition costs, which are separate) had been agreed in principle with insurers, including payments to date of $6.3 million.

It had recognised $71.2 million in insurance receivables in its half-year accounts.

Chris Gudgeon, chief executive of the trust's manager, Kiwi Income Property Ltd, told NBR Online that the "satisfactory" settlement gave KIPT flexibility.

"All options are open to us - we've made no commitment," he says.

"We've still got an open mind in terms of Christchurch but like a lot of people we are a little bit on the sidelines at the moment."

A government geotechnical report has endorsed the quake-hit central city as an appropriate place for development.

But Canterbury Earthquake Recovery Minister Gerry Brownlee is yet to sign off the draft central city plan, the future city's blueprint which proposes building height limits, presented to him just before Christmas.

Mr Gudgeon says because the PWC building was an existing building KIPT could "theoretically" rebuild to the same height.

"The question is, really, though, is what does the market want - that's what we're sensitive to."

The other question is why would KIPT bother?

Its $2 billion portfolio is split 68% retail and 32% office, taking into account a $26.8 million write-off in PWC and a $34.6 million write-down in the value of its troubled Majestic Centre in Wellington, which is set to get $35 million of earthquake strengthening.

KIPT announced to the NZX today that the value of its retail portfolio, including the flagship Sylvia Park shopping centre in Auckland, was up $23.4 million to $500 million in the year to March 31.

Meanwhile, over the same period the value of its office portfolio decreased by $67.5 million, to $567 million.

The valuations come on the back of strong retail sales figures announced by KIPT in February.

Asked why KIPT would bother re-investing a cash settlement in its declining office assets, Mr Gudgeon said the trust was a retail specialist and its portfolio had a natural bias towards that.

"All options are open. You could be forgiven for drawing that conclusion. We're not making any statements but what you've suggested is quite logical."

Mr Gudgeon is calling for changes to the current tax regime to recognise building obsolescence and to make earthquake strengthening deductible.

"That fundamental mismatch ... really acts as a disincentive."