kk ii w interim report kiwi property

Transcription

1 kk ii w i w i interim report kiwi property

2 02 kiwi property 2018 interim report brand new experiences Sylvia Park diners are being treated to a new cultural fiesta, with the opening of Mexico a fast-paced, energetic restaurant with superb Mexican cuisine. Drenched in bright colour and bold imagery, Mexico celebrates the vibrant, fresh and lighter side of Mexican food. Whatever the occasion, the experience is complemented by smiling staff and the hum of happy diners. Photography: Logan West

3 contents exceptional experiences PG 04 highlights PG 06 group our strategy and results PG 08 interim financial statements PG directory PG 35 KEY DATES 1 20 December 2017 interim dividend payment 20 February 2018 KPG010 bond interest payment 7 March 2018 KPG020 bond interest payment 31 March 2018 annual balance date 21 May 2018 annual result announcement 5 July 2018 annual meeting This interim report is dated 17 November 2017 and is signed on behalf of the board by: MARK FORD CHAIR MARY JANE DALY CHAIR OF THE AUDIT AND RISK COMMITTEE 1. Dates are subject to change.

4 we re all about exceptional experiences 2018 interim report We strive to deliver exceptional retail and workplace experiences for New Zealanders across our portfolio of shopping centres and office buildings. 04 kiwi property for our shoppers for our office tenants we are delivering more dining, entertainment, leisure and personal services valet parking digital wayfinding for easier parking improved social media content live events we are delivering first class end-of-trip facilities book a park concierge services vertical communities tenant portals more dining choices

5 Each year, our shopping centres attract close to 50 million visitors who spend over $1.7 billion on food, entertainment, retail goods and personal services. Our office buildings provide great workplaces for over 8,000 New Zealanders, and we deliver a broad range of programmes to support the prosperity and wellbeing of the communities in which we operate. When we create great experiences, we seek to unite our stakeholders, build brand preference and loyalty, and drive better outcomes for our shareholders. 05 for our people for our community we are delivering flexible working options diversity health and wellbeing workplace agility remuneration and alignment learning and development we are delivering cleaner energy solutions waste reduction health and fitness programmes parent groups tertiary education funding support

6 highlights 2018 interim report 06 profit after tax $47.9m Sep-16: $45.6m funds from operations $54.2m Sep-16: $47.7m kiwi property net rental income $95.1m Sep-16: $86.9m Rental income growth was driven by full-period contributions from Sylvia Park, The Aurora Centre and 44 The Terrace following completion of value-add development works in the prior period, and the acquisitions of Westgate Lifestyle and The Base. This strong rental performance, partially offset by an increase in interest and finance charges and employment and administration expenses, has resulted in a further record funds from operations result and driven an improved after-tax profit. total return since inception 9.4% per annum compound average growth property portfolio value $3.1b Mar-17: $3.0b

7 retail sales $1.7b +6.7% on prior period (+1.3% like-for-like) weighted average lease term 5.3 years Mar-17: 5.6 years 07 Our continued focus on improving our experiential offer for customers continues to reap rewards, with strong like-for-like retail sales performances from pharmacy and wellbeing (+5.0%), commercial services (including mobile phones and travel) (+4.3%) and food (+2.1%). occupancy 99.4% Mar-17: 98.8% gearing 31.2% Mar-17: 34.5% Intensive asset management by our professional management team has ensured that our property metrics remain solid. Our balance sheet remains strong. Our property portfolio value has increased following the acquisition of our strategic landholdings in Drury, South Auckland, together with development activity, predominantly at Sylvia Park. Our gearing has reduced following repayment of bank debt from the proceeds of an equity raise completed in July Read more about our results in the Chief Executive s report commencing on page 12.

8 2018 interim report 08 the success of continued evolution kiwi property chair's report Over 24 years, Kiwi Property has built a position as the leading diversified property company in New Zealand. Constant evolution of our assets and business to meet market demand has been key to our success. MARK FORD CHAIR

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10 Dear shareholders, 2018 interim report 10 chair's report kiwi property Welcome to the 2018 Kiwi Property interim report. The Company remains in excellent shape, supported by a high-quality portfolio of retail centres and office buildings, a robust balance sheet and a clear strategy aimed at creating value for all our stakeholders. We are purposefully diversified by asset class, and we are increasingly focused on owning and developing assets that are complementary to our town centre vision. Our Chief Executive, Chris Gudgeon, provides a full report on the Company s financial and operational performance for the interim period on page 12. There has been increasing market commentary regarding the rise of online retailing and the potential impact on traditional retail in the Oceania region with the arrival of Amazon into Australia. I want to reassure our investors that your board and management have been acutely aware of the challenge of online retailing for many years, and have been responding proactively to build portfolio resilience. We continue to fortify our retail offer with a steadfast focus on creating spaces where New Zealanders want to be and by curating experiences that New Zealanders can share and delight in. Accordingly, we are focused on providing more food, entertainment, leisure and personal services categories where experiences cannot be emulated online and down-weighting categories most exposed to online retailing. As a result, we have witnessed sales growth, increased sales productivity and a high and stable portfolio occupancy rate. We firmly believe the future for our portfolio of shopping centres is bright. We favour centres that dominate their catchment, and assets that we can evolve in step with market demand. It is true that some retailers even some categories of retail will disappear from shopping centres over time. Rather than being a new phenomenon, this is a natural evolution in retail, and we have seen it decade after decade because our shopping centres inherently reflect consumer trends. Online retail, while a vital and growing offer, does not provide what is in fact the very fabric of shopping centres a place that brings people together to socialise and to experience products and services in person. Over 24 years, Kiwi Property has built a position as the leading diversified property company in New Zealand. Our management team comprises more than 170 professionals who execute our strategy daily, and have been hand-picked for not only their experience and expertise, but also for their passion and dedication to a job well done. The Company's culture, which has been carefully nurtured since our inception, is one that celebrates excellence, leadership, integrity and diversity, and above all our ability to listen, understand and react to the needs of our stakeholders. During the period, we announced several changes to your board and senior management, including the intention by Chris Gudgeon to retire from his position as Chief Executive in September 2018, after 10 years with the business. In doing so, Chris has provided us with

11 JOANNA PERRY RETIRED BOARD MEMBER AND CHAIR OF THE AUDIT AND RISK COMMITTEE 11 MARK POWELL NEW BOARD MEMBER sufficient time to recruit a highcalibre individual who will be responsible for executing the Company s strategy and ensuring the continuation of a strong and vibrant culture. We are grateful to Chris for his contribution to Kiwi Property during his tenure and look forward to making the most of his talents in his remaining time with the business. Our search is encompassing domestic and international candidates. At a board level, as foreshadowed at the 2017 annual meeting, Joanna Perry has retired from her position as an independent non-executive director and Chair of the Audit and Risk Committee. Joanna provided immeasurable support and guidance to the board during her almost 11-year tenure, and we wish her well in her future endeavours. Following Joanna's retirement, Mary Jane Daly was appointed Chair of the Audit and Risk Committee. We are delighted that Mark Powell joined the board, as an independent non-executive director, on 1 October Mark is the former Chief Executive of The Warehouse Group, bringing with him extensive experience in strategy setting and execution, cultural and digital transformation, property development, mergers and acquisitions, joint-venture management and capital raising. The change in both the board and leadership team is an opportunity to inject fresh ideas into our business, while maintaining a clear focus on our investment objective and execution of our business strategy. Kiwi Property is an outstanding company, built by a team of people committed to building exceptional experiences for New Zealanders. We are well placed to continue to deliver for our shareholders. On behalf of the board, I thank you for your continued support of Kiwi Property. MARK FORD CHAIR

12 kiwi property 2018 interim report 12 chief executive s report growth and consolidation We have grown revenues and increased dividends while continuing to build a stronger underlying portfolio of property assets and future value-add opportunities. CHRIS GUDGEON CHIEF EXECUTIVE

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14 chief executive's report 2018 interim report 14 chief executive s report kiwi property In a period of consolidation, Kiwi Property has posted a strong performance for the six months to 30 September As always, we are driven by our disciplined investment strategy and focus on value creation. The strength of the Company s performance is highlighted by: 5.0% growth in after-tax profit 1 to $47.9 million 13.6% growth in funds from operations (FFO) 2 to $54.2 million 9.4% (2.8% like-for-like) growth in rental income to $95.1 million 6.7% total (1.3% like-for-like) growth in annual sales from our shopping centres a total property portfolio value of $3.1 billion high portfolio occupancy of 99.4% and weighted average lease term of 5.3 years, and an increased interim cash dividend to shareholders of cents per share, up 1.5% on the prior period and in line with guidance. We have grown revenues and increased dividends, while continuing to build a stronger underlying portfolio of property assets and future value-add opportunities. We have also continued to deliver on our long-term investment return goal, with total returns to shareholders (since inception 24 years ago) running at 9.4% per annum. You can read more about our key metrics on pages 6 and 7. focused execution With our major Wellington redevelopments complete, our key area of focus has been on progressing our world-class town centre vision for Sylvia Park. Our construction projects at Sylvia Park are progressing on time and on budget: We are delighted to have secured a range of accomplished restaurant operators committed to delivering an inspiring range of dining experiences at the $8.9 million The Grove dining precinct, which will open from December The $80.2 million No. 1 Sylvia Park office building is 50% leased by income, with strong interest in the remaining space. The $36.3 million central carpark, due to complete in November 2018, will deliver ~600 additional parking spaces for our customers. Sylvia Park galleria and south carpark update We have made good progress with our proposed second level galleria expansion at Sylvia Park. Our intention with this proposed development is to further increase Sylvia Park s attractiveness as New Zealand s most popular shopping centre 3 by increasing our range of successful local and international retail brands with around 50 additional stores, including brands new to New Zealand, plus a new department store offer and casual dining experience. 1. The reported profit has been prepared in accordance with New Zealand Equivalents to International Financial Reporting Standards. The reported profit information has been extracted from New Zealand generally accepted accounting practice (GAAP) and complies with the interim financial statements which have been the subject of a review by an Independent Auditor pursuant to the External Reporting Board s New Zealand Standard on Review Engagements FFO is an alternative non-gaap performance measure used by Kiwi Property to assist investors in assessing the Company s underlying operating performance and to determine income available for distribution. FFO is a measure commonly used by real estate entities to describe their underlying and recurring earnings from operations. FFO does not have a standard meaning prescribed by GAAP and therefore may not be comparable to information presented by other entities. FFO is calculated by Kiwi Property in accordance with the Voluntary Best Practice Guidelines issued by the Property Council of Australia. The reported FFO information has been extracted from the Company's interim financial statements which have been the subject of a review by an Independent Auditor pursuant to the External Reporting Board s New Zealand Standard on Review Engagements Sylvia Park was named as New Zealand s favourite shopping centre to visit in a nationwide Nielsen survey. The survey was conducted by Nielsen from 20 February to 13 March 2017 and had a sample size of 2,507 interviews, with a predicted margin of error of +/- 2.0% at the 95% confidence level.

15 We are delighted to have secured a lease agreement with Farmers for a new 8,000 sqm, two-level flagship department store 4. We are in a very positive position in terms of leasing prospects for our expansion with this commitment and our significant waiting list of domestic and international retailers seeking a Sylvia Park presence. However, before proceeding with the development, we are committed to securing construction cost certainty for our investors. Given the large volume of construction projects underway in Auckland now and current capacity issues in the construction sector, we have committed to completing detailed design documentation that can be priced by our construction contractors to secure a high level of confidence with respect to the cost of the development. 'For construction' design documentation will be completed this year and we expect to secure construction cost pricing from the market by the first quarter of Subject to satisfactory construction cost pricing outcomes, we expect to be able to seek board approval for the development by mid clear strategy Our property investment strategy continues to focus on: the Auckland market, given its superior prospects for economic, population and employment growth retail assets that can be expected to deliver superior performance over time, including dominant regional shopping centres and retail centres in locations favoured by the Auckland Unitary Plan, and core government office accommodation in Wellington and Prime-grade office assets in Auckland. LONG-TERM VALUE CREATION During the period, we received Overseas Investment Office approval for our acquisition of land at Drury, south of Auckland. Our vision for Drury is to develop a town centre on our 51-hectare landholding, staged over the next 20 years to coincide with predicted population growth, household formation and employment growth in South Auckland. In conjunction with Watercare, Auckland Transport and neighbouring landowners and developers, we are participating in the Auckland Council-led structure plan for the broader Drury/Opaheke precinct. This is a precursor to securing a town centre zoning to provide for commercial and retail uses, integrated with high and medium-density residential accommodation. In July 2017, the Government announced its commitment to a $600 million co-investment (through Crown Infrastructure Partners) alongside local councils and private investors for big new housing developments. Our landholdings at Drury will be a direct beneficiary of this investment. Post the reporting period, we acquired a strategic parcel of land adjoining Sylvia Park. Combined with our existing landholdings on Carbine Road and Clemow Drive, the acquisition of this 3.2-hectare parcel for $27.1 million allows us to consolidate a 7.7-hectare landholding with a road bridge connection to Sylvia Park over the railway line. While we have no immediate plans to redevelop the land, it makes good sense for us as a long-term investor to increase our landholdings in this strategic location. Our total landholdings in Mount Wellington now exceed 31 hectares Subject to final approval by the board of Kiwi Property.

16 2018 interim report 16 kiwi property chief executive s report We are delighted to announce that we are proceeding with the development of a vibrant new dining and entertainment precinct, to be named Langdons Quarter at Northlands in Christchurch. This project features the development of a new food precinct beneath the existing cinema complex, together with seismic strengthening works in that area. This development is directly in line with our strategy of providing compelling food and dining experiences and responds to customer demand. The total cost of the development is $18.8 million (which includes $6.8 million of seismic strengthening works) and will yield 6.0% (excluding seismic costs) in the first full year post completion. Construction is expected to commence January 2018, with tenancies expected to open for trading from October ASSET RECYCLING Our asset recycling programme progressed during the period, with CBRE leading a sales campaign to divest The Majestic Centre and North City. Both assets have been identified as being non-core to our longer-term investment strategy, and we have been encouraged by the strong level of purchaser interest from both domestic and offshore sources. On 13 November 2017 (post the reporting period), we secured an unconditional agreement for the sale of The Majestic Centre for $123.2 million. Settlement will occur in December The marketing and sales process for North City is underway and ongoing. robust balance sheet We maintain a robust balance sheet to reduce financial risk, with conservative gearing and diversified sources of debt. During the period we: increased the value of our property portfolio to $3.1 billion following the acquisition of further strategic landholdings in Drury, South Auckland, together with development activity, predominantly at Sylvia Park raised $161 million of new equity through a fully underwritten pro-rata entitlement offer, providing a net $157 million to reduce bank debt further diversified our sources of debt through the addition of China Construction Bank and HSBC to our pool of lenders increased our bank debt facilities by $75 million to $1.3 billion to provide further headroom for ongoing investment activities reduced our overall gearing ratio to 31.2%, down from 34.5% maintained a healthy 3.5-year weighted average term to maturity on our bank debt facilities, and maintained a low weighted average cost of debt of 4.84%. Post the period, Kiwi Property has been assigned a corporate credit rating of BBB (stable) from S&P Global Ratings 5 and an issue credit rating of BBB+ in respect of the Company's existing fixed-rate senior secured bonds. 5. Further information about S&P Global Ratings' credit rating scale is available at A rating is not a recommendation by any rating organisation to buy, sell, or hold Kiwi Property securities. The above rating is current as at the date of this report and may be subject to suspension, revision or withdrawal at any time by S&P Global Ratings.

17 management changes During the period we announced changes to our leadership team. Karl Retief resigned from the role of GM Retail after 17 years with the business. We are grateful to Karl for his significant contribution during his time with the Company. An executive search for his replacement is underway with a high level of interest expressed from both domestic and Australian candidates. Miles Brown left the role of Head of Transactions after 14 years with the Company. Miles was instrumental in helping the Company realise its core property portfolio ambitions. We wish both Karl and Miles the best for the future. We were pleased to announce the appointment of Rebecca Oliphant to the newly created role of Strategy Manager. Rebecca is assisting with the development and implementation of Kiwi Property s strategy, from both a corporate and property investment perspective. outlook and guidance The New Zealand economy continues to perform strongly, creating supportive property market fundamentals. The Auckland office market is experiencing high tenant demand with low levels of new supply, which is contributing to future rental growth expectations. The retail sector continues to record positive sales growth nationally. This is reflected in our own store sales, which grew 6.7% in the year to 30 September We remain confident that we have the right strategy in place for our shopping centres one which focuses on the social and experiential benefits we can offer our customers. By curating a vibrant, contemporary and relevant retail mix in each of our centres we will continue to build portfolio resilience and maintain investment performance. We are also equally confident that our property diversification strategy provides our investors with throughcycle resilience. We have a strategy that favours property exposures expected to outperform, a healthy balance sheet, a pipeline of future development opportunities, and a well-tenanted portfolio with a long weighted average lease term all aimed at securing superior, risk-adjusted returns for our shareholders. We also have an experienced, dedicated management team focused on delivering our strategy, and a culture which is built on excellence. Shareholders will receive an interim cash dividend for the six months ended 30 September 2017 of cents per share, up 1.5% from the prior period and in line with guidance. The board has confirmed that the Dividend Reinvestment Plan will be available to eligible shareholders for the period. No discount will be applied to the price at which the shares are issued. Looking ahead, we continue to project the cash dividend for the year ending 31 March 2018 to be 6.85 cents per share. We thank you for continuing to support Kiwi Property and hope you enjoy reading our interim report. 17 CHRIS GUDGEON CHIEF EXECUTIVE

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19 interim financial statements consolidated statement of comprehensive income PG 20 consolidated statement of changes in equity PG 21 consolidated statement of financial position PG consolidated statement of cash flows PG 23 notes to the consolidated financial statements PG 24 independent review report PG 34

20 consolidated statement of comprehensive income FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2017 Note 6 months 30 Sep 17 6 months 30 Sep 16 financial statements kiwi property 2018 interim report 20 Income Property revenue 123, ,233 Property management income Interest and other income Total income 124, ,805 Expenses Direct property expenses (28,001) (27,316) Interest and finance charges (22,386) (20,124) Employment and administration expenses (10,123) (9,215) Net fair value loss on interest rate derivatives (1,891) (2,565) Loss on disposal of investment properties (1,126) Total expenses (62,401) (60,346) Profit before income tax 61,694 54,459 Income tax expense 2.1 (13,837) (8,861) Profit and total comprehensive income after income tax attributable to shareholders 47,857 45,598 Basic and diluted earnings per share (cents) The consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.

21 consolidated statement of changes in equity FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2017 Note Share capital Share-based payments reserve Retained earnings Total equity Balance at 31 March ,241, ,468 1,716,765 Profit after income tax 45,598 45,598 Dividends paid (42,123) (42,123) Dividends reinvested 14,215 14,215 Long-term incentive plan (429) 66 (363) Balance at 30 September ,254, ,943 1,734,092 Balance at 31 March ,272, ,046 1,806, Profit after income tax 47,857 47,857 Dividends paid (43,856) (43,856) Long-term incentive plan (478) (70) 28 (520) Shares issued entitlement offer , ,962 Balance at 30 September ,429, ,075 1,966,476 The consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

22 consolidated statement of financial position AS AT 30 SEPTEMBER 2017 Note 30 Sep Mar 17 Current assets financial statements kiwi property 2018 interim report 22 Cash and cash equivalents 8,196 9,772 Trade and other receivables 11,110 12,883 19,306 22,655 Non-current assets Investment properties 3.1 3,061,415 2,969,365 Property, plant and equipment 1,244 1,218 Interest rate derivatives ,139 2,428 Deferred tax assets 4,737 4,208 3,068,535 2,977,219 Total assets 3,087,841 2,999,874 Current liabilities Trade and other payables 45,058 45,464 Income tax payable 3,486 7,163 Interest rate derivatives , ,657 52,825 Non-current liabilities Interest bearing liabilities ,141 1,030,358 Interest rate derivatives ,945 17,258 Deferred tax liabilities 95,622 93,400 1,071,708 1,141,016 Total liabilities 1,121,365 1,193,841 Equity Share capital 1,429,106 1,272,622 Share-based payments reserve Retained earnings 537, ,046 Total equity 1,966,476 1,806,033 Total equity and liabilities 3,087,841 2,999,874 For and on behalf of the board, who authorised these financial statements for issue on 17 November MARK FORD CHAIR MARY JANE DALY CHAIR OF THE AUDIT AND RISK COMMITTEE The consolidated statement of financial position should be read in conjunction with the accompanying notes.

23 consolidated statement of cash flows FOR THE SIX MONTHS ENDED 30 SEPTEMBER months 30 Sep 17 6 months 30 Sep 16 Cash flows from operating activities Property revenue 119, ,988 Property management income Interest and other income Direct property expenses (24,264) (23,239) Interest and finance charges (22,744) (20,546) Employment and administration expenses (10,205) (9,266) Income tax expense (15,821) (15,375) 23 Goods and Services Tax received/(paid) (496) 1,574 Net cash flows from operating activities 47,086 49,708 Cash flows from investing activities Proceeds from disposal of investment properties 46,184 Acquisition of investment properties (30,290) (208,398) Expenditure on investment properties (58,074) (49,125) Interest and finance charges capitalised to investment properties (1,075) (1,446) Acquisition of property, plant and equipment (224) (352) Litigation settlement income 4,300 Proceeds from other investment activities 11 Net cash flows used in investing activities (89,663) (208,826) Cash flows from financing activities Proceeds from issue of shares 156,962 Own shares acquired for long-term incentive plan (633) (429) Proceeds from/(repayment of) bank loans (71,500) 66,000 Proceeds from fixed-rate bonds 123,816 Dividends paid (43,828) (27,908) Net cash flows from financing activities 41, ,479 Net increase/(decrease) in cash and cash equivalents (1,576) 2,361 Cash and cash equivalents at the beginning of the period 9,772 6,155 Cash and cash equivalents at the end of the period 8,196 8,516 The consolidated statement of cash flows should be read in conjunction with the accompanying notes.

24 notes to the consolidated financial statements FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2017 notes kiwi property 2018 interim report general information 1.1 reporting entity PG basis of preparation PG significant changes during the period PG key judgements and estimates PG accounting policies PG profit and loss information 2.1 tax expense PG earnings per share PG financial position information 3.1 investment properties PG funding PG other information 4.1 segment information PG commitments PG subsequent events PG 33

25 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. general information FOR THE SIX MONTHS ENDED 30 SEPTEMBER reporting entity The interim financial statements are for Kiwi Property Group Limited ('Kiwi Property' or the 'Company') and its controlled entities (the 'Group'). The Company is incorporated and domiciled in New Zealand, is registered under the Companies Act 1993 and is a reporting entity for the purposes of the Financial Markets Conduct Act The Company is listed with NZX Limited with its ordinary shares quoted on the NZX Main Board and fixed-rate bonds quoted on the NZX Debt Market. The principal activity of the Group is to invest in New Zealand real estate. 1.2 basis of preparation The interim financial statements have been prepared in accordance with New Zealand Generally Accepted Accounting Practice (GAAP) and the Financial Markets Conduct Act They comply with New Zealand Equivalents to International Financial Reporting Standards (NZ IFRS) and other guidance as issued by the External Reporting Board, as appropriate for profit-oriented entities, and with International Financial Reporting Standards. The interim financial statements have been prepared in accordance with NZ IAS 34 Interim Financial Reporting and IAS 34 Interim Financial Reporting and should be read in conjunction with the 2017 annual report. The interim financial statements for the six months ended 30 September 2017 are unaudited. Comparative balances for 30 September 2016 are unaudited, whilst the comparative balances for the year ended 31 March 2017 are audited. The financial statements are prepared on the basis of historical cost, except where otherwise identified. The functional and reporting currency used in the preparation of the financial statements is New Zealand dollars. 1.3 significant changes during the period The financial position and performance of the Group was affected by the following events and transactions during the reporting period: entitlement offer On 17 July 2017, the Group completed a 1 for 11 entitlement offer, raising a total of $157.0 million (net of issue costs) through the issue of million shares at $1.36 each. investment property acquisition On 20 September 2017, the Group settled its acquisition of 30.6 hectares of land at Drury in South Auckland for $32.7 million including acquisition costs. 1.4 key judgements and estimates Critical judgements, estimates and assumptions are outlined throughout these interim financial statements and in the 2017 annual report. 1.5 accounting policies The accounting policies and methods of computation used in the preparation of these interim financial statements are consistent with those used in the 2017 annual report. 25

26 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2. profit and loss information FOR THE SIX MONTHS ENDED 30 SEPTEMBER tax expense notes kiwi property 2018 interim report 26 A reconciliation of profit before income tax to income tax expense follows: 6 months 30 Sep 17 6 months 30 Sep 16 Profit before income tax 61,694 54,459 Prima facie income tax expense at 28% (17,274) (15,249) Adjusted for non-taxable items: Net fair value loss on interest rate derivatives (529) (718) Loss on disposal of investment properties (315) Depreciation 3,562 2,859 Deferred leasing costs Deductible capitalised expenditure Prior year adjustment 1,317 Other (128) 460 Current tax expense (12,144) (12,058) Depreciation recoverable (2,353) 246 Net fair value loss on interest rate derivatives Deferred leasing costs and other temporary differences 131 2,233 Deferred tax benefit/(expense) (1,693) 3,197 Income tax expense reported in profit (13,837) (8,861) Imputation credits available for use in subsequent periods 12,123 11,995 key estimates and assumptions: income tax depreciation recovered on the PricewaterhouseCoopers Centre (PwC Centre), Christchurch The impairment of the PwC Centre in the year ended 31 March 2012 (resulting from the 2010 and 2011 Canterbury earthquakes) and the associated insurance recovery triggered a potential tax liability of $5.1 million for depreciation recovered. Following the earthquakes, the Government introduced legislation which provides, in certain circumstances, rollover relief for taxpayers affected by the earthquakes where insurance income will be used to acquire or develop replacement property in the Canterbury region. As at 30 September 2017, the Group continues to qualify for this relief. As such no tax is payable in the current period in respect of the depreciation recovered. A deferred tax liability of $5.1 million continues to be provided as at 30 September 2017.

27 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2.2 earnings per share Basic and diluted earnings per share (EPS) are calculated by dividing the post-tax profit for the period by the weighted average number of shares outstanding during the period. 6 months 30 Sep 17 6 months 30 Sep 16 Basic and diluted EPS (cents) Profit used in the calculation of basic and diluted EPS () 47,857 45,598 Weighted average number of shares used in the calculation of basic and diluted EPS (000) 1,354,305 1,282,112 27

28 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3. financial position information FOR THE SIX MONTHS ENDED 30 SEPTEMBER investment properties notes kiwi property 2018 interim report 28 Investment properties held by the Group are as follows: Retail Valuer Valuation 31 Mar 17 Capital movements Book value 30 Sep 17 Sylvia Park CBRE 755,000 32, ,374 Sylvia Park Lifestyle CBRE 70,900 (126) 70,774 LynnMall CBRE 271, ,463 Westgate Lifestyle JLL 87, ,183 The Base 1 JLL 195, ,485 Centre Place North JLL 66, ,197 The Plaza Colliers 215,500 3, ,345 North City Colliers 110,500 1, ,376 Northlands Colliers 248,500 3, ,748 2,019,400 42,545 2,061,945 Office Vero Centre CBRE 381,000 4, ,867 ASB North Wharf Colliers 196, ,953 The Majestic Centre 2 CBRE 119,400 2, ,155 The Aurora Centre Colliers 140,650 4, , The Terrace Colliers 41,750 2,639 44, ,050 15, ,284 Other Other properties Various 57, ,597 Development land JLL 13,000 33,589 46,589 70,915 34, ,186 Investment properties 2,969,365 92,050 3,061, Represents the Group's 50% ownership interest. 2. The main contractor has submitted a final claim for works at The Majestic Centre which exceeds the Company's assessment of the amount due. This matter has been referred to arbitration. The outcome of this arbitration and its potential impact on the fair value is not considered material.

29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The movement in the Group's investment properties during the period is as follows: 6 months 30 Sep months 31 Mar 17 Balance at the beginning of the period 2,969,365 2,669,920 Capital movements: Acquisitions (refer to Note 1.3) 32, ,220 Disposal of Centre Place South (46,407) Capitalised costs (including fees and incentives) 62, ,265 Capitalised interest and finance charges 1,075 2, Amortisation of lease incentives, fees and fixed rental income (3,770) (8,296) 92, ,408 Net fair value gain on investment properties 41,037 Balance at the end of the period 3,061,415 2,969,365 key estimates and assumptions: investment properties valuation process All investment properties are presented at their 31 March 2017 independent valuations, adjusted for capital expenditure over the period as appropriate, with the exception of development land acquired during the period which is carried at cost including associated acquisition costs.

30 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3.2 funding notes kiwi property 2018 interim report interest bearing liabilities The Group's secured interest bearing liabilities are as follows: Date issued Expiry Interest rate 30 Sep Mar 17 Bank loans Nov-18 to Sep-23 Floating 711, ,500 Fixed-rate bonds KPG010 Aug-14 Aug % 125, ,000 Fixed-rate bonds KPG020 Sep-16 Sep % 125, ,000 Unamortised capitalised costs on fixed-rate bonds (1,859) (2,142) Interest bearing liabilities 959,141 1,030,358 Weighted average interest rate for drawn debt (inclusive of bonds, active interest rate derivatives, margins and line fees) 4.84% 4.61% Weighted average term to maturity for the combined facilities 3.5 years 3.5 years bank loans The bank loans are provided by ANZ Bank New Zealand, Bank of New Zealand, China Construction Bank (New Zealand), Commonwealth Bank of Australia, The Hongkong and Shanghai Banking Corporation (HSBC) and Westpac New Zealand. On 7 September 2017, the Group secured an additional $100 million of three, four and five-year facilities from HSBC and an additional $100 million six-year facility from China Construction Bank. The Group paid down $125 million of shorter dated facilities from existing lenders. As at 30 September 2017, the Group's committed facilities totalled $1.05 billion (31 March 2017: $975 million) and the undrawn facilities available totalled $339.0 million (31 March 2017: $192.5 million). security The bank loans and fixed-rate bonds are secured by way of a Global Security Deed (the 'Deed'). Pursuant to the Deed, a security interest has been granted over all of the assets of the Group. No mortgage has been granted over the Group's properties, however, the Deed allows a mortgage to be granted if an event of default occurs.

31 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS interest rate derivatives The Group is exposed to changes in interest rates and uses interest rate derivatives to mitigate these risks by exchanging floating rate interest obligations for fixed rate interest obligations (commonly referred to as interest rate swaps). The following table provides details of the fair values, notional values, term and interest rates of the Group's interest rate derivatives. 30 Sep Mar 17 Interest rate derivative assets non-current 1,139 2,428 Interest rate derivative liabilities current (1,113) (198) Interest rate derivative liabilities non-current (16,945) (17,258) 31 Net fair values of interest rate derivatives (16,919) (15,028) Notional value of interest rate derivatives active 425, ,000 Notional value of interest rate derivatives forward starting 140, ,000 Notional values 565, ,000 Weighted average term to maturity active 2.7 years 2.4 years Weighted average term to maturity forward starting 5.4 years 5.4 years Weighted average term to maturity 3.4 years 3.4 years Weighted average interest rate active % 3.91% Weighted average interest rate forward starting % 3.58% Weighted average interest rate % 3.80% 1. Excluding fees and margins. key estimate: fair value of interest rate derivatives The fair values of interest rate derivatives are determined from valuations prepared by independent treasury advisers using valuation techniques classified as Level 2 in the fair value hierarchy (31 March 2017: Level 2). These are based on the present value of estimated future cash flows based on the terms and maturities of each contract and the current market interest rates at balance date. Fair values also reflect the current creditworthiness of the derivative counterparties. These values are verified against valuations prepared by the respective counterparties. The valuations were based on market rates at 30 September 2017 of between 1.96% for the 90-day BKBM and 3.27% for the 10-year swap rate (31 March 2017: 2.00% and 3.45%, respectively).

32 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 4. other information FOR THE SIX MONTHS ENDED 30 SEPTEMBER segment information notes kiwi property 2018 interim report 32 Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, is the Chief Executive. Operating segments have been determined based on the reports reviewed by the Chief Executive to assess performance, allocate resources and make strategic decisions. 6 MONTHS ENDED 30 SEPTEMBER 2017 The Group's primary assets are investment properties. Segment information regarding investment properties is provided in Note 3.1. The Group operates in New Zealand only. The following is an analysis of the Group's profit by reportable segments: Property revenue 85,717 35,443 1, ,073 Less: straight-lining of fixed rental increases 1,349 (1,721) 27 (345) Less: direct property expenses (20,189) (7,205) (607) (28,001) Segment profit 66,877 26,517 1,333 94, Property revenue 81,047 31,210 1, ,233 Retail Office Other Total Less: straight-lining of fixed rental increases (584) (1,284) (29) (1,897) Less: direct property expenses (20,018) (6,731) (567) (27,316) Segment profit 60,445 23,195 1,380 85,020 September 2017 segment profit Retail 71% Office 28% Other 1% September 2016 segment profit Retail 71% Office 27% Other 2%

33 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS A reconciliation of the segment profit to the profit before income tax reported in the consolidated statement of comprehensive income is provided as follows: 6 months 30 Sep 17 6 months 30 Sep 16 Segment profit 94,727 85,020 Property management income Rental income resulting from straight-lining of fixed rental increases 345 1,897 Interest and other income Interest and finance charges (22,386) (20,124) Employment and administration expenses (10,123) (9,215) Net fair value loss on interest rate derivatives (1,891) (2,565) Loss on disposal of investment properties (1,126) Profit before income tax 61,694 54, commitments Development costs at the following properties have been committed to but not recognised in the financial statements as they will be incurred in future reporting periods: 30 Sep Mar 17 Sylvia Park 53,432 43,859 The Plaza 2,861 2,430 North City 564 2,609 Northlands 1,182 2,020 Vero Centre 4,268 3, The Terrace 45 2,192 Commitments 62,352 56, subsequent events On 13 October 2017, the Group acquired property at 79 Carbine Road and 10 Clemow Drive in Mount Wellington, Auckland for $27.1 million. On 13 November 2017, the Group secured an unconditional agreement to sell The Majestic Centre for $123.2 million. The sale will settle in December On 17 November 2017, the board declared an interim cash dividend for the six months ended 30 September 2017 of cents per share (equivalent to $48.6 million), together with imputation credits of 0.92 cents per share. The dividend record date is 5 December 2017 and payment will occur on 20 December 2017.

34 independent review report 2018 interim report TO THE SHAREHOLDERS OF KIWI PROPERTY GROUP LIMITED 34 report on the interim financial statements We have reviewed the accompanying financial statements of Kiwi Property Group Limited (the Company ) and its controlled entities (together the Group ) on pages 20 to 33, which comprise the consolidated statement of financial position as at 30 September 2017, and the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the period ended on that date and a summary of accounting policies and selected explanatory notes. kiwi property independent review report directors responsibility for the interim financial statements The directors are responsible on behalf of the Company for the preparation and presentation of these financial statements in accordance with New Zealand Equivalent to International Accounting Standard 34 Interim Financial Reporting (NZ IAS 34) and for such internal controls as the directors determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. our responsibility Our responsibility is to express a conclusion on the accompanying financial statements based on our review. We conducted our review in accordance with the New Zealand Standard on Review Engagements 2410 Review of Financial Statements Performed by the Independent Auditor of the Entity (NZ SRE 2410). NZ SRE 2410 requires us to conclude whether anything has come to our attention that causes us to believe that the financial statements, taken as a whole, are not prepared in all material respects, in accordance with NZ IAS 34. As the auditor of the Company, NZ SRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial statements. A review of financial statements in accordance with NZ SRE 2410 is a limited assurance engagement. The auditor performs procedures, primarily consisting of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. The procedures performed in a review are substantially less than those performed in an audit conducted in accordance with International Standards on Auditing (New Zealand). Accordingly, we do not express an audit opinion on these financial statements. We are independent of the Group. Our firm carries out other services for the Group in the areas of audit, other assurance and executive remuneration benchmarking services. The provision of these other services has not impaired our independence. conclusion Based on our review, nothing has come to our attention that causes us to believe that these financial statements of the Group are not prepared, in all material respects, in accordance with NZ IAS 34. who we report to This report is made solely to the Company s shareholders, as a body. Our review work has been undertaken so that we might state to the Company s shareholders those matters which we are required to state to them in our review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company s shareholders, as a body, for our review procedures, for this report, or for the conclusion we have formed. For and on behalf of: Chartered Accountants 17 November 2017 Auckland

35 directory COMPANY Kiwi Property Group Limited Level 14, DLA Piper Tower 205 Queen Street PO Box 2071 Shortland Street AUCKLAND 1140 T: W: kp.co.nz E: info@kp.co.nz REGISTRAR Link Market Services Limited Level 11, Deloitte Centre 80 Queen Street PO Box AUCKLAND 1142 T: or W: linkmarketservices.co.nz E: enquiries@linkmarketservices.co.nz 35 BOND TRUSTEE Public Trust Level 9 34 Shortland Street PO Box 1598 Shortland Street AUCKLAND 1140 T: W: publictrust.co.nz E: cstenquiry@publictrust.co.nz SECURITY TRUSTEE New Zealand Permanent Trustees Limited Level 9 34 Shortland Street PO Box 1598 Shortland Street AUCKLAND 1140 AUDITOR PricewaterhouseCoopers New Zealand PwC Tower 188 Quay Street Private Bag AUCKLAND 1142 T: W: pwc.co.nz BANKERS ANZ Bank New Zealand Bank of New Zealand China Construction Bank (New Zealand) Commonwealth Bank of Australia The Hongkong and Shanghai Banking Corporation Westpac New Zealand T: E: cstenquiry@publictrust.co.nz

36 kp.co.nz