Sylvia Park owner Kiwi Property has posted a $290 million asset devaluation as a result of government restrictions due to the coronavirus pandemic.
The retail landlord said its total assets are now worth $3.1 billion at the end of March, down 8.5 per cent from the $3.39 billion before the COVID-19 health crisis.
The company said its retail portfolio had declined in fair value by $126 million, or a 20.8 per cent decrease to $481 million, adding that regional shopping centre values have been the hardest hit by the effects of COVID-19, contributing to a capitalisation rate expansion of 58 basis points to a weighted average of 8.11 per cent.
Regional retail assets continue to decrease as a proportion of Kiwi Property’s overall holdings, comprising 15.5 per cent of the company’s total portfolio as of March 31.
Clive Mackenzie, company chief executive, said the significant uncertainty caused by the coronavirus has prompted valuers to include an assessment of its effects on property values.
“As a result, their assumptions around rental growth, vacancy, downtime, leasing up allowances and trading conditions have all softened,” Mackenzie said.
“The challenging investment market conditions and an expected decline in capital inflows are also contributing to an expansion in capitalisation and discount rates.”
Mackenzie said the uncertain environment is likely to continue for some time and added they will regularly review further changes in asset values and make additional announcements as appropriate.
The company said Kiwi Property’s mixed-use portfolio, which includes Sylvia Park, Sylvia Park Lifestyle, LynnMall and The Base, experienced a fair value decline of 10.6 per cent or $177 million to $1,499 million.
These assets account for 48 per cent of the company’s overall holdings and have a weighted average capitalisation rate of 5.87 per cent, an expansion of 16 basis points over the prior financial year.
According to Mackenzie, its mixed-use assets are critical to Kiwi Property’s growth.
“With our significant landholdings at Sylvia Park and Drury, we are in a position to develop master-planned communities that contain a mix of asset classes, and are potentially more resilient in the face of market shocks, such as those caused by COVID-19,” he said.
In recent years, Kiwi Property has signalled its strategy of creating mixed-use assets. The ‘other properties’ portfolio holds many of the assets that will enable that transformation.
Following the valuation result, Kiwi Property’s investment portfolio capitalisation rate has softened by 12 basis points from 5.99 per cent to 6.11 per cent and decreased net tangible asset backing per share by 18 cents from $1.42 to $1.24 per share. Gearing has increased to 32 per cent, which remains within the target range.
The property valuations as of March 31 were determined by independent valuers and are subject to external audit. They will be confirmed in the company’s audited financial statements.