Capital records unrealised interest rate swap loss

01:43, Jan 31 2009

Capital Properties NZ Ltd, a commercial property investor managed by AMP Capital Investors, has notched up unrealised losses on interest rate swaps.

Capital Properties NZ used to be listed on the stock exchange but is now a subsidiary of AMP Capital Property Portfolio, which is now a Portfolio Investment Entity.

Capital Properties NZ still reports results to the NZX because it has debt securities trading on the exchange.

In keeping with the policy of its parent, Capital Properties NZ tries to fix between 75 per cent and 95 per cent of its interest rate exposure and uses swaps to fix its floating interest rate exposures.

Capital Properties NZ said the value of its interest rate swaps have decreased by $9.14 million over the nine months to September 30.

The swaps were previously an asset in the balance sheet and have now produced unrealised loss. The swaps are valued daily. Losses occur when interest rates fall sharply and the swaps have fixed the rate at higher levels.

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Capital Properties NZ also said the value of its investment property assets have decreased by $36.2m.

"Volatility in interest rate markets is the key contributor to the unrealised loss in value of the interest rate swaps and an increase in capitalisation rates is the key driver of the unrealised change in value of the company's property assets."

Capital Properties NZ reported a net loss before tax of $19.4m in the nine months to September 30 compared to a profit of $80.3m in the same period last year.

Net profit after taxation fell to $4.5m from $73.6m in the same period last year.

Gross rental income has decreased by $4.9m, or 10.1 per cent, and direct property expenses decreased by $2.19m, or 14.9 per cent.

This is because Capital Properties NZ sold interests in four properties in late 2007. On alike-for-like basis property income increased, reflecting continuing growth in markets rents in the Auckland and Wellington office markets.

The company is developing the Vogel Centre in Thorndon.

"Whilst property market fundamentals remain in good shape in New Zealand, assets have reached a cyclical high in value and have started to retrace.

"Occupancy levels remain high and market rentals have continued to grow over the period," Capital Properties NZ said.

-NZPA