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CONSISTENTLYDELIVERING

Annual Report 2014

Kiwi Income Property Trust | Annual Report 2014

Over two decades, Kiwi Income Property Trust has built a reputation for delivering consistent and reliable returns from its diversified high-quality property portfolio, driven by active asset management and supported by prudent financial management and robust governance.

On 3 December 2013, we celebrated the Trust’s 20th anniversary since listing on the NZX and, the following week, our Unit Holders voted in favour of a proposal to internalise the Trust’s management. As a result, New Zealand’s largest internally managed, listed property entity was created.

The Trust’s objective, which has served investors well for the past two decades, has not changed: we remain committed to providing investors with a secure, reliable investment in New Zealand property, and we continue to target superior risk-adjusted returns over time through the ownership and active management of a diversified, high-quality portfolio.

From an initial portfolio of five assets with a value of $92.0 million in 1993, the Trust today has a property portfolio in excess of $2.1 billion with more than 12,000 investors from 27 countries.

We measure our success by what we deliver. While it is true that we have developed some of the country’s most iconic property assets – from Sylvia Park Shopping Centre to the ground-breaking ASB Bank head office at North Wharf in Wynyard Quarter, Auckland – our greatest success is in what we have achieved for our investors. Since inception, we have delivered an average total return of 9.7% per annum.

Then (1993)

Number of properties (at listing) 5

Number of employees 5Portfolio value (at listing) $92.0 millionMarket capitalisation (post listing) $104.5 millionNumber of units on issue (post listing) 94.1 million

Management structure External

01

Now (2014)

Number of core properties 12Number of employees 131Portfolio value $2.1 billionMarket capitalisation (including Mandatory Convertible Notes)

$1.3 billion

Number of units on issue 1.0 billionManagement structure Internal

Contents

02 Results overview

04 Chairman’s report

06 Chief Executive’s report

12 Chief Financial Officer’s report

14 Retail portfolio performance

20 Office portfolio performance

24 Sustainability

28 Understanding the Trust’s portfolio

30 The portfolio at a glance

32 Retail portfolio summaries

36 Office portfolio summaries

40 Investor relations

42 The Board of the Manager

44 Corporate governance

47 Investment and management philosophy

49 Financial statements and other information

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02 _ Kiwi Income Property Trust | Annual Report 2014

Results overview

In line with guidance Assisted by accelerated leasing at 205 Queen

Increased due to one-off internalisation payment

Offset by proceeds from the sale of the first 50% tranche of 205 Queen

Office WALT increased from 4.8 to 6.4 years

Retail WALT down marginally to 3.8 years

Improved by Investment property

and interest rate derivative valuation gains

Insurance income

Offset by One-off internalisation

payment (net of tax)

Over 196,000 sqm

Average 3.0% rent growth over prior rents

FinancialThe internalisation of the management of the Trust has assisted in improving operating profit. The internalisation payment has increased gearing, however the payment is tax deductible, thereby assisting its impact on after tax profit.

Operating Operating statistics have been assisted by the completion of ASB North Wharf, a strong leasing effort at 205 Queen and improving market conditions, particularly across the Auckland office sector.

$78.7m$2.13b

Portfolio value

Operating profit before tax

35.2%

Banking debt gearing ratio

4.7yrs

Weighted average lease term

6.40cpu

FY14 cash distribution

97.1%

Occupancy (by area)

$101.3m 764Profit after tax

New leases and rent reviews concluded

Improved by Increased rental

income from completed developments

Internalisation benefits

Driven by Development activity

Valuation gains, particularly from Auckland assets

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Approved

On 12 December 2013 Unit Holders voted overwhelmingly in favour of the proposal to internalise the management of the Trust, with 99.9% of votes supporting the proposal

Settlement

Settlement of the internalisation proposal took place on 13 December 2013, thereby creating New Zealand’s largest internally managed, diversified property trust

Benefits

The internalisation results in:

• betteralignmentofinterests

• greatercontroloverBoardappointments,and

• expectedpre-taxnetexpendituresavingsofapproximately$8 million per annum

ASB North Wharf

Opened on-time and on-budget, delivering a year-one initial yield of 8.5% on $134.0 million development cost

Now fully leased and valued at $162.2 million

Centre Place

Final stage opened Oct-13

Completed offer well received by shoppers

Initial yield of 5.4%, increasing to ~7% by 2018

Northlands

Re-opened 11 shops after reconstruction

Restored $1 million in net income

The Majestic Centre

Foundations and transfer beam works due for completion Aug-14

Overall project completion scheduled for early 2015

56 The Terrace (Unisys House)

New 18-year Crown lease negotiated

$67 million building upgrade to commence late 2014 with completion programmed for Jul-16

Internalisation During the year, a proposal was presented to Unit Holders to internalise the management of the Trust through the buyout of management arrangements from the Commonwealth Bank of Australia.

DevelopmentAll active developments progressed well during the year with three properties reaching final completion.

Internalisation


Consistently delivering solid results

Chairman’s report

I am pleased to report to you that the Trust has delivered another solid result for investors, posting an after tax profit1 of $101.3 million for the financial year to 31 March 2014. This result is after allowing for $74.5 million of internalisation costs ($53.6 million after tax) and compares with a profit of $109.8 million in the prior year.

As we mark the 20th anniversary since Kiwi Income Property Trust listed on the NZX, we look back with some pride at the Trust’s history. We have grown from a property portfolio of $92.0 million at the time of listing to a $2.1 billion portfolio today and we have delivered consistent total returns to Unit Holders averaging 9.7% per annum since inception.

Trust gains independence

Our anniversary year delivered a new era of independence, with Unit Holders voting overwhelmingly in favour of a proposal to internalise the Trust’s management to create New Zealand’s largest internally managed, listed property entity.

The internalisation transaction involved a net payment of $70.5 million to Commonwealth Bank of Australia (CBA), the owner of the Trust’s former Manager.

The transaction, which settled in December 2013, resulted in a number of benefits including: the establishment of a new manager controlled by Unit Holders; the smooth transition of management and staff to the new entity; and, among other things, an expected pre-tax net

expenditure saving of approximately $8 million per annum (after funding costs). I am pleased to report that we are on track to achieve these savings.

From a governance perspective, Unit Holders will now be able to direct the appointment of all directors, which creates further alignment of interests for our investors.

This is an exciting time for the Trust, and the internalisation of management is an example of the growing sophistication of New Zealand’s listed property sector which now enjoys a market capitalisation in excess of $5 billion, with high standards of corporate governance and global investor participation.

On 20 December 2013, CBA announced that it had sold its 8.6% holding in the Trust, being approximately 87 million units, for $1.06 per unit, thereby ending CBA’s association with the Trust as a significant investor.

The units were distributed to a range of existing and new institutional and retail investors, domestically and offshore.

Strategy refresh

Following internalisation, we have taken the opportunity to reconfirm the Trust’s objective, set strategic goals and review our strategy. The Trust’s objective, which has served investors well for the past two decades, has not changed. We remain committed to providing investors with a secure, reliable investment in New Zealand property, and we will

05

continue to target superior risk-adjusted returns over time through the ownership and active management of a diversified, high-quality portfolio.

Our Chief Executive, Chris Gudgeon, provides more detail on the Trust’s goals and strategy on page 11 of this report.

Board and executive changes

During the year, we acknowledged the retirement of Robert Narev from his position as non-executive director, having served on the Board since the Trust’s inception. Post internalisation, executive director Angus McNaughton resigned from the Board.

The Board acknowledges the significant contribution these gentlemen made to the governance of the Trust and we have now begun our search to appoint two new independent directors to the Board.

Since internalisation, we have established a Remuneration and Nominations Committee, chaired by non-executive director Richard Didsbury, which will develop an appropriate framework regarding employee remuneration and incentives to align the interests of our employees with investor outcomes. Further, non-executive director Joanna Perry has been appointed Chair of the Audit and Risk Committee.

Also as a result of the internalisation, we identified the need to create a new executive role – ‘General Counsel and

Company Secretary’. Following an executive search, we were pleased to appoint Trevor Wairepo to the role. Mr Wairepo will commence in July of this year and is currently ‘General Counsel and Company Secretary’ for Precinct Properties New Zealand. He has extensive legal experience with listed and unlisted real estate entities, both in New Zealand and the United Kingdom.

Distributions

In line with previous guidance, a final cash distribution of 3.20 cents per unit will be paid to Unit Holders. This brings the full-year cash distribution to 6.40 cents per unit.

Due to the tax deductibility of the internalisation payment, the Directors have determined that no imputation credits are available to be attached to the final distribution. As the Trust is a Portfolio Investment Entity, the payment will be an excluded distribution for tax purposes, with no tax payable by New Zealand resident investors.

Outlook and distribution guidance

In the year ahead we will continue with preparations to corporatise the Trust.

Corporatisation involves moving from a trust to a company structure. Investors benefit from a streamlined corporate structure, cost savings, and greater protections under the Takeovers Code and Companies Act. We expect to be

able to provide a corporatisation proposal to investors for approval towards the end of this year with an expectation that it would take effect following the conversion of our Mandatory Convertible Notes on 20 December 2014.

As Kiwi Income Property Trust would cease being a trust following corporatisation, a name change (at least in part) is required and we are therefore taking this opportunity to consider a new name and brand.

The New Zealand economy is growing positively, as is business and consumer confidence. This is leading to increased employment and wage growth, which will likely benefit both the retail and office sectors in the short to medium term.

Based upon the outlook for the Trust and subject to a continuation of reasonable economic conditions, we are projecting distributions to Unit Holders for the year ending 31 March 2015 to be approximately 6.50 cents per unit.

Thank you for your support of the Trust in 2014.

MARK FORD CHAIRMAN

1. The reported profit has been prepared in accordance with New Zealand generally accepted accounting practice and complies with New Zealand Equivalents to International Financial Reporting Standards. The reported profit information has been extracted from the annual financial statements which have been the subject of an audit pursuant to New Zealand Auditing Standards issued by the External Reporting Board.

This is an exciting time for the Trust, and the internalisation of management is an example of the growing sophistication of New Zealand’s listed property sector.


Investor returns are our absolute focus

Chief Executive’s report

ASB North Wharf, Auckland

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Kiwi Income Property Trust began its new life as an internally managed property trust on 13 December 2013, just 10 days after the 20th anniversary of our listing on the NZX.

It was an important milestone in the Trust’s history and our investors, directors and management team, both present and past, deserve acknowledgement for their contributions.

This is an exciting time for the Trust. The internalisation creates superior alignment, provides investors with greater control and sets the platform for enhanced investor returns with a lower cost of capital. On page 11, I outline the outcome of our strategy review as we look ahead to the next 20 years.

Operating result

In our anniversary year, the Trust once again produced a solid result, delivering an operating profit before other income/(expenses) and tax1 of $78.7 million, up $9.3 million (+13.4%) on the previous year.

After taking into account property revaluations, other non-cash adjustments, insurance income and restructuring costs, the Trust reported an after tax profit2 of $101.3 million, down $8.5 million on the previous year.

With the Trust in a nil tax paying position as a result of the deductibility of the internalisation payment, distributable income1 after tax was $76.3 million, up $15.1 million (+24.7%) on the previous year. As noted by the Chairman, Unit Holders will receive a final distribution of 3.20 cents per unit, taking the full-year distribution to 6.40 cents per unit, in line with guidance.

The Trust’s after tax profit of $101.3 million takes into account $74.5 million of restructuring costs incurred to internalise the Trust and create New Zealand’s largest internally managed, listed property entity. These costs were partially offset by approximately $32.8 million in additional insurance income in relation to ongoing remedial works at Northlands Shopping Centre following the 2010 and 2011 Canterbury earthquakes.

The benefits of our strategic and defensive development projects are evident in our improved net rental income, which rose from $135.5 million to $148.7 million. This uplift was driven by the inclusion of the new ASB North Wharf building into the portfolio, the completion of the Centre Place Shopping Centre redevelopment, the reinstatement of 11 stores at Northlands Shopping Centre following seismic upgrade works and solid rental growth at Sylvia Park Shopping Centre.

On a comparable basis, like-for-like net rental income was $110.2 million, up 2.2% on the prior year.

The Trust had total assets of $2.24 billion at year-end and Unit Holder funds were $1.19 billion, up $56.4 million (+5.0%), with a corresponding increase in underlying net tangible assets per unit from $1.14 to $1.17.

1. Operating profit before other income/(expenses) and tax and distributable income are alternative performance measures used by the Trust to assist investors in assessing the Trust’s underlying operating performance and to determine income available for distribution.


We remain committed to providing investors with a secure, reliable investment in New Zealand property.

CHRIS GUDGEON CHIEF EXECUTIVE


Property valuations

Capitalisation rates continued to firm with strong investor interest for quality New Zealand assets evidenced through recent property sales, particularly in Auckland.

Independent valuations completed for the Trust’s property assets as at 31 March 2014 resulted in a net increase of $8.5 million (+0.4%). The overall value of the Trust’s property portfolio now stands at $2.13 billion.

The weighted average capitalisation rate for the core portfolio firmed 32 basis points to 7.19% and independent valuations indicate that over-renting across the portfolio is 1.2%.

The value of our retail portfolio decreased by $9.5 million (-0.7%) to $1.4 billion, due to allowances made in valuations for earthquake strengthening and remedial work at three of the Trust’s shopping centres and a lower than anticipated valuation of Centre Place following completion of its redevelopment in October 2013.

Our office portfolio increased in value by $15.5 million (+2.4%) to $674.6 million, driven predominantly by improving fundamentals in the Auckland office market, and strong leasing outcomes at 205 Queen.

Read more about the performance of our retail and office portfolios later in this report.

Chief Executive’s report (continued)

Progress against our 2014 priorities

Priority Progress

Complete the ASB North Wharf development on-time and on-budget

✓ On-time and on-budget delivery achieved for the commencement of ASB’s 18-year lease on 1 July 2013

Successfully open the final stage of the Centre Place redevelopment

✓ Farmers department store, 30 shops and METRO by Hoyts cinema complex opened in October 2013

Complete reconstruction works to enable the re-opening of stores at Northlands

✓ 11 stores opened on schedule between August and October 2013

Progress seismic strengthening works at The Majestic Centre ✓ Works are progressing satisfactorily, with key elements such as the transfer beam and foundations on target to complete by August this year

Conclude lease and refurbishment negotiations with the Crown at Unisys House

✓ Development Agreement providing for a new 18-year New Zealand Government lease commitment entered into in November 2013 as part of a comprehensive $67 million refurbishment of the 45-year-old office complex

Maintain active retail and office leasing programmes to minimise vacancy

✓ Concluded 764 new leases and rent reviews over almost 196,000 sqm, equivalent to 53% of total portfolio area. Occupancy at year end remained high at 97.1%

Seek opportunities to undertake value-added acquisitions or divestments, consistent with the Trust’s strategy

✓ Disposed of a 50% interest in 205 Queen for $47.5 million with settlement on 31 January 2014. The purchaser exercised their right to acquire the remaining 50% interest post balance date for $56.3 million with settlement due 3 June 2014

$2.13bPortfolio value

09

Summary of financial results

Financial performance [$m]For the year ended 31-Mar-14 31-Mar-13

Gross rental income 208.2 197.1

Property operating expenditure (59.5) (61.6)

Net rental income 148.7 135.5

Net interest expense1 (55.7) (49.7)

Manager’s base fees (8.1) (10.4)

Manager’s performance fees – (3.0)

Management and administration expenses (6.2) (3.0)

Operating profit before other income/(expenses) and tax2

78.7 69.4

Fair value change to interest rate derivatives 29.1 11.7

Fair value change to investment properties 8.5 21.0

Loss on disposal of investment properties (3.3) (0.3)

Insurance and litigation settlement income 52.9 16.6

Termination of management arrangements (74.5) –

Other non-operating items (0.8) (0.8)

Profit before tax 90.6 117.6

Tax benefit/(expense) 10.7 (7.8)

Profit after tax3 101.3 109.8

Distributable income2 [$m]For the year ended 31-Mar-14 31-Mar-13

Operating profit before other income/(expenses) and tax 78.7 69.4

Depreciation recovery offset – 3.4

Fixed rental income adjustments (2.6) (1.4)

Distributable income before tax 76.1 71.4

Current tax benefit/(expense) 0.2 (10.2)

Distributable income after tax 76.3 61.2

Distributions [cpu] For the year ended 31-Mar-14 31-Mar-13

Cash distribution 6.40 6.60

Imputation credits4 – 1.02

Gross distribution 6.40 7.62

Financial position [$m] As at 31-Mar-14 31-Mar-13

Property assets 2,130.2 2,076.5

Total assets 2,235.8 2,126.5

Unit Holder funds 1,188.5 1,132.1

Bank debt gearing ratio5 35.2% 32.0%

Net tangible asset backing [per unit] $1.17 $1.14

1. Shown net of interest income and interest capitalised.2. Operating profit before other income/(expenses)

and tax and distributable income are alternative performance measures used by the Trust to assist investors in assessing the Trust’s underlying operating performance and to determine income available for distribution.


4. Due to the tax deductibility of the internalisation payment, the Directors have determined that there are no imputation credits available to be attached to the final distribution. As the Trust is a Portfolio Investment Entity, the payment will be an excluded distribution for tax purposes, with no tax payable by New Zealand resident investors.

5. Calculated as bank debt over total assets.


Chief Executive’s report (continued)

Leasing

Leasing remains a fundamental activity for the Trust and throughout the year 764 new leases, renewals or rent reviews were completed for almost 196,000 sqm of space (equivalent to 53% of the total portfolio). As a result, high overall portfolio occupancy was maintained, declining slightly from 97.2% at the prior year end to 97.1%, and the overall portfolio weighted average lease term increased to 4.7 years (from 4.3 years). The addition of ASB North Wharf to the portfolio also assisted the year-end statistics.

A notable achievement was recorded at 205 Queen, with our leasing team reducing the building’s overall vacancy to 7.0% at year-end, down from 31.5% at 31 July 2013 following the expiry of ANZ Bank’s lease.

At Unisys House, located at 56 The Terrace, Wellington, we secured a new 18-year New Zealand Government lease commitment as part of a comprehensive $67 million refurbishment and earthquake strengthening of the 45-year-old office complex. The refurbishment will result in the building being vacant for a 21-month period. While this vacancy will have an adverse impact on earnings, it is expected that the Trust’s distribution reserve, together with the financial benefits arising from internalisation will assist to offset this impact.

Further details on our intensive asset management activities can be found in the respective Portfolio Manager’s reports on pages 14 (retail portfolio) and 20 (office portfolio).

Developments

Throughout the 2014 financial year, we continued to deliver upon our value-adding and defensive development projects which resulted in the completion of ASB North Wharf, the completion of our Centre Place repositioning project, the reinstatement of 11 stores at Northlands following seismic upgrade works, and considerable progress on seismic upgrade works at The Majestic Centre.

ASB NORTH WHARF

ASB North Wharf was successfully completed on 31 May 2013, on-programme and within budget. ASB moved in progressively over June, with its lease commencing on 1 July 2013. All 11 retail tenancies are now leased with some strong trading performances having been recorded. The net rental income yield on completion is 8.5% based on the development cost of $134.0 million1. The building’s value now stands at $162.2 million as at 31 March 2014, comparing favourably with both its development cost and the initial feasibility value projection of $138.5 million.

CENTRE PLACE SHOPPING CENTRE

The final stage of the redevelopment was completed on 17 October 2013 with the opening of a new 7,100 sqm Farmers department store and approximately 30 specialty shops, joining a new METRO by Hoyts five-screen cinema complex which opened its doors in the prior week.

These additions to the centre, along with the Lido art-house cinema offer, mini-majors Rebel Sport and Dick Smith Electronics, a refreshed foodcourt, new dining lane and reinvigorated specialty retail mix, are part of an overall centre

redevelopment, completed over the past three years, which has been designed to reposition Centre Place as Waikato’s leading destination for food, fashion and entertainment.

The net income yield on investment2 is projected initially at 5.4% but forecast to increase to approximately 7% over the following three years as the centre recaptures market share and re-establishes a solid trading pattern.

NORTHLANDS SHOPPING CENTRE

Following completion of reconstruction and strengthening works, 11 shops with a total area of 1,400 sqm progressively opened between August and October 2013, restoring $1 million in annual net rental income.

THE MAJESTIC CENTRE

Progress continues on earthquake strengthening works at The Majestic Centre in Wellington with key elements of the upgrade due to be completed in August 2014 and all works completed by early 2015.

Property divestment

Consistent with the Trust’s strategy of recycling capital to maintain balance sheet flexibility, the Trust secured the sale of a 50% interest in 205 Queen, which settled in January 2014 for a sale price of $47.5 million. The net sale proceeds were utilised to pay down bank debt.

Post balance date, the purchaser, Auckland City Holdings Limited, exercised its right to acquire the remaining 50% interest in the building. This transaction will settle on 3 June 2014 for a consideration of $56.3 million, in line with the building’s March 2014 independent valuation.

1. The proceeds of the Mandatory Convertible Notes (MCN) issue were utilised for the purposes of the development (in combination with bank debt). Accounting rules required the MCN interest, net of interest earned on the MCN proceeds, to be capitalised as a project cost from the time the land for the development was unconditionally secured. This resulted in $10.7 million of additional holding costs being capitalised over the period of the development.

2. After amortisation of leasing fees and incentives.

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Strategy review

As outlined by our Chairman, we have taken the opportunity since internalisation to reconfirm the Trust’s objective, set strategic goals and review our strategy. The Trust’s objective, which has served investors well for the past two decades, has not changed: we remain committed to providing investors with a secure, reliable investment in New Zealand property, and we will continue to target superior risk-adjusted returns over time through the ownership and active management of a diversified, high-quality portfolio.

For our investors, our goal is to deliver long-term total returns greater than 9% per annum, underpinned by pre-tax distributable earnings per unit growth of at least 2% per annum. For our tenants and their customers and clients, our goal is to create and sustain places that positively contribute to peoples’ lives.

In order to deliver on our objective of targeting superior risk-adjusted returns over time, we remain committed to maintaining a diversified investment portfolio of retail and office assets. The correlation of income returns between retail and office assets is low, thus the Trust’s diversified portfolio reduces the volatility of income returns and enables greater consistency of income performance through property cycles - which differ between retail and office sectors. Our diversified model also provides flexibility to allocate capital to individual sector opportunities that have the superior business case at any given point in time and to recycle capital out of appropriate assets at opportune times within the property cycle.

The Trust will also seek opportunities to joint venture with capital partners, leveraging its reputation as a leader in fund and property management, thereby diversifying its investments over a greater number of assets while generating additional property management fees.

To capitalise on the opportunity created by internalisation to create superior alignment, a new framework for employee remuneration is being developed to support and drive the achievement of business objectives and to focus staff on delivering superior investor returns in line with strategic intent.

Our strategy to deliver on our goals continues to have three core pillars:

• Bymaintaining a strong financial position and conservative gearing with appropriate diversity of debt capital sources, a low cost of capital can be maintained thereby optimising equity returns

• Byintensively managing our property assets we can optimise income and investment performance

• Bymaintainingarigorousapproachwecanadd value through our investment decisions to optimise earnings through the strategic acquisition, divestment and development of property assets.

Read more about our intensive asset management strategies in the retail and office portfolio performance sections of this report.

Thank you for your continued support of the Trust.

CHRIS GUDGEON CHIEF EXECUTIVE

Focus for 2015 Develop a corporatisation proposal for Unit Holder approval to move from a trust to a company structure

Actively manage the cost, term and sources of the Trust’s debt funding

Maintain active retail and office leasing programmes to minimise vacancy

Complete seismic strengthening works at The Majestic Centre

Commence refurbishment works at 56 The Terrace

Finalise plans for the development of an entertainment and leisure precinct at LynnMall, and

Seek opportunities to undertake value-added acquisitions or divestments, consistent with the Trust’s strategy.

For our investors, our goal is to deliver long-term total returns greater than 9% per annum, underpinned by pre-tax distributable earnings per unit growth of at least 2% per annum.


Committed to a strong balance sheet

Chief Financial Officer’s report

The Trust has a long and successful track record of maintaining a strong balance sheet and remaining true to its objective of providing consistent, sustainable returns to investors through active asset management and prudent capital management.

In our anniversary year, the balance sheet remains in very good shape. At 35.2%, our bank debt gearing ratio is comfortably within our lending covenant of 45%. Our weighted average cost of bank debt has reduced by 104 basis points to 6.01% compared to the prior year and the weighted average term to maturity of our bank debt facilities remains appropriate at 3.4 years.

We achieved the operational objectives we set ourselves for the financial year, including refinancing bank debt facilities and managing the Trust’s maturity profile and exposure to interest rate volatility.

Gearing

At 31 March 2014, the bank debt gearing ratio increased to 35.2%, compared to 32.0% in the prior year. This was predominantly driven by the one-off expense of internalisation together with development expenditure at Centre Place, Northlands and The Majestic Centre. This expenditure was offset in part by the sale of a 50% interest in 205 Queen.

Internalisation

As discussed by the Chairman and Chief Executive, the internalisation transaction, financed by the Trust through bank debt facilities, involved a net payment of $70.5 million to Commonwealth Bank of Australia (CBA), the owner of the Trust’s former Manager, consisting of:

• aterminationpaymentof$72.5 million from the Trust to CBA for the relinquishment of its fund and property management arrangements, and

• anetpaymentof$2.0millionfromCBA to the Trust for the acquisition of certain assets and the assumption of liabilities relating to the ongoing management of the Trust.

The termination payment of $72.5 million is deductible for tax purposes, meaning that the net cost of this payment equated to $52.2 million. Due to this tax deduction, and an adjustment to deferred tax relating to depreciation recoverable, the Trust recorded an overall tax benefit of $10.7 million for the year ended 31 March 2014, which improved the after tax profit.

The financial benefits of internalisation are already evident in the current year’s results as $2.6 million in property management fees that would have previously been paid to the former property manager, are now earned by the Trust, providing a welcome boost to rental income.

Deferred tax

During the year, the Trust adopted a revised approach to estimating the liability for deferred tax in relation to depreciation expected to be recovered on fixtures and fittings upon the sale of investment properties. The market values of fixtures and fittings for significant properties have been assessed utilising independent valuation advice and the remaining properties have been assessed with reference to previous transactional evidence and their age and quality. The effect of the change in estimation has been to reduce the deferred tax liability by $14.4 million, with a corresponding one-off reduction in deferred tax expense, which has also assisted the increase in after tax profit.

Debt facilities

During the year, we renewed and extended $465 million of bank debt facilities, $100 million of which were secured on six-year terms. This highlights improving bank confidence as well as the continued strong support for the Trust from the banking sector.

We increased the Trust’s bank debt facilities by $25 million to $875 million to assist in the financing arrangements for the internalisation payments. At 31 March 2014, the Trust had $786.5 million in drawn debt facilities. The weighted average term to maturity for the combined facilities was 3.4 years.

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Cost of debt

At year end, the Trust’s weighted average cost of debt was 6.01%, down from 7.05% at the same time last year. This improvement reflects the maturity of some of the Trust’s more expensive interest rate swaps, as well as the lower interest rate environment which we have been able to capitalise on in our refinancing negotiations.

At 31 March 2014, approximately 74% of the Trust’s debt is subject to fixed interest rates, with the balance at floating rates. New Zealand’s official cash rate has increased recently from 2.5% to 3.0% with the Reserve Bank of New Zealand indicating that the official cash rate could move to around 5% by early 2017. As such, we are prudently looking to soften the Trust’s exposure to a rising interest rate environment by continuing to deploy an active interest rate hedging policy.

Strategy review

As part of the Trust’s strategy refresh, we have reviewed our capital management position and remain committed to maintaining a strong balance sheet. As always, we are focused on maintaining conservative gearing. From experience, we know that prudent levels of debt, combined with longer debt duration and diversity of debt sources result in strong credit metrics, a lower cost of capital and better access to capital markets. This is also fundamental to our strategy of delivering consistent results for our investors.

Focus for 2015 Maintain a strong balance sheet, with a particular focus on interest rate management, renewing and extending existing bank debt facilities, further evaluating debt diversification options as well as opportunities to recycle capital through asset sales

Ensure the orderly conversion of the Trust’s Mandatory Convertible Notes in December 2014, and

Develop a corporatisation proposal for Unit Holder approval to move from a trust to a company structure.

At 35.2%, our bank debt gearing ratio is comfortably within our lending covenant of 45%.GAVIN PARKER CHIEF FINANCIAL OFFICER

Bank debt maturity profile

FY14

FY15

FY16

FY17

FY18

FY19

FY20

ANZ $72.5m

ANZ $105.0m

BNZ $92.5m

WESTPAC $77.5m

WESTPAC $100.0m BNZ $127.5m

CBA $100.0m

CBA $100.0m

CBA $100.0m

WESTPAC $65m9%

21%

37%

22%

11%


Retail portfolio performance

The dynamic world of retail

Sylvia Park, Auckland

15

In the dynamic world of retail, evolving our retail mix and improving the shopping centre experience is our number one priority.

KARL RETIEF MANAGER – RETAIL PORTFOLIO

We operate within a dynamic market. Online retail is increasing its share of retail spending as internet speeds increase and mobile technology makes access easier. Consumers are responding to greater price transparency, which is putting pressure on retail stores. Retailers in turn are responding by improving operational efficiency and developing multi-channel capability; retailing through both conventional stores and online portals. Catalogues have largely given way to online, digital and experiential marketing strategies, and consumers are looking for new and more convenient ways to shop and buy.

Our shopping centres continue to adapt and evolve. Today, we offer greater dining, leisure and entertainment options and provide facilities and services beyond conventional retail, to better serve our shopper communities. We offer free Wi-Fi for our customers, and more personal services than ever before, from nail and beauty salons, to masseurs and reflexologists. Public space for seating, parents’ facilities and play zones for children have been improved to enhance the shopping experience.

Our smartphone and tablet device applications are growing in popularity. Our centre apps have been downloaded more than 11,000 times, with 40% of those

downloads being actively used on mobile devices. Across our centres we also have over 65,000 Facebook followers. These applications allow us to connect directly with our consumers, promoting in-mall sales, entertainment and retail opportunities, while providing up-to-the-minute information on store trading hours, contacts, locations and directions.

As we look forward to the next 20 years, we will continue to build upon our online and digital presence to complement our traditional ‘bricks and mortar’ strategies, assisting our retailers as they continue to develop their multi-channel distribution capability.

Strategy review

With the above in mind, our recent strategy review has focused on continuous enhancement of our centres into the future and contains the following strategic intentions:

IMPROVE THE SHOPPING CENTRE EXPERIENCE

• Enhanceourdining,leisureandentertainment options

• Broadentherelevanceofshoppingcentres within the communities they serve through the provision of additional facilities and services, and

• Providesuperiorcustomerservicethrough service attitude, technology and optimal trading hours.

EVOLVE OUR RETAIL MIX

• Rebalancetheretailmixwhilemaximising destinational appeal, sales and rental productivity

• Reduceexposuretocategorieswiththe greatest online penetration, and

• Createexcitementwithnewretailersand strong brands.

EMBRACE MULTI-CHANNEL RETAIL

• Targetretailerswithsuccessfulmulti-channel capability.

By implementing this strategy we can optimise our centres’ income and investment performance.

Retail sales

For the 12 months to 31 March 2014, retail sales increased by 2.1% to $1.42 billion, including post development sales from Centre Place and reinstated stores at Northlands.

Positive growth in sales was recorded at Sylvia Park (+1.0%), Centre Place (+22.5%), The Plaza (+1.5%), North City (+3.2%), and Northlands (+1.9%). Sales at LynnMall declined marginally (-1.2%).

In the dynamic world of retail, evolving our mix and improving the shopping centre


Retail portfolio performance (continued)

Increasing consumer confidence is leading to a lift in discretionary spending and this was reflected in positive sales performances in the department store and specialty retail categories, which were up 4.5% and 2.7% respectively on an unaffected basis.

Across the mini-major and specialty retail categories, jewellery (+8.4%), personal services (+6.5%) and footwear (+3.2%) posted strong positive performances on an unaffected basis, while home electronics (-6.8%), newsagencies/books (-4.6%) and pharmacy/cosmetics (-4.3%) recorded declines. Price deflation in a number of categories continues to be a factor.

New supermarket openings within our centres’ catchments at LynnMall and The Plaza also affected in-centre supermarket sales which were down 4.0% and 1.4% respectively for the year.

Valuations

The Trust’s flagship retail asset, Sylvia Park in Auckland, increased in value by $21.5 million (+4.0%) to $564.0 million reflecting a continuation of the centre’s market dominance and strong trading performance. Growth in value over a two-year period for this prime regional shopping centre has been an impressive $58.4 million (+11.6%).

Notwithstanding this, in the year to 31 March 2014, the value of the Trust’s retail portfolio decreased by $9.5 million (-0.7%) to $1.4 billion. This was due to allowances made in valuations for earthquake strengthening and remedial works at three of our shopping centres together with a lower than anticipated valuation of Centre Place after completion of its redevelopment in October 2013.

The value of Centre Place, at $122.5 million, reflects the competitive operating environment in Hamilton and resulted in a $14.5 million (-10.6%) revaluation loss.

The value of Northlands in Christchurch reduced by $12.7 million (-5.8%), consistent with updated provisions made in the valuation for earthquake remedial works that are the subject of an ongoing insurance claim. A formal mediation is underway with the Trust’s insurers, with the intention of securing a settlement towards the middle of this year.

Similarly, the value of North City in Porirua reduced by $4.0 million (-4.0%) largely as a result of a capital expenditure allowance made in the valuation for seismic strengthening to isolated areas of the centre.

The value of the Trust’s other shopping centres, LynnMall in Auckland and The Plaza in Palmerston North, remained essentially unchanged at $206.0 million and $196.0 million respectively.

The weighted average capitalisation rate for retail assets firmed 14 basis points over the year, from 7.31% to 7.17%.

Planning is well advanced for a redevelopment of LynnMall. The addition of dining, entertainment and new retail offerings is expected to cement the centre as a focal point of its growing West Auckland community.MARK LUKER GENERAL MANAGER – DEVELOPMENT

6SHOPPING CENTRES

$1.39b

13.9%

$1.42bPORTFOLIO VALUE

SPECIALTY GROSS OCCUPANCY COST RATIO

ANNUAL SALES

99.4%OCCUPANCY

229,754 sqmNET LETTABLE AREA

7.17%WEIGHTED AVERAGE CAPITALISATION RATE

778TENANTS

3.8 yearsWEIGHTED AVERAGE LEASE TERM


Priority Progress

Open the Centre Place redevelopment on programme ✓ Farmers department store, 30 shops and METRO by Hoyts Cinema complex opened in October 2013

Complete reconstruction works to enable the re-opening of stores at Northlands

✓ 11 stores opened on schedule between August and October 2013

Maintain active retail leasing programmes to drive investment performance, with a particular focus on the successful conclusion of the remaining lease expiries at Sylvia Park

✓ Completed 153 leasing deals across the portfolio, providing an uplift of 0.9% over previous passing rentals (excluding development leasing)

Continue to implement research-based marketing strategies focused on increasing shopper visits

✓ Shifted marketing strategies to increase in-mall event activity, driving increased foot traffic

Continue to refresh and optimise the retail mix to improve the shopper experience, and maximise sales and rental income

✓ • Modernrespiteseatingpodsinstalledinallcentres• Continuedtoevolvetheretailmix• Grewsalesby2.1%overall

17


Retail portfolio performance (continued)

Leasing and rental review activity

The retail leasing team had a very active year, executing 153 leasing deals (including 95 lease renewals by existing tenants) equivalent to almost 20% of the total number of retail tenancies in the Trust’s portfolio.

A further 550 rent reviews were concluded, representing a further 71% of tenancies by number.

Overall, rentals achieved through new leasing and rent reviews showed growth of $2.6 million (+3.1%) for the year. Rent reviews resulted in an uplift of $2.5 million (+3.5%) while newly negotiated rentals (excluding development leasing) increased $0.1 million (+0.9%) from previous rents.

With close to 90% of the retail portfolio on fixed or CPI-related annual increases, the rental uplift provided through rent review mechanisms underpins growth across the portfolio, although it is pleasing to see an increase in rents achieved through new leasing after a number of years of negative growth.

Focus for 2015 Continue to refine and evolve the retail mix for each centre to optimise sales and rental productivity

Continue to improve the shopper experience for customers including finalising plans for the introduction of a dining and entertainment offer at LynnMall, and

Target retailers with successful multi-channel capability and explore in-centre opportunities to support online distribution.

The leasing team had another very busy year, completing development leasing at Centre Place and Northlands and introducing a number of new retail and service offers across our portfolio.

GORDON BRAY MANAGER – RETAIL LEASING

Key leasing highlights of the year included:

• thecompletionofdevelopmentleasing at Centre Place. Over the course of the redevelopment 42 new retailers have been introduced to the centre

• 41newandrenewedleasesatSylvia Park for a weighted average lease term of 4.6 years, providing rental uplift of 5.2%, and

• 16newleasesandrenewalsatNorthlands (excluding development), with a weighted average lease term of 6.0 years, which delivered rental uplift of 16.0% and introduced a number of new food and service offers to the centre.

Development

In keeping with our strategy of improving the shopping experience for our centres’ customers, we are presently well advanced on planning for a redevelopment of LynnMall. Plans include an expanded retail offer together with the addition of entertainment and a complementary dining offer which is expected to cement the centre as a focal point of its growing West Auckland community.

Centre Place, Hamilton 19

Meeting the needs of business in the modern workplace


Office portfolio performance


21

With a track record spanning 20 years, we remain committed to meeting the workplace demands of business by ensuring the Trust’s office assets remain competitive and attractive to tenants.

A highlight of the year, which demonstrates this commitment, was the completion of the new head office building for ASB Bank at North Wharf in Auckland. This building incorporates cutting edge sustainable design principles and reflects an evolution of office space requirements, with ASB Bank incorporating activity-based working into the base building design and fit-out. At the recent New Zealand Institute of Architects annual awards, the building was recognised for sustainability, interior design and commercial architecture and also won the night’s supreme award, the New Zealand Architecture Medal, which recognises the country’s best architecture.

In Wellington, we secured an 18-year Crown lease at 56 The Terrace (Unisys House), which is to be extensively refurbished and expanded to accommodate the Ministry of Social Development over 24,200 sqm of space with large efficient floorplates of over 1,800 sqm. The 45-year-old building will be modernised to an A-grade standard, with building services upgraded, new window systems fitted and office floors refurbished. The building will also be seismically strengthened to 90% of New Building Standard (NBS) from its current 70% NBS rating. The new lease which commences in August 2016 will add 2.3 years to the office portfolio’s weighted average lease term.

Strategy review

Our key strategic aim is to invest in office buildings which consistently attract high levels of occupier demand, have the requisite building and locational attributes, and which are capable of delivering consistent income performance through the cycle.

In Auckland, the northern end of the CBD, being within close proximity of the waterfront and key transport nodes, is expected to consistently attract higher levels of occupier demand. Consistent with this, the Trust has divested its interest in 205 Queen and will seek investment opportunities in buildings with superior locational attributes and larger floorplates.

Tenant demand for large floorplate ‘campus’ style office accommodation is also expected to grow in non-CBD locations which provide good local amenity and access to public transport and motorway systems. Sylvia Park, with its ‘principal centre’ status within the Auckland Plan, is one such location and the Trust will investigate the development of office buildings that fit within an overall site masterplan.

In Wellington, the office market is expected to be constrained by the rationalisation of government sector office accommodation and low population and employment growth forecasts. In response to this, the Trust’s strategy is to target the government sector and continue to build a close relationship with the Government’s Property Management Centre of Expertise (PMCoE) through our

positive association and existing working relationship at 56 and 44 The Terrace.

Positive market momentum

Market fundamentals continue to improve in the core Auckland and Wellington office markets.

The Auckland CBD office market is favourably positioned with limited new supply and employment growth expected to lead to stronger demand for office space, rental growth and lower vacancy rates. While the overall CBD vacancy rate is 11.0%, the vacancy rate for Prime-grade space has reduced to 4.2% and is expected to more than halve, to 2.0%, in the year to December 2014. Consequently, we continue to see strong demand from investors for quality assets at firmer yields.

Despite the relatively weaker demand outlook, the Wellington office market has been assisted by a low level of new supply and the withdrawal of several buildings for refurbishment or conversion to non-office uses. Total CBD office vacancy has reduced to around 10.5% with Premium-grade space effectively fully occupied.

As a result, office rents for A and B-grade buildings with better seismic performance ratings are projected to enjoy reasonable growth over the next four years.

Leasing and rental activity

The positive change in market fundamentals and effective marketing assisted our leasing team to deliver a strong result for 205 Queen in Auckland. The building’s vacancy reduced

We continue to see strong investment demand for quality assets at the beginning of a strong market rent growth phase.DAVID JOHNSON MANAGER – COMMERCIAL PORTFOLIO


Office portfolio performance (continued)

from 31.5%, immediately following ANZ Bank’s lease expiry on 31 July 2013, to just 7.0% at year end. Key outcomes included a 12-year lease to law firm Brookfields over 1,169 sqm and a 12-year lease to the Korean Consulate over 585 sqm. Other new tenancy agreements were concluded for over 6,000 sqm, all of which helped to lift the building’s weighted average lease term to 4.6 years.

At The Majestic Centre, where we are undertaking substantial seismic upgrade works, tenant enquiry continues to be strong, reflecting market demand for those buildings which carry superior seismic performance ratings. Since commencing the project, we have concluded new leases for approximately 10,500 sqm of space, representing 43% of the building by area.

Our building at 44 The Terrace, Wellington, has been short-listed by PMCoE as a long-term Government accommodation option and we are targeting the conclusion of a new long-term Crown lease over the entire building in the coming financial year.

Overall, rentals achieved through new leasing and rent reviews showed growth of $0.2 million, or 1.8%, for the year. Rent reviews for 29 tenancies (14,000 sqm) delivered a total rental

uplift of 2.6% (+$0.1 million), while 29 new leases or renewals for 20,000 sqm of space across the portfolio resulted in a rental uplift of 1.2% (+$0.1 million).

At year end, the office portfolio had 93.0% occupancy and a weighted average lease term of 6.4 years, both measures showing improvement over the year prior.

Subsequent to balance date, two new leasing transactions were completed for 3,200 sqm at Vero Centre, reinforcing the strength of the Auckland market. Health insurance provider NIB has taken a lease over 2,000 sqm on levels 9 and 10 from November 2014 and China Construction Bank (CCB) has leased 1,200 sqm on level 29 from July 2015. CCB has also taken a temporary lease over 650 sqm on level 16 until that date. As a result, building vacancy will reduce to just 0.6%.

Property divestment

During the year, we secured the sale of a 50% interest in 205 Queen for $47.5 million. The transaction settled in January 2014.

Post balance date, the purchaser, Auckland City Holdings Limited, exercised its right to acquire the remaining 50% interest in the building. This transaction

will settle on 3 June 2014 for a consideration of $56.3 million, in line with the building’s March 2014 independent valuation.

Valuations

Over the year, the office portfolio increased in value by $15.5 million (+2.4%), driven predominantly by the improving fundamentals in the Auckland office market and the positive leasing outcome at 205 Queen. Valuation gains have largely resulted from capitalisation rate firming, with continued strong demand for investment-grade assets and anticipated improvement in office rents.

The overall value of the office portfolio now stands at $674.6 million with a weighted average capitalisation rate of 7.23%, 47 basis points firmer than that for the prior year on a like-for-like basis.

Vero Centre increased in value by $25.2 million (+9.2%), with the capitalisation rate firming 62 basis points to 6.88%. The capitalisation rate for the Trust’s newest asset, ASB North Wharf, also firmed to 6.88% increasing its value by $8.7 million (+5.7%) to $162.2 million, comparing favourably to its $134.0 million development cost.

At 205 Queen, the reduction in building vacancy assisted a $3.7 million (+7.1%) increase in value for the Trust’s remaining 50% interest.

6OFFICE BUILDINGS

$674.6mPORTFOLIO VALUE

93.0%OCCUPANCY

143,523 sqmNET LETTABLE AREA

7.23%WEIGHTED AVERAGE CAPITALISATION RATE

141TENANTS

6.4 yearsWEIGHTED AVERAGE LEASE TERM

23

At 56 The Terrace (Unisys House), recognition of the impending departure of existing tenants and the development works outlined earlier, resulted in a downward value adjustment of $17.4 million (-24.6%) to $53.4 million. Following redevelopment, it is projected that the building’s value will be approximately $120.5 million. This is forecast to grow to over $130 million by 2018 once the initial one-year rent-free period, granted as a tenant incentive, has elapsed.

The Majestic Centre earthquake strengthening

Seismic upgrade works at The Majestic Centre continue to progress, with key elements such as the main transfer beam and foundations being on-programme to complete in August 2014. Our engineers and contractors continue to work hard to overcome the technical and logistical challenges inevitable with a project of this complexity, while the asset management team continues to successfully maintain a high level of building occupancy. We anticipate the balance of the project will be completed in early 2015.

Focus for 2015 Complete seismic strengthening works at The Majestic Centre

Lease the remaining vacancy at Vero Centre

Complete a whole of building lease to the Crown at 44 The Terrace, and

Commence refurbishment works at 56 The Terrace (Unisys House).

The sale of 205 Queen is consistent with our strategy of recycling capital. We are actively investigating replacement opportunities that will add value to the Trust.

MILES BROWN HEAD OF TRANSACTIONS

Progress against our 2014 prioritiesPriority Progress

Progress The Majestic Centre seismic strengthening works ✓ Works are progressing satisfactorily, with key elements such as the transfer beam and foundations on target to complete by August this year

Continue the process of renewing and extending existing tenants in the portfolio

✓ The office portfolio WALT extended to 6.4 years due to strong leasing and addition of ASB North Wharf to the portfolio

Address current vacancies and forthcoming expiries, including ANZ Bank’s 6,400 sqm premises at 205 Queen

✓ The building has only 7.0% vacancy at 31 March 2014, down from the peak of 31.5% following the departure of ANZ Bank in July 2013

Progress Unisys House negotiations with the Government’s PMCoE

✓ Development Agreement for an 18-year lease commitment entered into in November 2013 as part of a comprehensive $67 million refurbishment of the 45-year-old office complex

Facilitate a seamless transition of ASB North Wharf from our development team to our asset management team

✓ ASB North Wharf lease commenced 1 July 2013 and successfully transitioned into the investment portfolio


Sustainability

Through advancing our sustainability programme we continue to drive investment value and position the Trust’s assets to meet growing sustainability demand and regulation.

In the office sector, our adherence to best practice in sustainability helps us to provide modern, healthy and efficient workplaces for our tenants. We are focusing on reducing electricity and water use, as well as diverting waste from landfill, which has the combined benefit of reducing operating costs and meeting tenant demand for more sustainable business space.

In the retail sector, our focus is on creating an environment in which our retailers can prosper. A key part of our strategy is to engage and support the local communities in which our assets trade, leveraging from the important economic and social benefits which shopping malls create. We are also focused on being environmentally responsible in how we use electricity and water, and are actively engaged in reducing waste to lower our impact on the environment and our overall operating costs.

Responding to change – a decade of improvement

In the past financial year, we launched a new five-year sustainability strategy which sought to build upon the Trust’s 10-year sustainability programme. The first year of our enhanced strategy has delivered some strong results. Broadly, we have:

• createdastrongin-housegovernancestructure that embeds sustainability thinking in all our activities, including development, acquisitions and asset management

• enhancedtheTrust’sHealthandSafety programme to respond to recommendations made by the Royal Commission on the Pike River Coal Mine Tragedy and the broader changes expected with the introduction of a new Health and Safety Act 2015

• setchallengingcarbonreductiontargets based on benchmarking asset performance internally and against relevant industry yardsticks such as those presented by NABERSNZ, a building energy rating system for office buildings

• engagedwithtenantsthroughEnvironmentally Sustainable Design (ESD) guidelines and waste reduction initiatives

• engagedwithlocalcommunities;exemplified by the revitalisation of the Hamilton CBD through the Centre Place redevelopment project, including the creation of dynamic urban spaces, and

• ledindustry-responsibleinvestmentthrough seismic strengthening programmes at The Majestic Centre, Northlands and various other assets in the Trust’s portfolio.

Industry leadership

In a notable achievement, the Trust attained the highest score in the 2013 Carbon Disclosure Project (CDP) for a participant on the NZX. This was our fifth year of reporting to CDP, and supports our efforts in reducing emissions and reporting with transparency.

Over many years the Trust has actively supported the development of NABERSNZ. Following the tool’s introduction in 2013, we have assessed all of the Trust’s office buildings to appropriately analyse and measure our continued energy efficiency efforts and to readily engage with early adopter tenants. The Trust aims to move the performance of all assets to a 4-star (‘excellent performance’) rating over time.

Continuing to lead the way

The first year of our enhanced sustainability strategy has delivered some strong results, reducing operating costs while providing broad community benefits.

JASON HAPPY NATIONAL FACILITIES MANAGER

25

2014 emissions by source

Electricity 42% Waste 31% Air travel, travel, fuels and other 27%

20112010 2012 2013 20140%

10%

20%

30%

40%

Actual20112010 2012 2013 2014

0%

10%

20%

30%

40%

Actual20112010 2012 2013 2014

0%

10%

20%

30%

40%

Actual

Energy savings* Water efficiency*Waste minimisation*

A number of assets are currently undergoing development. As such, NABERSNZ ratings will be reported on at later dates once these projects are complete and an appropriate body of relevant and comparative NABERSNZ ratings has been compiled.

The Trust continues to have zero environmental non-compliance notices, fines or prosecutions.

Performance

Energy: Our properties consume 28% less energy than in 2008. This equates to a saving of approximately 7.4 million kWh per annum, which is enough to supply 741 typical New Zealand homes.

Water: Our properties use 30% less water than in 2008. This equates to a saving of approximately 102.9 million litres per annum, which is enough to fill 2,058 domestic swimming pools.

Waste: Recycling has produced 37% less waste annually than in 2008. This equates to a reduction of approximately 421 tonnes per annum, which is enough to fill 688 typical jumbo bins.

Carbon reporting

Last year we completed our inaugural carbon reporting. This report was audited and certified ‘Carbon Measured’. In 2013, we improved our reporting standard to ‘Carbon Managed’ and have achieved a reduction of 252 tonnes per annum (3.1%) in our carbon footprint, equivalent to 53 passenger cars being removed from the road permanently.

The Trust’s greenhouse gas emissions (carbon footprint) for this reporting period were 7,218 tonnes.


✓Further increased the energy efficiency of our buildings by reducing our energy, waste and water usage

✓Set carbon reduction targets and implemented a reduction programme

✓Continued working with tenants to assist them to achieve their sustainability objectives

✓Benchmarked our sustainability performance by participating in the Global Real Estate Sustainability Benchmark (GRESB)

CARBON DISCLOSURE PROJECT

Focus for 2015 Maintain our leadership level in NZX CDP scoring

Continue to reduce our carbon, energy, waste and water usage

Progress towards achieving a 4-star NABERSNZ rating for all office buildings and support New Zealand Green Building Council in encouraging NABERSNZ take up in the industry

Develop a leadership project to demonstrate publicly the Trust’s commitment to sustainability, and

Continue to partner with our tenants to advance sustainability in the Trust’s properties and the industry as a whole.

*Actual savings versus 2008 on a like-for-like basis


Sustainability (continued)

At Kiwi Income Property Trust, the determination, skills and experience of our people has consistently positioned the Trust as a leader in the New Zealand property sector. Our commitment to a culture of teamwork and collaboration enables us to attract, retain and grow talented people.

The internalisation of the Trust’s management in December 2013 resulted in the establishment of a new manager controlled by Unit Holders and we were pleased to achieve the successful employment transfer of our entire New Zealand team to this new entity.

One of the key focuses for the coming year will be to deliver a new performance and remuneration framework to support and drive the achievement of business objectives and to focus employees on delivering superior investor returns.

A diverse workforce

Our team is diverse, represented by a range of ethnicities and age group demographics. Our team is highly skilled and experienced, with core capabilities in property investment and asset management.

Our approach to team diversity is based on the following objectives:

• diversityinleadershipandthought

• inclusiverecruitment,selectionandwork practice policies, and

• respectandinclusion.

Engagement, learning and development

We continue to invest in developing our people’s capabilities and experience through on-the-job learning, structured learning and development plans, and opportunities for role secondments throughout the business.

Usually at this time of year we take the opportunity to report on the results of an employee engagement survey, run by global survey provider Kenexa. This year however, we are deferring the survey until after the completion of our internalisation transition arrangements at which time we will also take the opportunity to review the way we are benchmarked to ensure we are measured appropriately against our peers in New Zealand, as well as globally.

Continuous improvement

We are committed to maintaining a strong culture built on excellence with a commitment to ongoing continuous improvement and process excellence. Our current programme continues to reap rewards for the business and is integrated into the design of our performance framework. In this financial year, a lean six sigma initiative to redesign our budgeting and forecasting processes is expected to result in time savings of 3,500 hours per annum. The annual financial saving resulting from this time reduction is estimated at approximately $179,000.

Community involvement

Volunteering within the communities in which we invest and operate is important to the Trust.

The Kiwi Volunteering Programme provides positive outcomes both for the communities in which we operate and for the employees who participate. Benefits of employee volunteering include increased staff engagement, better relationships with stakeholders and customers, and greater community involvement.

Success built on peopleSuccess built

27

The Trust provides each employee one day’s paid leave per 12-month period to enable them to participate in volunteering. Our goal for FY14 was to get 20% of employees to participate. We are pleased to report that we had an employee participation rate of 30% and will look to maintain this involvement in the future.

As New Zealand’s largest listed property entity, our commitment to a culture of teamwork and collaboration enables us to attract, retain and grow talented people.

KYLIE EAGLE HEAD OF HUMAN RESOURCES

Age group demographics

<20 years = 1% 20 – 29 years = 15% 30 – 39 years = 28% 40 – 49 years = 31% 50+ years = 25%



65%

32%

3%

Understanding the Trust’s portfolio

63%12%

10%

9%

6%

Weighted average lease term (WALT)

WALT, a measure of the security of the Trust’s income, has increased by 0.4 years. The result was driven by the completion of ASB North Wharf and a solid leasing effort across both retail and office portfolios.

Lease expiry profile

The lease expiry profile is well balanced. The office expiry spike in the forthcoming financial year relates to the termination of leases at 56 The Terrace (Unisys House) to enable refurbishment ahead of the new 18-year Crown lease, while a high retail expiry profile in 2016 relates to the expiry of 2010 development leasing at The Plaza.

Geographic diversification(by portfolio value)

Our geographic diversification reflects the Trust’s strategy of investing in New Zealand’s main centres, with a bias to Auckland at 63%.

Sector diversification(by portfolio value)

The Trust is a diversified entity with exposure to both retail and office sectors. The completion of ASB North Wharf has resulted in office sector investment growth of 7% over the year.

Improving the quality of the Trust’s income stream

Retail(FY13/FY14)

Year

s

4.0 3.8

4.8

6.4

4.34.7

Office(FY13/FY14)

Total(FY13/FY14)

0

1

2

3

4

5

6

7

FY15 FY16

% o

f gro

ss in

com

e

FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 Beyond

16.4 16.3

9.6

12.113.1

9.4

4.0

5.6

1.2 1.4

10.9

0

5

10

15

20

25

Retail Office Other

Auckland Wellington Christchurch Palmerston North Hamilton

29

01

02

0304

05

0606

07

08

09

10

1112 13

The completion of ASB North Wharf has had a positive impact on key portfolio measures.

DAVID GREENWOOD MANAGER – PORTFOLIO ANALYSIS

Top 20 tenants (by gross income)

Our top 20 tenants list comprises respected companies, government departments and successful retail chains.

01. ASB Bank 6.7%

02. Farmers 3.7%

03. Progressive Enterprises 3.1%

04. Russell McVeagh 2.6%

05. ANZ Bank 2.4%

06. Vero Insurance 2.4%

07. Bell Gully 2.2%

08. Ministry of Business, Innovation and Employment 2.0%

09. Foodstuffs 1.9%

10. Just Group 1.7%

11. Hallenstein/Glassons 1.5%

12. Kmart 1.5%

13. Cotton On 1.4%

14. The Warehouse 1.3%

15. Hoyts Cinemas 1.2%

16. Whitcoulls 1.1%

17. Valleygirl 0.9%

18. DLA Phillips Fox 0.8%

19. Pascoes 0.8%

20. Hannahs 0.7%

Tenant diversification (by gross income)

The tenant composition of our portfolio has remained relatively static, although the completion of ASB North Wharf has seen exposure to the banking sector double.

01. New Zealand retail chains 27%

02. Australian and international retail chains 22%

03. Department and discount department stores 6%

04. Supermarkets 5%

05. Independents 5%

06. Cinemas 2%

Retail 67%

07. Banking 7%

08. Legal 6%

09. Government 6%

10. Insurance 4%

11. Financial services 3%

12. Consultancy 2%

13. Other 5%

Office 33%

Office Retail

33% income 67% income141 tenants 778 tenants

Collectively, our top 20 tenants

Occupy over half the portfolio by net lettable area

Account for 40% of gross rental income received

52% 40%


The portfolio at a glance As at 31 March 2014

PROPERTY / PORTFOLIO LOCATION OWNERSHIP

[%] VALUER

CAPITALISATION RATE

[%] VALUE [$000]

FY14 NET RENTAL INCOME[$000]

NET LETTABLE

AREA[SQM]

WALT1

[YEARS]OCCUPANCY1

[%]TENANTS

[NO.] CARPARKS

[NO.] KEY TENANTS

Sylvia Park Auckland 100 Colliers 6.50 564,000 35,299 71,185 3.6 99.6 209 4,002 The Warehouse, Hoyts Cinemas, PAK’nSAVE, Countdown, Whitcoulls, Dick Smith Electronics, JB Hi-Fi

LynnMall Auckland 100 JLL 7.13 206,000 15,821 32,220 3.6 100.0 130 1,412 Farmers, Countdown, Number One Shoes, Postie, JB Hi-Fi, Noel Leeming

Northlands Christchurch 100 JLL 7.75 205,322 16,506 41,497 3.6 100.0 124 1,870 Hoyts Cinemas, PAK’nSAVE, Farmers, Countdown, The Warehouse

The Plaza Palmerston North 100 Colliers 7.25 196,000 14,370 32,281 3.5 100.0 114 1,251 Farmers, Kmart, Countdown, JB Hi-Fi

Centre Place Hamilton 100 Colliers 8.25 122,500 3,898 26,869 6.0 95.7 104 604 Farmers, METRO by Hoyts, Lido Cinemas

North City Porirua 100 CBRE 8.25 96,400 7,693 25,702 3.5 100.0 97 1,080 Kmart, Farmers, Reading Cinemas

Total: Retail portfolio 7.17 1,390,222 93,587 229,754 3.8 99.4 778 10,219

Vero Centre Auckland 100 JLL 6.88 299,000 18,643 39,445 5.4 92.7 31 421 Russell McVeagh, Vero, Bell Gully, Asteron Life, Goldman Sachs

ASB North Wharf Auckland 100 CBRE 6.88 162,200 9,758 21,625 16.6 100.0 12 97 ASB Bank

The Majestic Centre Wellington 100 CBRE 8.00 76,600 8,242 24,507 4.2 86.9 18 251 Opus Consulting, Ernst & Young, NZ Trade & Enterprise, Cigna Life, Government of Japan, Airways Corporation

205 Queen2 Auckland 50 JLL 8.50 56,300 8,285 25,679 4.6 93.0 65 129 DLA Phillips Fox, ANZ Bank, Brookfields, Auckland Council

Unisys House Wellington 100 Colliers 7.253 53,400 5,413 22,158 0.5 95.9 7 322 Ministry of Business Innovation and Employment, Unisys, Contact Energy

44 The Terrace Wellington 100 Colliers 8.50 27,100 2,113 10,109 1.9 87.7 8 – Commerce Commission, Tertiary Education Commission, Energy Efficiency and Conservation Authority

Total: Office portfolio 7.23 674,600 52,454 143,523 6.4 93.0 141 1,220

TOTAL: INVESTMENT PORTFOLIO 7.19 2,064,822 146,041 373,277 4.7 97.1 919 11,439

Adjoining properties Various 100 Various 45,852 2,660

Development land Auckland 100 Colliers 19,500 –

Total: Other properties 65,352 2,660

TOTAL: PORTFOLIO 2,130,174 148,701

Note: 1. Reported occupancy and WALT statistics are weighted to each property’s ownership percentage. 2. A 50% interest was sold during the current financial year, with settlement on 31 January 2014.

The remaining 50% interest was sold post balance date for $56.3 million, with settlement due 3 June 2014. 3. Unisys House capitalisation rate is the ‘on completion’ assessed rate.

31

PROPERTY / PORTFOLIO LOCATION OWNERSHIP

[%] VALUER

CAPITALISATION RATE

[%] VALUE [$000]

FY14 NET RENTAL INCOME[$000]

NET LETTABLE

AREA[SQM]

WALT1

[YEARS]OCCUPANCY1

[%]TENANTS

[NO.] CARPARKS

[NO.] KEY TENANTS

Sylvia Park Auckland 100 Colliers 6.50 564,000 35,299 71,185 3.6 99.6 209 4,002 The Warehouse, Hoyts Cinemas, PAK’nSAVE, Countdown, Whitcoulls, Dick Smith Electronics, JB Hi-Fi

LynnMall Auckland 100 JLL 7.13 206,000 15,821 32,220 3.6 100.0 130 1,412 Farmers, Countdown, Number One Shoes, Postie, JB Hi-Fi, Noel Leeming

Northlands Christchurch 100 JLL 7.75 205,322 16,506 41,497 3.6 100.0 124 1,870 Hoyts Cinemas, PAK’nSAVE, Farmers, Countdown, The Warehouse

The Plaza Palmerston North 100 Colliers 7.25 196,000 14,370 32,281 3.5 100.0 114 1,251 Farmers, Kmart, Countdown, JB Hi-Fi

Centre Place Hamilton 100 Colliers 8.25 122,500 3,898 26,869 6.0 95.7 104 604 Farmers, METRO by Hoyts, Lido Cinemas

North City Porirua 100 CBRE 8.25 96,400 7,693 25,702 3.5 100.0 97 1,080 Kmart, Farmers, Reading Cinemas

Total: Retail portfolio 7.17 1,390,222 93,587 229,754 3.8 99.4 778 10,219

Vero Centre Auckland 100 JLL 6.88 299,000 18,643 39,445 5.4 92.7 31 421 Russell McVeagh, Vero, Bell Gully, Asteron Life, Goldman Sachs

ASB North Wharf Auckland 100 CBRE 6.88 162,200 9,758 21,625 16.6 100.0 12 97 ASB Bank

The Majestic Centre Wellington 100 CBRE 8.00 76,600 8,242 24,507 4.2 86.9 18 251 Opus Consulting, Ernst & Young, NZ Trade & Enterprise, Cigna Life, Government of Japan, Airways Corporation

205 Queen2 Auckland 50 JLL 8.50 56,300 8,285 25,679 4.6 93.0 65 129 DLA Phillips Fox, ANZ Bank, Brookfields, Auckland Council

Unisys House Wellington 100 Colliers 7.253 53,400 5,413 22,158 0.5 95.9 7 322 Ministry of Business Innovation and Employment, Unisys, Contact Energy

44 The Terrace Wellington 100 Colliers 8.50 27,100 2,113 10,109 1.9 87.7 8 – Commerce Commission, Tertiary Education Commission, Energy Efficiency and Conservation Authority

Total: Office portfolio 7.23 674,600 52,454 143,523 6.4 93.0 141 1,220

TOTAL: INVESTMENT PORTFOLIO 7.19 2,064,822 146,041 373,277 4.7 97.1 919 11,439

Adjoining properties Various 100 Various 45,852 2,660

Development land Auckland 100 Colliers 19,500 –

Total: Other properties 65,352 2,660

TOTAL: PORTFOLIO 2,130,174 148,701

Note: 1. Reported occupancy and WALT statistics are weighted to each property’s ownership percentage. 2. A 50% interest was sold during the current financial year, with settlement on 31 January 2014.

The remaining 50% interest was sold post balance date for $56.3 million, with settlement due 3 June 2014. 3. Unisys House capitalisation rate is the ‘on completion’ assessed rate.

Centre Place, HamiltonSylvia Park, Auckland32 _ Kiwi Income Property Trust | Annual Report 2014

Retail portfoliosummaries

33


NZ chains 47% Australian and international chains 25% Department and discount department stores 8%

Supermarkets 10% Independent retailers 10%

Lease expiry profile (by gross income)

14%

22%

13%

16%

35%

2015

2016

2017

2018

2019+



Supermarkets 7% Independent retailers 6% Cinemas 3%


2015

2016

2017

2018

2019+

13%

16%

6%

13%

52%

LynnMallLynnMall is a regional shopping centre which opened in 1963. It has been refurbished and expanded over the years and is anchored by a Farmers department store, Countdown supermarket and a cluster of popular mini-major retailers. It is well located within the New Lynn town centre, adjacent to an integrated rail and bus interchange.

Sylvia ParkSylvia Park is the Trust’s flagship retail asset and the largest regional shopping centre in New Zealand. It is located at the demographic and geographic heart of Auckland and boasts a broad retail mix anchored by strong major and mini-major tenants. The centre’s design focus creates a unique retail environment, and reflects the rich local history and geography.

Key property statistics

Centre type RegionalDate completed Jun-07Ownership [%] 100Net lettable area [sqm] 71,185Number of tenants 209Carparks [no.] 4,002FY14 net rental income [$m] 35.3Valuation [$m] 564.0

Capitalisation rate [%] 6.5010-year internal rate of return [%] 9.55

Occupancy [%] 99.6Weighted average lease term [years] 3.62014 total sales [$m] 459.6


Centre type RegionalDate acquired Dec-10Ownership [%] 100Net lettable area [sqm] 32,220Number of tenants 130Carparks [no.] 1,412FY14 net rental income [$m] 15.8Valuation [$m] 206.0




Retail portfolio summaries (continued)



Supermarkets 5% Independent retailers 6%


15

42

11

10

22

%

%

%

%

%

2015

2016

2017

2018

2019+



Supermarkets 15% Independent retailers 8% Cinemas 3%


20

21

7

10

42

%

%

%

%

%

2015

2016

2017

2018

2019+

The PlazaThe Plaza is a regional shopping centre located in the heart of Palmerston North’s CBD. It is Manawatu’s premium shopping destination. The centre was redeveloped in 2010 to include a Farmers department store and JB Hi-Fi electronics store, together with an expanded food and retail offer and extensive carparking.

NorthlandsNorthlands is a substantial, single-level regional shopping centre originally constructed in the 1960s and extensively redeveloped and expanded over the years. It is the dominant shopping centre in northwest Christchurch, providing an outstanding mix of specialty and major tenants.


Centre type RegionalDate acquired Mar-94/Mar-98Ownership [%] 100Net lettable area [sqm] 41,497Number of tenants 124Carparks [no.] 1,870FY14 net rental income [$m] 16.5Valuation [$m] 205.3




Centre type RegionalDate acquired Aug-93Ownership [%] 100Net lettable area [sqm] 32,281Number of tenants 114Carparks [no.] 1,251FY14 net rental income [$m] 14.4Valuation [$m] 196.0



35



Independent retailers 6% Cinemas 3%


2015

2016

2017

2018

2019+

5%

8%

4%

18%

65%



Independent retailers 10% Cinemas 4%


2015

2016

2017

2018

2019+

17

13

25

8

37

%

%

%

%

%

North CityNorth City is a two-level regional shopping centre that opened in 1990. Located centrally within the Porirua town centre, North City includes a broad range of quality national and international retailers anchored by a Farmers department store, Kmart and Reading Cinemas.

Centre PlaceCentre Place is Waikato’s leading CBD food, fashion and entertainment destination. Tenants include a wide variety of quality national and international retailers with a good range of dining and cinema options. In October 2013 a major redevelopment was completed, resulting in the addition of a Farmers department store, METRO by Hoyts and an expanded specialty retail offer.


Centre type CBDDate acquired Dec-94/Jul-03/Dec-05Ownership [%] 100Net lettable area [sqm] 26,869Number of tenants 104Carparks [no.] 604FY14 net rental income [$m] 3.9Valuation [$m] 122.5




Centre type RegionalDate acquired Dec-93Ownership [%] 100Net lettable area [sqm] 25,702Number of tenants 97Carparks [no.] 1,080FY14 net rental income [$m] 7.7Valuation [$m] 96.4



36 _ Kiwi Income Property Trust | Annual Report 2014 ASB North Wharf, Auckland

Office portfoliosummaries

37

ASB North WharfASB North Wharf comprises a seven-level, campus-style office building constructed specifically for ASB Bank and completed in May 2013. The building provides over 20,000 sqm of innovative office space and amenities based on ‘activity-based working’ principles and incorporating significant sustainability features. The building’s waterfront location and striking architecture have made it an instant landmark on the Auckland cityscape.

Vero CentreVero Centre was completed in 2000. This impressive 39-level office tower is New Zealand’s premier business address – a benchmark for quality and one of our flagship office assets. Vero sits in the heart of Auckland’s legal and financial precinct. The building continues to attract and retain many of New Zealand’s most respected companies. It has won numerous awards for excellence in design, construction and efficiency.


Legal 45% Insurance 26% Consultancy 4% Financial services 19% Other 6%


6

13

7

25

49

%

%

%

%

%

2015

2016

2017

2018

2019+


Banking 91% Other 9%


0

0

0

0

100

%

%

%

%

%

2015

2016

2017

2018

2019+


Building grade PremiumDate acquired Apr-01Ownership [%] 100Net lettable area [sqm] 39,445Typical floorplate [sqm] 1,200Carparks [no.] 421FY14 net rental income [$m] 18.6Valuation [$m] 299.0


Occupancy [%] 92.7Weighted average lease term [years] 5.4


Building grade A-gradeDate completed May-13Ownership [%] 100Net lettable area [sqm] 21,625Typical floorplate [sqm] 4,000Carparks [no.] 97FY14 net rental income [$m] 9.8Valuation [$m] 162.2




Office portfolio summaries (continued)

205 Queen205 Queen is well located on an entire block, at one of Auckland’s busiest pedestrian intersections. The property was completed in 1990. It comprises twin towers of 17 levels and 22 levels with podium retail and basement carparking. The asset has been committed for sale, with settlement of the Trusts’s remaining 50% interest due in June 2014.

The Majestic CentreThe Majestic Centre was completed in 1991. It is a prominent feature of the Wellington CBD and offers tenants spectacular harbour and city views. The 28-level A-grade property provides 21 large office floors, podium office space, street-level retail and six levels of basement carparking. It continues to attract and retain quality corporate tenants. The property includes the adjacent Henry Pollen House, a restored character building.


Government 43% Insurance 9% Consultancy 24% Other 24%


28

11

12

7

42

%

%

%

%

%

2015

2016

2017

2018

2019+


Legal 20% Government 3% Insurance 2% Banking 23% Consultancy 6% Financial services 8% Other 38%


12

8

20

10

50

%

%

%

%

%

2015

2016

2017

2018

2019+


Building grade A-gradeDate acquired Mar-94/Dec-97Ownership [%] 100Net lettable area [sqm] 24,507Typical floorplate [sqm] 1,000Carparks [no.] 251FY14 net rental income [$m] 8.2Valuation [$m] 76.6




Building grade A-gradeDate acquired Nov-96/Nov-06Ownership [%] 50Net lettable area [sqm] 25,679Typical floorplate [sqm] 585Carparks [no.] 129FY14 net rental income [$m] 8.3Valuation [$m] 56.3



39

44 The Terrace44 The Terrace provides ground-floor retail and 12 levels of efficient office space. Its location attracts long-term tenants, particularly from the Government sector.

Unisys HouseUnisys House comprises two adjoining properties: a 19-storey office tower constructed in 1968; and Aurora Chambers, an eight-storey tower constructed in 1975. The property enjoys a high-profile position at the northern end of the CBD and is ideal for Government tenants, being within a short walking distance from Parliament. A refurbishment will commence in late 2014 to accommodate a new 18-year Crown lease.


Government 63% Other 37%


100

0

0

0

0

%

%

%

%

%

2015

2016

2017

2018

2019+


Government 94% Financial services 1% Other 5%


50

1

37

0

12

%

%

%

%

%

2015

2016

2017

2018

2019+


Building grade B-gradeDate acquired Apr-04Ownership [%] 100Net lettable area [sqm] 22,158Typical floorplate [sqm] 1,200Carparks [no.] 322FY14 net rental income [$m] 5.4Valuation [$m] 53.4




Building grade B-gradeDate acquired Sep-04Ownership [%] 100Net lettable area [sqm] 10,109Typical floorplate [sqm] 800Carparks [no.] –FY14 net rental income [$m] 2.1Valuation [$m] 27.1




Investor relations

Since listing on the New Zealand Stock Exchange two decades ago, Unit Holder funds have grown to $1.2 billion. From small beginnings, the Trust is today backed by a $2.1 billion high-quality, investment-grade property portfolio, including some of the best office and retail properties in the country.

The Trust has never deviated from its core objective of providing investors with secure, reliable investment returns from the active management of a diversified portfolio of high-quality New Zealand property. It has consistently sought to maintain a strong financial position and robust governance practices.

We remain committed to working in the best interests of our investors and we appreciate the support we have received from them over many years.

In the 2014 financial year, our Unit Holders voted overwhelmingly in favour of an internalisation proposal which resulted in the establishment of a new manager controlled by Unit Holders. From a governance perspective, Unit Holders will now be able to direct the appointment of all directors, creating a greater level of alignment between management and investors.

The internalisation, and the subsequent sale of Commonwealth Bank of Australia’s 8.6% unit holding, has resulted in the

proportion of New Zealand registered Unit Holders in the Trust increasing to 82%. The Trust enjoys the support of over 12,000 investors from 27 countries.

We remain committed to maintaining a comprehensive domestic and international investor relations programme to ensure that our investors remain informed of the Trust’s activities. Our schedule, which typically includes investor roadshows in New Zealand, Australia, the United States, Singapore and Tokyo, is designed to encourage investment flows that support unit price performance and liquidity within the Trust’s stock.

A world of support

We remain committed to maintaining a comprehensive domestic and international investor relations programme to ensure that our investors remain informed of the Trust’s activities.

MATHEW CHANDLER INVESTOR RELATIONS AND COMMUNICATIONS MANAGER

Institutional investors 58% Retail investors 42%


41

Key dates for investors*

20 May 2014 Annual result announcement and release of online annual report

19 Jun 2014 Annual report mail out

19 Jun 2014 Payment of final distribution

20 Jun 2014 Payment of Mandatory Convertible Notes interest

30 July 2014 Annual meeting

22 Sep 2014 Payment of Mandatory Convertible Notes interest

17 Nov 2014 Interim result announcement and release of online interim report

16 Dec 2014 Interim report mail out

16 Dec 2014 Payment of interim distribution

20 Dec 2014 Conversion of the Mandatory Convertible Notes

22 Dec 2014 Payment of Mandatory Convertible Notes interest

* Note: Dates may be subject to change.

%2AUSTRALIA

%12NORTH AMERICA

ASIA

NEW ZEALAND82%

1%EUROPE3%

A world of investors

Contacting the RegistrarTo change your investment details such as address, method of receipt of distributions and/or Mandatory Convertible Notes coupon payments, IRD number, or to request details of the Trust’s Distribution Reinvestment Plan or e-Investor programme, please contact Link Market Services. Contact details are contained in the Directory on the inside back cover.

Contacting the ManagerIf you have any questions relating to the management of the Trust, or an enquiry or complaint regarding your investment, please contact the Manager. Contact details are contained in the Directory on the inside back cover.

Questions or issues with our serviceIf you have an enquiry or complaint regarding your investment, please first contact the Manager. If you are not satisfied with our resolution of your complaint, you may refer your complaint to the Financial Services Complaints Limited (FSCL) scheme, which we participate in. To find out more, visit fscl.org.nz and follow the ‘For Consumers’ link.

Alternatively, if you are an Australian investor, the Manager is also a member of the Financial Ombudsman Service (FOS), an external complaints resolution scheme. For more information, visit fos.org.au

Contact us and other information


The Board of the Manager

Delivering true leadership

Mark is an Australia-based professional director. He holds the roles of non-executive chairman for Cbus Property Pty Limited, non-executive director of the manager for China Commercial Trust and non-executive director of The Bond Market Pty Limited. Mark also sits on the investment committee of Cbus Superannuation Fund. Mark’s previous directorships include Comrealty Limited, South East Asia Property Company (Chair), Property Council of Australia, Deutsche Asset Management Australia and Trafalgar Corporate Group Limited.

Prior to becoming a professional director, Mark was Managing Director, Head of DB Real Estate Australia, where he managed over A$10 billion in property funds. He also oversaw the listing of two property trusts, the acquisition of the AXA Australia property business, the purchase of Paladin Limited, and the merger of the Deutsche and Paladin Trusts. Mark was also a member of the global real estate executive committee for Deutsche Asset Management and RREEF.

Mark is a Chartered Accountant, a Fellow of the Australian Institute of Company Directors and a member of the Institute of Chartered Accountants in Australia. He holds a Diploma of Commerce (NSWIT) and a Company Directors Diploma. Mark lives in Sydney, Australia.

Richard was a joint founder and Managing Director of the former Manager of Kiwi Income Property Trust. After completing his Bachelor of Engineering at The University of Auckland, his career evolved with Lend Lease and other New Zealand-based property companies.

Richard is now enjoying the opportunity to contribute to a variety of public initiatives such as serving as chairman of the Committee for Auckland. He is also on the boards of Auckland International Airport Limited, SkyCity Entertainment Group Limited and Hobsonville Land Company Limited. Richard lives in Matakana, New Zealand.

Mark Ford, ChairmanACA, FACD (Dip), NSWIT Dip (Comm)

Board membership Non-executive Chairman

Other committees Member of the Audit and Risk Committee and Remuneration and Nominations Committee

Date of appointment May 2011*

Richard DidsburyBE

Board membership Non-executive member

Other committees Chairman of the Remuneration and Nominations Committee

Date of appointment July 1992*

43

Our Board brings together a committed team of directors with extensive industry and financial expertise.

Mike was a founding director of Richard Ellis (later CBRE) in New Zealand in 1988. He will be retiring from CBRE in June 2014 after 26 years with the company, including 13 years in Auckland, nine years in Sydney and, most recently, four in Hong Kong where he was Executive Managing Director Asia Pacific for the Valuation and Advisory Services business line. During his time at CBRE, he has held various Directorships and Executive Committee positions. In addition to his property advisory role at CBRE he is responsible for business leadership, including strategic planning, acquisitions, financial management, risk and compliance management and technology development.

Mike is on the global board of the Valuation Professional Group of the Royal Institution of Chartered Surveyors (RICS) representing the Oceania region and is Chairman of the RICS Oceania Valuation Professional Group.

Mike has more than 30 years’ experience in property, spanning valuation, property management and consultancy within New Zealand, Australia, the Pacific Islands and across Asia. Mike lives in Sydney, Australia.

Mike SteurDIP VAL, FRICS, FPINZ, FAPI, MAICD


Other committees Member of the Audit and Risk Committee and Remuneration and Nominations Committee

Date of appointment January 2010*

In accordance with NZSX Listing Rule 3.3.2, the Board has determined that Richard Didsbury, Mark Ford, Joanna Perry and Mike Steur are independent directors.* Represents date of appointment to the Board of the previous manager. All directors were appointed to the Board of Kiwi Property Management

Limited on 18 November 2013.

Joanna is Deputy Chair of Genesis Power and her other governance appointments include Trade Me Group, The Co-operative Bank, Partners Life, Tainui Group Holdings Limited, Sport New Zealand and Rowing New Zealand. She assumed the Chairmanship of the International Financial Reporting Standard Advisory Council on 1 April 2014 and is Chairman of the Investment Advisory Panel of the Primary Growth Partnership. She was previously a KPMG partner, chair of the Financial Reporting Standards Board, member of the Australian Accounting Standards Board and a member of the Securities Commission. She is a member of the New Zealand Order of Merit. Joanna lives in Auckland, New Zealand.

Joanna PerryMNZM, MA (Cantab), FCA


Other committees Chairman of the Audit and Risk Committee

Date of appointment October 2006*


Corporate governance

Kiwi Income Property Trust (the Trust) is a unit trust established in Auckland under a Deed of Trust dated 21 August 1992, and is registered under the Unit Trusts Act 1960. Under the terms of the Trust Deed, Kiwi Property Management Limited (the Manager) is the Manager of the Trust and New Zealand Permanent Trustees Limited (the Trustee) is the Trustee.

The Board of Directors of the Manager (the Board) and the Trustee assume responsibility for corporate governance of the Trust. This responsibility includes:

• overseeingthebusinessandtheaffairs of the Trust

• establishingwithmanagementthestrategies and financial objectives to be implemented by management, and

• monitoringtheperformanceofmanagement directly and indirectly through subcommittees.

In fulfilling this obligation, the Board and the Trustee acknowledge the need for the highest standards of corporate governance and ethical conduct. The Trust’s corporate governance framework primarily comprises the Board, the Audit and Risk Committee and the Remuneration and Nominations Committee, each of which operates in accordance with the principles set out in their respective charters.

Trustee’s role

The Trustee is authorised to act as a trustee company under the Trustee Companies Act 1967 and holds a trustee licence to act as a trustee of securities under the Securities Trustees and Statutory Supervisors Act 2011. The Trustee was established in 1929 and is a wholly-owned subsidiary of Public Trust. The Trustee’s primary role is to exercise reasonable due diligence to ensure that the Manager complies with its obligations under the Trust Deed. As part of that role, the Trustee takes title to the Trust’s assets. The Trust Deed also confers certain discretions and powers to approve actions (including investments and divestments) proposed to be taken by the Manager. In those cases, the Trustee does so having due regard to the interests of Unit Holders.

The Trustee also acts as trustee for the holders of the Mandatory Convertible Notes.

Manager’s role

The role of the Manager is to manage the Trust in accordance with the Trust Deed and the law. Ultimate responsibility for corporate governance resides with the Board of Directors.

The Board’s actions and its conduct are governed by the Manager’s constitution, the Trust Deed and a Code of Corporate Governance (the Code), committed to by all directors. The Code sets out all the functions and operating procedures of the Board, including charters for the Audit and Risk Committee and the Remuneration and Nominations Committee. The Code also sets out those matters that only the Board can make decisions on. These include:

• settingtheoverallstrategicdirection

• determinationofportfoliomix

• propertyselection

• analysis,reviewandnegotiationofproperty acquisitions and disposals

• supervisionofpropertymanagers

• determiningdistributionpayments

• determiningtheTrust’sappropriatefunding mix, either by way of equity and/or debt funding

• approvingannualfinancialstatements

• provisionofinformationtoinvestors

• approvingandmonitoringmajorcapital expenditure, and

• appointmentofauditors.

The Board has delegated the management of the Trust’s day-to-day affairs to the Chief Executive. The Chief Executive makes recommendations as to the Trust’s overall strategic direction and presents annual budgets for approval by the Board. The Trust’s performance against budget is monitored by the Board, as is the performance of other delegated responsibilities. All investment and divestment approvals sought from the Trustee must first have the approval and recommendation of the Board.

Composition of the Board of Directors

Effective boards require a mix of directors from different backgrounds with complementary skills and experience. The Board is structured in such a way that it has a proper understanding of, and competence to deal with, the current and emerging issues of the Trust, and can effectively review and challenge the performance of management and exercise independent judgement, including in relation to financial issues. The Board undertakes Board performance reviews and considers the appropriate mix of skills required of its members.

Each director is required to be conversant with corporate governance, corporate strategy and relevant laws, regulations and the Listing Rules. In addition, directors need to be familiar with the responsibilities and obligations of a company director, aware of their rights and obligations under the Manager’s constitution and familiar with operations, strategies, budgets and financial plans. At least one director is required to have an accounting or financial background.

It is the responsibility of all directors to ensure that they undergo continuous training to educate and update themselves on how to appropriately and effectively perform their duties as directors.

In recognition of the importance of independent views and the Board’s role in supervising the activities of management, the Chairman of the Board may not also hold the position of Chief Executive of the Manager.

The Chairman of the Board ensures that all directors receive and understand the information needed for the Board to make fully informed decisions. If required, members of the Board are entitled to seek independent legal advice.

45

Board committees

The Board may establish committees to assist in the execution of its duties and to allow detailed consideration of complex issues.

Each committee has its own written charter setting out its role and responsibilities and the manner in which the committee is to operate.

Committees do not diminish the full Board’s responsibility for the affairs of the Trust. All matters that are determined by committees are submitted to the full Board as recommendations for the Board’s decision.

Each committee is empowered to seek the information it requires from management in pursuing its duties, and to obtain independent legal or other professional advice.

Audit and Risk Committee

The Audit and Risk Committee assists the Board in carrying out its responsibilities under the Companies Act 1993, the Financial Reporting Act 1993, the Unit Trusts Act 1960 and the Listing Rules with respect to accounting practices, policies and controls.

The minimum number of members on the Audit and Risk Committee is three, with a majority comprising independent directors of the Manager. The Board ensures that at least one member has an accounting or financial background. The Chair of the Audit and Risk Committee cannot also be the Chair of the Board, or Chair of any other committee established by the Board.

The Audit and Risk Committee has a clear line of direct communication with management, the internal and external auditors and the Board.

The Audit and Risk Committee is charged with:

• reviewingandreportingtotheBoardon Annual and Interim Financial Statements, related stock exchange announcements and all other financial information published or released to the market

• assistingtheBoardinreviewingtheeffectiveness of the internal control environment, including effectiveness and efficiency of operations, reliability of financial reporting and compliance with applicable laws and regulations

• overseeingtheeffectiveoperationofthe risk management and compliance framework, and

• recommendingtotheBoardtheappointment, removal and remuneration of the external auditors, reviewing the terms of their engagement and the scope and quality of the audit and reviewing and approving within established procedures and, before commencement, the nature and scope of non-audit services being provided by the external auditors.

The Audit and Risk Committee has authority to seek the information it requires from any employee or external party and may, if necessary, conduct or authorise investigations into any matters within the Committee’s scope of responsibilities. The Committee is empowered to retain independent counsel, accountants or others to assist it in the conduct of its duties.

Remuneration and Nominations Committee

The Remuneration and Nominations Committee assists the Board to ensure it has appropriate remuneration policies and practices in place to ensure the Group continues to attract and retain top talent at all levels of the organisation.

The minimum number of members on the Remuneration and Nominations Committee is three. Committee members are expected to have an appropriate level of knowledge and understanding of remuneration practice, as well as legal and regulatory requirements relating to remuneration matters.

The Remuneration and Nominations Committee has a clear line of direct communication with management, the internal and external auditors and the Board.

The Remuneration and Nominations Committee assists the Board in:

• theestablishmentofremunerationpolicies and practices for, and in discharging the Board’s responsibilities in relation to, setting and reviewing the remuneration of directors and executive management, and

• planningtheBoard’scomposition,evaluating the competencies required of prospective directors (both executive and non-executive), identifying those prospective directors, establishing their degree of independence, and making recommendations to the Board accordingly.

The Remuneration and Nominations Committee is empowered to obtain independent counsel and external professional advice to assist it in the conduct of its responsibilities.

Code of ethics

Directors, employees and consultants of the Manager and its related entities must uphold the highest ethical standards, acting in good faith and in the best interests of the Trust and investors at all times.

Directors, employees and consultants must comply with the policies which the Board has collectively endorsed, and observe the Code of Ethics, which requires directors, employees and consultants to:

• actproperlyandefficientlyandwithinthe authorities and discretions delegated to them in pursuing the objectives of the Trust

• avoidputtingthemselvesinapositionwhere they stand to benefit personally (directly or indirectly) or be accused of insider trading

• nottradeintheTrust’ssecuritiesunless they do so in accordance with the Securities Trading Policy

• ensurethattheyandthebusinessare in compliance with all laws and regulations


Corporate governance (continued)

• maintainconfidentialityofinformationat all times, and

• beabsolutelyhonestinallprofessional activities.

The Code of Ethics forms part of every employment contract or consultancy agreement. Failure to comply with the Code of Ethics can result in disciplinary action including, where appropriate, dismissal.

Knowledge of a breach, or suspected breach of the Code of Ethics, can be reported to any layer of management, the Chair of the Board or the Chair of the Audit and Risk Committee, and may be done without fear of retribution or adverse action.

The Code of Ethics is regularly reviewed. A copy of the Code of Ethics is available on the Trust’s website at kipt.co.nz

Risk management

The Trust has policies, procedures and appropriate internal controls in place to identify and effectively manage areas of significant business risk, including financial risks arising from exposures to interest rates, credit risk and liquidity risk. Processes are in place to ensure the business is compliant with approved policies and procedures, as well as relevant legislation, regulations and the Listing Rules. Management processes are also in place to ensure all material risks identified are promptly reported to the Board and Trustee. Matters reported are assessed and, where appropriate, corrective action is taken to mitigate and monitor the risk.

Continuous disclosure

In accordance with the Listing Rules, the Trust is required to disclose to the market matters which could be expected to have a material effect on the price or value of the Trust’s securities. Management processes are in place to ensure that all material matters which may potentially require disclosure are promptly reported to the Chief Executive, through established reporting lines. Matters reported are assessed and, where required by the Listing Rules, advised to the market.

The Chief Executive and Chief Financial Officer are responsible for communications with the NZX and for ensuring that such information is not released to any person until the NZX has confirmed its release to the market.

All material NZX announcements are also posted on the Trust’s website at kipt.co.nz

Interests register

Section 189(1)(c) of the Companies Act 1993 requires the Manager to keep a Register of Directors’ Interests, and this has been extended to include interests in the Trust. Each Director is required to disclose the following information and have that information entered into the Register of Interests as soon as they become aware of it:

• particularsofotherBoardappointments

• particularsofinterestsintransactionsof the Trust

• disclosureoruseofTrustinformationacquired by virtue of office or employment by the Manager

• dealingsintheTrust’ssecurities,and

• particularsofBoardapprovedpayments, loans and guarantees of the debts of directors, or contracts to do any of these things.

In considering any dealings in the Trust’s securities, directors and employees must observe the Securities Trading Policy. Directors and employees must notify and obtain approval of the Manager before dealing in the Trust’s securities.

Directors and officers must also observe the Directors and Officers Disclosure Policy in respect of ‘relevant interests’ in securities of the Trust or any of its related entities.

Manager’s expenses

In accordance with the Trust Deed, the Manager is to operate its business efficiently, with a view to maintaining its costs at a minimum and operate on a ‘break-even’ basis. The Manager is entitled to reimbursement and indemnification of costs as outlined in Clause 40 of the Trust Deed.

Directors’ and officers’ liability insurance

The Manager maintains directors’ and officers’ liability insurance and indemnifies the directors and officers of the Manager against all liabilities which may arise out of the performance of normal duties as directors or officers, unless the liability relates to conduct involving a lack of good faith. This includes indemnity of costs and expenses incurred in defending an action that falls within the scope of the indemnity.

Diversity

The Trust is fully committed to creating a workplace in which diversity in all its forms is recognised, embraced and respected. The Trust has in place a Diversity Policy and on an annual basis the Board reviews its diversity objectives and the achievements against that policy and objectives.

As at 31 March 2014, the Manager of the Trust has one female director out of a total of four directors and one female officer out of 10 officers.

Compliance with corporate governance best practice

The Trust’s corporate governance processes materially comply with the Corporate Governance Best Practice Code recommended by the NZX.

The Trust’s corporate governance framework also materially complies with the Financial Market Authority’s Corporate Governance Principles.

The Board regularly reviews its practices and will continue to refine them in light of the NZX and the Financial Market Authority’s recommendations to ensure they are appropriate to the Trust and consistent in all material respects.

47

The Trust’s objectives are to optimise earnings and provide attractive long-term sustainable returns to investors through the strategic acquisition, intensive management and ongoing development of office, retail and industrial property assets.

These objectives are achieved by:

• investinginahigh-qualitydiversifiedproperty portfolio throughout New Zealand, with a broad range of tenants and lease maturities

• fosteringlong-termtenantrelationships as a means of enhancing investment performance

• adoptinganactivemanagementphilosophy encompassing asset and financial management, strategic investments, acquisitions and divestments and the judicious development of new and existing assets, and

• maintainingastrongbalancesheetwith conservative borrowing levels. The Trust Deed requires the level of borrowings to be maintained at no more than 45% of the gross value of the Trust.

Active management

The Manager seeks to optimise earnings and capital growth through strategic added-value remixes and refurbishments, negotiation of new leases and rent reviews and the application of best practice in all property management activities.

This involves:

• ensuringthattenantsaresatisfiedwith their accommodation, and working with existing and prospective tenants to create solutions that add value for both parties

• negotiatingandmanagingleasesandrent reviews with each tenant, and monitoring compliance with all lease obligations

• managingcapitalexpenditurerequirements for upgrades or refurbishment of each asset so as to optimise overall investment returns, and

• minimisingvacantspaceineachasset and marketing space effectively if it becomes available.

Strategic acquisitions and divestments

The Manager will consider strategic acquisitions that have the potential to enhance investor returns and/or provide superior growth opportunities. Existing assets are continually reviewed to ensure they fit within the Trust’s investment criteria, and are divested if necessary. With every existing asset or potential acquisition the Manager looks at:

• maximisingreturnsfromrentalincome and achieving long-term capital growth

• minimisingriskbyinvestinginhigh-quality, strategically located assets

• thepotentialforsuperiorgrowthandadded-value opportunities

• thefurtherdiversificationoftheTrust’s portfolio by tenant, sector and geographical location, and

• maintainingtheTrust’sstrongincomeprofile through long-term leases to prime tenants.

Development activity

The ongoing refurbishment and/or redevelopment of the Trust’s existing assets, and the judicious development of new assets, are essential to the Trust’s continued performance. Existing shopping centre assets typically require periodic redevelopment to ensure competitiveness and the achievement of investment performance objectives. The Manager may also develop new assets where opportunities arise to enhance long-term sustainable returns to investors, acknowledging that it is often not possible or feasible to purchase these assets directly.

There are a variety of development activities the Trust may undertake and every project is different and has varying risk characteristics. For example, the refurbishment of an existing shopping centre will have a lower risk profile than the potential development of an asset on bare land which is not currently zoned for that activity. In some cases the refurbishment of an existing asset will have a lower risk profile than not undertaking that refurbishment and risking the deterioration of that asset.

While every project has a different risk profile, the types of risks may include securing control and ownership of the land, obtaining planning permissions and consents, construction procurement, cost escalation, resources, leasing, funding and ultimately delivery of the completed asset. Before undertaking any refurbishment, expansion or development proposal, the Manager evaluates identified risks associated with that particular project, and then plans and implements mitigation measures designed to manage those risks within acceptable levels.

The quantum of development undertaken by the Trust at any one time will depend on numerous factors, including, but not limited to, the risks associated with the particular development, the rate of return on the investment, the availability of resources and funding capacity.

The Trust Deed requires that any investment exceeding $1 million must first be approved by the Trustee. In considering any proposals, the Trustee does so having due regard to the interests of investors.

The Manager does not as a general guiding principle intend to have more than approximately 15% of the gross value of the Trust fund held as development properties at any point in time. The Manager may exceed this guideline if a unique opportunity presents itself which fits the Trust’s investment criteria and is adequately de-risked, or where to not undertake a refurbishment or expansion of an existing asset would result in its deterioration.

Investment and management philosophy


Investment and management philosophy (continued)

Active financial and capital management

Active financial and capital management is undertaken with the objective of ensuring that the Trust’s income, expenses and financial position are managed so as to optimise long-term sustainable returns to investors. This includes:

• ensuringthatcashflowsfromrentalsare efficiently utilised as they become available. This may be by way of capital expenditure for refurbishment or upgrade programmes, or simply by debt repayments or by ensuring that cash balances are earning competitive interest rates

• activelymanagingtheTrust’sdebtand exposure to interest rate volatility through a disciplined debt and hedging strategy that ensures an ongoing spread of maturities, maximises the term of renewal, and achieves an appropriate mix of fixed-rate and short-term floating- rate debt to meet the Trust’s cash flow requirements

• ensuringthatborrowingsareusedprudently, minimising interest costs, while at the same time making appropriate decisions about the trade-off between the cost of borrowing and the potential return from investment opportunities, and

• carefulconsiderationofanyrequirement for new equity, balancing the potential return from investment opportunities. The Trust has a Treasury Management Committee which operates in accordance with a Board-approved debt and hedging policy.

49

Financial statements and other information

50 Statements of Comprehensive income

51 Statements of Changes in Equity

52 Statements of Financial Position

53 Statements of Cash Flows

54 Notes to the Financial Statements

90 Independent Auditors’ report

91 Unit and note holder statistics

96 Trust deed and NZX waivers

99 Five-year summary

101 Glossary

IBC Directory

Contents


The Statements of Comprehensive Income should be read in conjunction with the accompanying notes.

Statements of Comprehensive Income For the year ended 31 March 2014

Note

Group2014$000

Group2013$000

Parent 2014 $000

Parent 2013 $000

Gross rental income 5 208,189 197,111 – –

Property operating expenditure (59,488) (61,660) – –

Net rental income 148,701 135,451 – –

Property management fee income 52 – – –

Interest income 449 1,582 1,989 11,576

Management fee income 23 – – 8,186 11,097

Dividend income 23 – – 75,081 61,134

Interest and finance charges 6 (56,185) (51,307) (10,741) (10,717)

Manager’s fees 7,23 (8,058) (13,446) (8,198) (14,105)

Management and administration expenses 8 (6,276) (2,910) (3,209) (2,523)

Operating profit before other income/(expenses) and income tax 78,683 69,370 63,108 56,462

Other income/(expenses)

Amortised interest expense on mandatory convertible notes (781) (710) (781) (710)

Fair value change to interest rate derivatives 16 29,056 11,744 – –

Fair value change to investment properties 14 8,539 20,984 – –

Loss on disposal of investment properties (3,314) (334) – –

Insurance income 14 49,384 16,575 – –

Litigation settlement income 3,547 – – –

Termination of management arrangements 9 (74,519) – (74,519) –

Profit/(loss) before income tax 90,595 117,629 (12,192) 55,752

Income tax benefit/(expense)

Current tax 10 252 (10,215) 13,462 1,425

Deferred tax 10 10,453 2,399 10,975 54

Total income tax benefit/(expense) 10,705 (7,816) 24,437 1,479

Profit and total comprehensive income after income tax attributable to Unit Holders 101,300 109,813 12,245 57,231

Basic and diluted earnings per unit (cents) 4 9.83 10.79

51

The Statements of Changes in Equity should be read in conjunction with the accompanying notes.

Statements of Changes in Equity For the year ended 31 March 2014

NoteUnits $000

Retained earnings

$000

Total equity $000

Group

Balance at 1 April 2012 897,689 175,013 1,072,702

Profit after income tax – 109,813 109,813

Distributions to Unit Holders 21 – (66,971) (66,971)

Distributions reinvested 19 15,089 – 15,089

Performance fee reinvested 19 1,449 – 1,449

Balance at 31 March 2013 914,227 217,855 1,132,082

Balance at 1 April 2013 914,227 217,855 1,132,082





Balance at 31 March 2014 934,469 254,075 1,188,544

Parent

Balance at 1 April 2012 897,689 41,536 939,225





Balance at 31 March 2013 914,227 31,796 946,023

Balance at 1 April 2013 914,227 31,796 946,023





Balance at 31 March 2014 934,469 (21,039) 913,430

Statements of Financial Position As at 31 March 2014

The Statements of Financial Position should be read in conjunction with the accompanying notes.


Note

Group2014$000

Group2013$000

Parent 2014 $000

Parent 2013 $000

Current assets

Cash and cash equivalents 9,187 12,026 4,854 10,186

Trade and other receivables 11 9,530 11,217 315 281

Insurance income receivable 14 64,320 16,575 – –

Income tax receivable 1,374 – 696 2,911

Advances to controlled entities 12 – – 837,227 877,338

Other investments 38 36 – –

84,449 39,854 843,092 890,716

Non-current assets

Investments in controlled entities 12 – – 181,901 181,901

Investment properties 14 2,130,174 2,076,461 – –

Property, plant and equipment 619 – – –

Other investments 134 173 75 75

Interest rate derivatives 16 7,931 388 – –

Deferred tax asset 10 12,527 9,613 11,049 149

2,151,385 2,086,635 193,025 182,125

Total assets 2,235,834 2,126,489 1,036,117 1,072,841

Current liabilities

Trade and other payables 15 34,306 56,732 2,887 7,726

Mandatory convertible notes 18 119,730 – 119,730 –

Income tax payable – 1,922 – –

Interest rate derivatives 16 626 6,303 – –

154,662 64,957 122,617 7,726

Non-current liabilities

Secured bank loans 17 786,500 681,000 – –

Mandatory convertible notes 18 – 118,947 – 118,947

Interest rate derivatives 16 12,582 28,418 – –

Deferred tax liability 10 93,546 101,085 70 145

892,628 929,450 70 119,092

Total liabilities 1,047,290 994,407 122,687 126,818

Net assets attributable to Unit Holders 1,188,544 1,132,082 913,430 946,023

Represented by:

Units 19 934,469 914,227 934,469 914,227

Retained earnings 254,075 217,855 (21,039) 31,796

Total funds attributable to Unit Holders 1,188,544 1,132,082 913,430 946,023

The Board of Kiwi Property Management Limited, the Manager of Kiwi Income Property Trust, authorised these financial statements for issue on 19 May 2014.

Mark Ford Chairman of the Board 19 May 2014

Joanna Perry Chairman of the Audit and Risk Committee 19 May 2014

Joanna Perry

The Statements of Cash Flows should be read in conjunction with the accompanying notes.

53

Statements of Cash Flows For the year ended 31 March 2014

Note

Group2014$000

Group2013$000

Parent 2014 $000

Parent 2013 $000

Cash flows from operating activities

Gross rental income 212,214 199,762 – –

Property management fee income 52 – – –

Interest income 428 1,671 142 1,490

Property operating expenditure (63,704) (56,546) – –

Termination of management arrangements 9 (74,519) – (74,519) –

Interest and finance charges (57,198) (52,188) (10,739) (10,725)

Income tax (2,282) (6,838) – –

Manager’s fees (12,390) (11,881) (12,530) (12,540)

Management and administration expenses (6,261) (2,543) (2,448) (2,226)

Intergroup expenses – – (1,291) –

Goods and Services Tax 605 173 (56) 7

Net cash flows from/(used in) operating activities 24 (3,055) 71,610 (101,441) (23,994)

Cash flows from investing activities

Disposal of investment properties 46,893 59,194 – –

Expenditure on investment properties (108,798) (91,838) – –

Expenditure on property, plant and equipment (9) – – –

Compensation for assumption of net liabilities relating to a business acquisition 9 2,043 – – –

Intercompany advances – – 141,643 24,926

Interest and finance charges capitalised (4,953) (11,752) – –

Manager’s fees and trustee’s fees capitalised (149) (689) – –

Insurance income 1,639 63,000 – –


Other investment activities 37 92 – –

Net cash flows from/(used in) investing activities (59,750) 18,007 141,643 24,926

Cash flows from financing activities

Units issued 1,521 1,449 1,521 1,449

Increase/(decrease) in secured bank loans 105,500 (88,500) – –

Distributions to Unit Holders (including supplementary dividends) (47,055) (53,340) (47,055) (53,340)

Net cash flows from/(used in) financing activities 59,966 (140,391) (45,534) (51,891)

Net decrease in cash and cash equivalents (2,839) (50,774) (5,332) (50,959)

Cash and cash equivalents at the beginning of the year 12,026 62,800 10,186 61,145

Cash and cash equivalents at the end of the year 9,187 12,026 4,854 10,186

Notes to the Financial Statements For the year ended 31 March 2014


1. STATEMENT OF ACCOUNTING POLICIES

General information

The financial statements presented are those of Kiwi Income Property Trust (the Trust or Parent) and its controlled entities (the Group). The Trust is a unit trust established in New Zealand under the Unit Trusts Act 1960 by a Deed of Trust dated 21 August 1992. The Trust is an issuer in terms of the Financial Reporting Act 1993 and is listed on the New Zealand Stock Exchange. The principal activity of the Group is to invest in New Zealand real estate.

On 12 December 2013, the Trust’s Unit Holders approved the internalisation of the management of the Trust. As a result, effective from 13 December 2013, the Trust terminated the fund and property management arrangements that were undertaken by KIP NZ Limited (formerly Kiwi Income Properties Limited) and KPM NZ Limited (formerly Kiwi Property Management Limited) respectively and also purchased business assets and assumed certain liabilities of those entities. The assets of those entities are held in a newly formed controlled entity called Kiwi Property Management Limited (formerly Kiwi Property Management (NZ) Limited) which was incorporated on 18 November 2013. With effect from 13 December 2013, Kiwi Property Management Limited became the Manager of the Trust. Further details of this transaction are provided in Notes 9, 12 and 23.

The financial statements were authorised for issue in accordance with a resolution of the Board of Directors of Kiwi Property Management Limited, the Manager of the Trust, on 19 May 2014. The Manager does not have the power to amend these financial statements once issued.

Statement of compliance

The financial statements have been prepared in accordance with New Zealand Generally Accepted Accounting Practice (NZ GAAP). These financial statements comply with New Zealand Equivalents to International Financial Reporting Standards (NZ IFRS), and other applicable Financial Reporting Standards, as appropriate for profit-oriented entities. These financial statements comply with International Financial Reporting Standards.

Summary of significant accounting policies

The significant accounting policies adopted by the Group are set out below and except for the changes noted below have been consistently applied to all periods presented in these financial statements.

Basis of preparation The Trust is a reporting entity for the purposes of the Financial Reporting Act 1993 and the Trust and Group are designated as profit-oriented entities for financial reporting purposes.

The financial statements have been prepared in accordance with NZ IFRS, the Financial Reporting Act 1993 and the Companies Act 1993.

The financial statements are prepared on the historical cost basis, except where otherwise identified. The financial statements are presented in New Zealand dollars, which is also the functional currency, rounded to the nearest thousand dollars (unless otherwise stated).

Changes in accounting policiesThe Group has adopted the following new standards and amendments to existing standards, with an initial application date of 1 April 2013:

(a) NZ IFRS 10 Consolidated Financial StatementsAs a result of NZ IFRS 10, the Group has changed its accounting policy for determining whether it has control over, and consequently whether it consolidates, its investees. NZ IFRS 10 introduces a new control model that focuses on whether the Group has power over an investee, exposure or rights to variable returns from its involvement with the investee and ability to use its power to affect those returns.

In accordance with the transitional provisions of NZ IFRS 10, the Group reassessed the control conclusion for its investees as at 1 April 2013. This did not result in any change in the control conclusion for existing investees. The internalisation of the Trust’s management during the year resulted in the management of the Trust being transferred to a newly established company, Kiwi Property Management Limited. The Group determined that it has control over this entity in accordance with NZ IFRS 10 (see Note 12).

(b) NZ IFRS 11 Joint ArrangementsThe Group has adopted a new accounting policy for its interests in joint arrangements. Under NZ IFRS 11, the Group has classified its interests in joint arrangements as either joint operations (if the Group has rights to the assets, and obligations for the liabilities of an arrangement) or joint ventures (if the Group has rights only to the net assets of an arrangement). When making this assessment, the Group considers the structure of the arrangements, the legal form of any separate entities, the contractual terms of the arrangements and other facts and circumstances. At the date of initial application, the Group did not have any existing joint arrangements. During the current financial year, the Group entered into a joint arrangement in relation to its property at 205 Queen Street, Auckland which has been accounted for as a joint operation in accordance with NZ IFRS 11 (see Note 13).

(c) NZ IFRS 12 Disclosure of Interests in Other EntitiesIn accordance with NZ IFRS 12, the Group has expanded its disclosures about its interests in controlled entities and joint arrangements (see Notes 12 and 13).

(d) NZ IFRS 13 Fair Value MeasurementNZ IFRS 13 establishes a single framework for measuring fair value and making disclosures about fair value measurements when such measurements are required or permitted by other NZ IFRS. It unifies the definition of fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It replaces and expands the disclosure requirements about fair value measurements in other NZ IFRS. As a result, the Group has included additional disclosures in this regard (see Note 14).

In accordance with the transitional provisions of NZ IFRS 13, the Group has applied the new fair value measurement guidance prospectively and has not provided any comparative information for new disclosures. Notwithstanding the above, the change had no material impact on the measurement of the Group’s assets and liabilities.

55

(e) Presentation of items of other comprehensive income (Amendments to NZ IAS 1)The amendments to NZ IAS 1 require the Group to present separately in the statement of profit or loss and other comprehensive income, items that would be reclassified to profit or loss from those that would never be. As the Group has no items of other comprehensive income, there is no impact on the financial statements.

No other amendments or revisions to NZ IFRS have had a material impact on these financial statements.

NZ IFRS issued but not yet effectiveA number of new standards, amendments and interpretations have been issued by the International Accounting Standards Board and the External Reporting Board in New Zealand that are not yet effective and have not been early adopted by the Group. Those which may be relevant to the Group are set out below:

NZ IFRS 9 Financial Instruments – This standard will eventually replace NZ IAS 39 Financial Instruments – Recognition and Measurement and is required to be adopted by the Group in the financial statements for the year ending 31 March 2018. The Group has not yet assessed the impact of this standard.

NZ IFRIC 21 addresses the accounting for a liability to pay a levy that is not income tax. The interpretation requires a liability to pay a levy to be recognised when the obligating event occurs which is the event identified by the legislation that triggers the obligation to pay the levy. The Group will need to apply NZ IFRIC 21 from 1 April 2014 and has not yet assessed the impact of this interpretation.

No other standards, amendments or interpretations that have been issued but are not yet effective are expected to materially impact the Group’s financial statements.

Principles of consolidationThe consolidated financial statements include the Parent and its controlled entities at balance date (together referred to as the Group). Control exists when the Parent is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The balances and effects of

transactions between controlled entities and the Parent are eliminated in full. They are deconsolidated from the date that control ceases.

The acquisition method of accounting is used to account for business combinations by the Group. The consideration transferred for the acquisition of a controlled entity is the fair value of the assets transferred and the liabilities incurred. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The excess of the consideration transferred over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the consideration is less than the fair value of the net assets of the controlled entity acquired, the difference is recognised directly in profit or loss. The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss.

Joint operationsThe Group recognises in relation to its interest in joint operations: its share of any assets held jointly; its share of any liabilities incurred jointly; its share of the revenue from the sale of the output by the joint operations; and its share of any expenses incurred jointly.

Financial instruments(a) Non-derivative financial instrumentsNon-derivative financial instruments comprise cash and cash equivalents, trade and other receivables, insurance income receivable, other investments, advances to controlled entities, trade and other payables, mandatory convertible notes and secured bank loans. Non-derivative financial assets are classified as loans and receivables. Non-derivative financial liabilities are classified as other financial liabilities. These financial instruments are initially measured at fair value on transaction date, less directly attributable transaction costs, and subsequently measured at amortised cost using the effective interest rate method. Under this method, fees, costs, discounts and premiums are spread over the expected life of the instrument.

Financial assets are recognised net of impairment losses, which are recognised immediately in profit or loss. The Group assesses at each balance date whether there is objective evidence that a financial asset or a group of financial assets are impaired. Financial assets with objective evidence of impairment, such as a deterioration in the credit worthiness of the counterparty, are tested for impairment by comparing the carrying value to the recoverable amount. The recoverable amount is calculated as the present value of the estimated future cash flows, discounted at the original effective interest rate.

Financial assets are derecognised when the right to receive cash flows has expired or has been transferred. Financial liabilities are derecognised when the obligation has expired or has been transferred.

(b) Derivative financial instrumentsThe Group is exposed to changes in interest rates and uses interest rate derivatives to mitigate these risks.

Interest rate derivative instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently re-measured to fair value each balance date exclusive of accrued interest. Fair values at balance date are calculated to be the present value of the estimated future cash flows of these instruments. Transaction costs are expensed on initial recognition and recognised in profit or loss. Derivatives are carried as assets when their fair value is positive and as liabilities when their fair value is negative.

The Group does not designate any derivatives into hedging relationships. Gains or losses arising from changes in fair value of interest rate derivatives are recognised in profit or loss.

(c) Mandatory convertible notes (MCNs)MCNs that contain debt and equity components due to conversion features are accounted for as compound financial instruments. The debt component representing the present value of the future interest and principal payments discounted at the market rate of interest applicable to similar debt instruments that do not have a conversion feature is classified as a financial liability. The debt component, less transaction costs, is subsequently measured at amortised



cost. The interest expense is recognised in profit or loss using the effective interest rate method. The equity value representing the value of the option component of the instrument is classified as equity on initial recognition. The equity component is not re-measured. On conversion, the balance of the liability is converted into units in the Trust and reclassified as equity.

UnitsUnits are recognised at the fair value of the consideration received by the Trust. Costs relating to the issue of new units have been charged against units on issue.

Investment propertiesInvestment properties, principally comprising direct property investments, are held for long term capital appreciation and to earn rentals.

Investment properties are initially measured at cost, plus related costs of acquisition. Subsequent expenditure is charged to the asset’s carrying amount only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably.

Properties that are being constructed or developed for future use are classified as investment properties. All costs directly associated with the purchase and construction of a property, and all subsequent capital expenditures for the development qualifying as acquisition costs, are capitalised. Borrowing costs are capitalised if they are directly attributable to the acquisition or construction of an asset. Capitalisation of borrowing costs commences when the activities to prepare the asset are in progress and expenditures and borrowing costs are being incurred. The capitalisation of borrowing costs will cease, or will cease in relation to a completed stage, when substantially all the activities necessary to prepare it for its intended use, or necessary to prepare that part for its intended use, are completed.

After initial recognition, investment properties are measured at fair value as determined by independent registered valuers. The valuers have appropriately

recognised professional qualifications and recent experience in the location and category of property being valued. Investment properties are valued annually and may not be valued by the same valuer for more than two consecutive years. The fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions.

In the absence of current prices in an active market, alternative valuation techniques are utilised which may include discounted cash flow projections, capitalisation of income, replacement cost and a sales comparison approach, as appropriate to the property being valued. Refer to Note 14 for further details of valuation methodologies and assumptions.

Any gains or losses from changes in the fair value of investment properties are included in profit or loss in the reporting period in which they arise.

Investment properties under construction are carried at cost until it is possible to reliably determine their fair value, from which point they are carried at fair value.

Investment properties are derecognised when they have been disposed of. The net gain or loss on disposal of assets is calculated as the difference between the carrying amount of the investment property at the time of the disposal and the proceeds on disposal and is included in profit or loss in the reporting period in which the disposal occurred.

An impairment loss is recognised for investment properties when permanent loss of a property occurs. Any insurance income for investment properties that have been impaired is recognised when it becomes receivable.

Investments in controlled entitiesInvestments in controlled entities are measured at cost in the Parent financial statements.

Cash and cash equivalentsCash and cash equivalents include cash at bank and short-term money market investments which are readily converted to cash. Only items that have an original maturity of three months or less are classified as cash.

RevenueRevenue is recognised to the extent that it is probable that future economic benefits will flow to the Group and the amount can be measured reliably.

Rental incomeRental income from investment properties, including fixed rental increases, is recognised in profit or loss on a straight line basis over the term of the lease. Contingent rentals are recognised as income in the reporting period in which they are earned. Lease incentives which are offered to tenants as an inducement to enter into non-cancellable operating leases are capitalised and included within investment properties and are subsequently amortised over the term of the lease as a reduction of rental income.

Management fee incomeManagement fees are recognised in the period in which the services are performed.

Dividend incomeDividend income is recognised on the date that the right to receive payment is established.

Interest incomeInterest income is recognised using the effective interest method.

Operating expensesAll operating expenses are recognised on an accruals basis.

Employee benefitsShort-term employee benefits are expensed as the related service is provided. A liability is recognised for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

Operating leasesThe Group has entered into retail and commercial property leases on its investment properties. The Group has determined that it retains all significant risks and rewards of ownership of these properties and has therefore classified the leases as operating leases.

1. STATEMENT OF ACCOUNTING POLICIES (CONT.)

57

Operating profitThe Group presents a subtotal in the Statements of Comprehensive Income for ‘operating profit before other income/(expenses) and income tax’. Items included in this subtotal are those that relate to the principal revenue-producing activities of the Group. These include revenue generated from investment property, the related property operating costs and finance charges. Items that are not related to operating activities are presented in ‘other income/(expenses)’.

Management believe that operating profit is a useful measure for investors as it provides a snapshot of the underlying performance of the Trust’s properties before other sources of income and expenditure which are not directly related to the day-to-day operations of a property. Operating profit is also used by the Trust as the basis for determining distributable income (subject to additional adjustments). The Trust’s measure of calculating operating profit may differ from other entities’ methods and accordingly, may not be comparable to operating profit reported by other entities.

Income taxCurrent tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred tax is recognised in respect of all temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at balance date. For deferred tax liabilities or assets arising on investment property measured at fair value, it is assumed that the carrying amounts of investment property will be recovered through sale. Deferred tax liabilities are recognised for all taxable temporary differences, except for temporary differences arising on initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting or taxable profit and loss. Deferred tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against

which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilised.

The carrying amount of deferred tax assets is reviewed at each balance date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at balance date.

Goods and Services TaxThe financial statements have been prepared on a Goods and Services Tax exclusive basis, with the exception of certain receivables and payables which are inclusive of Goods and Services Tax.

2. CRITICAL JUDGEMENTS, ESTIMATES AND ASSUMPTIONS

The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable in the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these judgements, estimates and assumptions.

JudgementsThe following are the critical judgements made in applying the Group’s accounting policies and that have the most significant effect on the amounts recorded or disclosed in the financial statements:

Accounting for internalisation – judgement was involved in determining whether the internalisation of the management of the Trust was a business combination or an expense (refer to Note 9 for further details).

Consolidation of Kiwi Property Management Limited – judgement was involved in assessing the criteria in NZ IFRS 10 to determine whether the Trust has control over Kiwi Property Management Limited (refer to Note 12 for further details).

Joint operation – judgement was involved in determining whether the arrangement for the sale of 205 Queen was classified as a joint venture or a joint operation (refer to Note 13 for further details).

Estimates and assumptionsThe estimates and assumptions that are critical to the determination of the amounts reported in the financial statements relate to the following:

(a) Current and deferred income tax The critical estimates and assumptions underlying the measurement of current and deferred income tax are set out in Note 10.

(b) Fair value of investment propertiesThe valuation of investment property is dependent on a range of estimates, depending on the valuation methodology utilised. The critical estimates and assumptions underlying the measurement of investment property are set out in Note 14.

(c) Measurement of insurance income receivableThe insurance income receivable is the Directors’ best estimate of the amount recoverable under the Group’s insurance policy (refer to Note 14(d) for further details).

(d) Fair value of interest rate derivatives The valuation of these instruments is influenced by several factors, including the time of day pricing decisions are made, assessment of assumptions and the methodology adopted. A key assumption is the volatility of intra-day interest rates (refer to Note 16 for further details).



3. SEGMENT INFORMATION

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, has been identified as the Chief Executive.

The Chief Executive reviews the Group’s internal reporting in order to assess performance and allocate resources. Operating segments have been determined based on these reports.

The Group’s operating segments comprise retail (representing the Group’s investment in retail property), office (representing the Group’s investment in office property) and other (representing those items which are neither retail nor office or are considered ‘non-core’). The Group operates in New Zealand only.

The Chief Executive assesses the performance of the operating segments based on a measure of net operating income. This measurement basis consists of rental income less property operating expenditure and excludes rental income resulting from straight-lining fixed rental increases. No single customer’s transactions are greater than 10% of the Group’s revenue. The Chief Executive separately reviews the movements in investment properties and related items. No other items of revenue and expenditure are included in the result for each operating segment that is reviewed by the Chief Executive.

Segment assets consist of property debtors, less a provision for doubtful debts, investment properties and insurance income receivable. All other assets are managed on a central basis and form part of the reconciliation to total assets in the Statements of Financial Position.

The following is an analysis of the Group’s results by reportable segments:

Group

Retail 2014 $000

Office 2014 $000

Other 2014 $000

Total 2014 $000

Segment profit

Net operating income 92,764 50,654 2,654 146,072

Fair value change to investment properties (9,474) 15,483 2,530 8,539

Loss on disposal of investment properties – (3,314) – (3,314)

Insurance income 49,384 – – 49,384

Litigation settlement income 3,547 – – 3,547

Total segment profit 136,221 62,823 5,184 204,228

Segment assets

Property debtors 486 504 19 1,009

Insurance income receivable 64,320 – – 64,320

Investment properties 1,390,222 674,600 65,352 2,130,174

Total segment assets 1,455,028 675,104 65,371 2,195,503

59

Group

Retail 2013 $000

Office 2013 $000

Other 2013 $000

Total 2013 $000

Segment profit

Net operating income 87,462 44,224 2,501 134,187

Fair value change to investment properties 21,381 (3,486) 3,089 20,984

Loss on disposal of investment properties – (334) – (334)

Insurance income 16,575 – – 16,575

Total segment profit 125,418 40,404 5,590 171,412

Segment assets

Property debtors 163 207 63 433

Insurance income receivable 16,575 – – 16,575

Investment properties 1,349,904 525,000 201,557 2,076,461

Total segment assets 1,366,642 525,207 201,620 2,093,469

A reconciliation of the total segment profit to the profit before income tax reported in the Statements of Comprehensive Income is provided as follows: Group

2014 $000

Group2013 $000

Total profit for reportable segments 204,228 171,412

Property management fee income 52 –

Interest income 449 1,582

Rental income resulting from straight-lining fixed rental increases 2,682 1,283

Amortisation of capitalised lease incentives not included in segment profit (53) (19)

Interest and finance charges (56,185) (51,307)

Manager’s fees (8,058) (13,446)

Management and administration expenses (6,276) (2,910)

Amortised interest expense on mandatory convertible notes (781) (710)

Fair value change to interest rate derivatives 29,056 11,744

Termination of management arrangements (74,519) –

Profit before income tax 90,595 117,629

A reconciliation of the total segment assets to total assets reported in the Statements of Financial Position is provided as follows: Group

2014 $000

Group2013 $000

Total segment assets 2,195,503 2,093,469

Cash and cash equivalents 9,187 12,026

Trade and other receivables 8,521 10,784

Income tax receivable 1,374 –

Other investments 172 209

Deferred tax asset 12,527 9,613

Interest rate derivatives 7,931 388

Property, plant and equipment 619 –

Total assets 2,235,834 2,126,489



4. EARNINGS PER UNIT (EPU)

Group 2014

Group 2013

Basic and diluted EPU (cents) 9.83 10.79

The units and earnings adjustments arising as a result of the future conversion of the mandatory convertible notes have been included in the calculation of both the basic and diluted EPU.

$000 $000

Profit used in the calculation of basic and diluted EPU

Profit after income tax 101,300 109,813

Interest expense on mandatory convertible notes (net of tax) 8,296 8,227

109,596 118,040

Number 000

Number 000

Weighted average number of units used in the calculation of basic and diluted EPU

Weighted average units 1,006,703 989,249

Estimated number of units to be issued on conversion of mandatory convertible notes 108,030 105,079

1,114,733 1,094,328

5. RENTAL INCOME

Group 2014$000

Group 2013$000

Gross rental income

Gross lease receipts 210,251 200,019

Amortisation of capitalised lease incentives (4,744) (4,191)

Rental income resulting from straight-lining fixed rental increases 2,682 1,283

208,189 197,111

Operating lease payments expected as an operating lessor

The value of future minimum operating lease payments receivable:

Within one year 212,958 193,615

One year or later and not later than five years 607,209 566,321

Later than five years 261,025 133,006

1,081,192 892,942

61

6. INTEREST AND FINANCE CHARGES

Group 2014 $000

Group 2013 $000

Parent 2014 $000

Parent 2013 $000

Interest and finance charges on secured bank loans 50,398 52,342 – –

Interest on mandatory convertible notes 10,741 10,717 10,741 10,717

61,139 63,059 10,741 10,717

Capitalised to investment properties (refer Note 14) (4,954) (11,752) – –

56,185 51,307 10,741 10,717

7. MANAGER’S FEES

As outlined in Note 9, the Trust internalised its management on 13 December 2013. From this date, no further base fees or performance fees were payable. Instead the costs of managing the Trust have been incurred directly. The information below relates to fees paid to the former manager prior to internalisation.

Group 2014 $000

Group 2013 $000

Parent 2014 $000

Parent 2013 $000

Manager’s fees comprise:

Base fees 8,198 11,135 8,198 11,135

Performance fees – 2,970 – 2,970

8,198 14,105 8,198 14,105

Capitalised to investment properties (140) (659) – –

8,058 13,446 8,198 14,105

Prior to internalisation, performance fees were calculated at 30 September and 31 March each year, with a liability, if any, recorded in the financial statements on that date. Payment of performance fees occurred on the date distributions were paid to Unit Holders for the relevant period. The former manager reinvested performance fees by subscribing for new units in the Trust. Units were issued to the former manager as follows:

Number of Units

Price $

Value $

16 December 2005 83,141 1.257 104,524

16 June 2006 741,014 1.300 963,318

15 December 2006 788,441 1.390 1,095,933

15 June 2007 760,062 1.580 1,200,898

14 December 2007 1,069,910 1.350 1,444,379

18 December 2012 1,255,978 1.154 1,449,399

17 June 2013 1,356,387 1.121 1,520,646

6,054,933 7,779,097

The former manager sold these units for $1.06 per unit on 20 December 2013. Further information on Manager’s fees is contained in Note 23.



8. MANAGEMENT AND ADMINISTRATION EXPENSES

Group 2014 $000

Group 2013 $000

Parent 2014 $000

Parent 2013 $000

Auditors’ remuneration:

Statutory audit and review of the financial statements 248 250 248 250

Audit-related services 11 2 11 2

Benchmarking and advisory services on executive remuneration 44 – – –

Directors’ fees 136 – – –

Employee entitlements 2,600 – – –

Information technology 432 299 167 299

Investor related expenses 606 834 409 834

Professional fees 976 962 357 578

Trustee’s fees 523 475 531 505

Intergroup expenses – – 1,291 –

Other 700 88 195 55

6,276 2,910 3,209 2,523

9. INTERNALISATION OF MANAGEMENT

On 12 December 2013, the Trust’s Unit Holders approved the internalisation of the management of the Trust. As a result, effective from 13 December 2013, the Trust terminated the fund and property management arrangements that were undertaken by KIP NZ Limited (‘KIP NZ’, formerly Kiwi Income Properties Limited) and KPM NZ Limited (‘KPM NZ’, formerly Kiwi Property Management Limited) respectively. The management of the Trust was transferred to a newly incorporated entity, Kiwi Property Management Limited (‘KPML’, formerly Kiwi Property Management (NZ) Limited), which is now consolidated as part of the Group (refer to Note 12).

The Trust paid an aggregate cash amount of $72.5 million to KIP NZ and KPM NZ for the termination of the fund and property management arrangements. In addition, KPML acquired certain assets and liabilities of KIP NZ and KPM NZ (comprising a net liability of $2.0 million, for which a payment of $2.0 million was received from KPM NZ). Accordingly, the net consideration for the termination of the management arrangements and the purchase of certain assets and liabilities was $70.5 million. The previous employees of KPM NZ are now directly employed by KPML.

Judgement was involved in determining whether these transactions met the definition of a business combination in accordance with NZ IFRS 3 Business Combinations. It has been determined that this transaction was a business combination. A business consists of inputs and processes applied to those inputs that have the ability to create outputs. In making this assessment, the key consideration was whether processes were being acquired. The inputs included the fixed assets and the employees of KIP NZ and KPM NZ. The conclusion is that processes were being acquired in the form of the knowledge, skills and experience of the workforce in carrying out the fund and property management processes.

63

The cancellation of the management arrangements terminates the pre-existing relationships between the Trust, KIP NZ and KPM NZ. All $72.5 million of the consideration transferred has been attributed to the extinguishment of the pre-existing relationships and has been included in profit or loss. These arrangements did not contain any substantive settlement provisions that were reasonably available to the Trust. It was also determined that there were no favourable or unfavourable terms in the arrangements when compared with terms for current market transactions for similar arrangements based on the independent appraisal report commissioned in connection with the proposal to internalise the management of the Trust. The report concluded that the fair market value of the management rights was assessed to be in the range of $71 million to $89 million. The termination payment of $72.5 million was at the lower end of the report’s fair market valuation range. Accordingly, no settlement gain or loss arose from the settlement of the pre-existing relationships. Costs of $2.0 million relating to the internalisation are also recognised in profit or loss for the year.

Assets acquired and liabilities assumed

The assets acquired and liabilities assumed at the date of the acquisition were as follows:2014 $000

Assets

Property, plant & equipment 656

Liabilities

Employee entitlements 2,699

Total net liabilities acquired (2,043)

No goodwill arose as a result of this transaction.

Disclosures about KPML’s profit or loss since acquisition and from the beginning of the period would not provide useful information as the revenues generated by KPML are eliminated to nil on Group consolidation.



10. INCOME TAX

Group 2014 $000

Group 2013 $000

Parent 2014 $000

Parent 2013 $000

(a) Income tax benefit/(expense)

The income tax benefit/(expense) is represented by:

Current tax

Current tax benefit/(expense) 252 (10,215) 13,462 1,425

Total current tax benefit/(expense) 252 (10,215) 13,462 1,425

Deferred tax

Recognition of tax losses 11,049 – 11,049 –

Relating to the origination and reversal of temporary differences (596) 2,399 (74) 54

Total deferred tax benefit 10,453 2,399 10,975 54

Total tax benefit/(expense) recognised in profit/(loss) 10,705 (7,816) 24,437 1,479

65

A reconciliation of accounting profit before income tax to income tax benefit/(expense) follows:

Group 2014 $000

Group 2013 $000

Parent 2014 $000

Parent 2013 $000

Profit/(loss) before income tax 90,595 117,629 (12,192) 55,752

Prima facie income tax benefit/(expense) at 28% (25,367) (32,936) 3,414 (15,611)

Adjusted for:

Non-assessable dividends from controlled entities – – 21,023 17,118

Amortised interest expense on mandatory convertible notes (219) (199) (219) (199)

Fair value change to interest rate derivatives 8,135 3,289 – –

Fair value change to investment properties 2,391 5,876 – –

Loss on disposal of investment properties (928) (94) – –

Insurance income 13,828 4,641 – –


Depreciation 5,854 6,015 – –

Depreciation recovered on disposal of investment properties – (3,356) – –

Deferred leasing costs 2,647 2,010 – –

Deductible capitalised expenditure 1,956 3,717 – –

Prior year adjustment 549 659 (53) (28)

Other 1,099 163 346 145

Current year losses carried forward (11,049) – (11,049) –

Current tax benefit/(expense) 252 (10,215) 13,462 1,425

Current year losses carried forward 11,049 – 11,049 –

Depreciation recoverable (3,629) 7,556 – –

Reduction in depreciation recoverable on fixtures and fittings 14,356 – – –

Fair value change to interest rate derivatives (8,135) (3,289) – –

Deferred leasing costs and other temporary differences (3,188) (1,868) (74) 54

Deferred tax benefit 10,453 2,399 10,975 54

Income tax benefit/(expense) reported in profit/(loss) 10,705 (7,816) 24,437 1,479



(b) Deferred tax

Group – 2014 Group – 2013

Balance 1 April 2013

$000

Recognised in profit/(loss)

$000

Balance 31 March 2014

$000


$000


$000


$000

Assets

Losses carried forward – 11,049 11,049 – – –

Interest rate derivatives 9,613 (8,135) 1,478 12,902 (3,289) 9,613

9,613 2,914 12,527 12,902 (3,289) 9,613

Liabilities

Depreciation recoverable (92,812) 10,727 (82,085) (100,368) 7,556 (92,812)

Deferred leasing costs and other temporary differences (8,273) (3,188) (11,461) (6,405) (1,868) (8,273)

(101,085) 7,539 (93,546) (106,773) 5,688 (101,085)

(91,472) 10,453 (81,019) (93,871) 2,399 (91,472)

Parent – 2014 Parent – 2013


$000


$000


$000


$000


$000


$000

Assets

Losses carried forward – 11,049 11,049 – – –

Other temporary differences 149 (149) – 152 (3) 149

149 10,900 11,049 152 (3) 149

Liabilities

Mandatory convertible notes (145) 75 (70) (202) 57 (145)

(145) 75 (70) (202) 57 (145)

4 10,975 10,979 (50) 54 4

Gross taxable losses carried forward of $39.5 million (2013: $Nil) have been recognised in the Group and Parent’s balance of deferred tax as the tax losses arise as a result of the one-off internalisation payments, and it has been determined that these losses are likely to be offset by the taxable profit of the Group and Parent in the foreseeable future.

Group 2014 $000

Group 2013 $000

Parent 2014 $000

Parent 2013 $000

Deferred tax assets

Deferred tax asset to be recovered within 12 months 11,224 1,765 11,049 149

Deferred tax asset to be recovered after 12 months 1,303 7,848 – –

12,527 9,613 11,049 149

Deferred tax liabilities

Deferred tax liability to be recovered within 12 months (712) (1,080) (70) (76)

Deferred tax liability to be recovered after 12 months (92,834) (100,005) – (69)

(93,546) (101,085) (70) (145)

10. INCOME TAX (CONT.)

67

(c) Key assumptions and other information used in calculating income tax

The key assumptions and other information used in the preparation of the Group’s tax calculation are as follows:

(i) Deductibility of internalisation payment

Following the internalisation of the Manager in December 2013, the Group received a binding tax ruling from Inland Revenue on 21 March 2014 which confirmed that the payments for the termination of the management arrangements are deductible for tax purposes.

(ii) Deferred tax on depreciation

Deferred tax is provided in respect of depreciation expected to be recovered on the sale of investment properties at fair value. Investment properties are valued each year by independent valuers (as outlined in Note 1). These values include an allocation of the valuation between the land and building components. The calculation of deferred tax on depreciation recovered places reliance on this split provided by the valuers.

The Group has reviewed its deferred tax liability in respect of the depreciation expected to be recovered on fixtures and fittings on the sale of investment properties at fair value. The change in estimation method has been made to reflect better the market values attributable to fixtures and fittings. The market values of fixtures and fittings for significant properties have been assessed utilising independent valuation advice and the remaining properties have been assessed with reference to previous transactional evidence and their age and quality. The effect of the change in estimation method as at 31 March 2014 has been to reduce the deferred tax liability in the Statements of Financial Position by $14.4 million with a corresponding entry to deferred tax expense in the Statements of Comprehensive Income.

(iii) Depreciation recovered on the PricewaterhouseCoopers Centre (PwC Centre)

The impairment of the PwC Centre in the year ended 31 March 2012 triggered a potential tax liability of $5.1 million for depreciation recovered. The Government introduced new legislation which provides, in certain circumstances, rollover relief for taxpayers affected by the Canterbury earthquakes where insurance income will be used to acquire or develop replacement property in the Canterbury region. As at 31 March 2014, the Trust qualifies for this relief and as such no tax is payable in respect of the depreciation recovered in the current year. However, a deferred tax liability continues to be provided as at 31 March 2014.

(d) Imputation credits

The amount of imputation credits that are available for subsequent reporting periods is $Nil (2013: $5.3 million). This represents the balance of the imputation credit account at the end of the reporting period, adjusted for the reduction in imputation credits resulting from the income tax receivable as at 31 March 2014.



11. TRADE AND OTHER RECEIVABLES

Group 2014 $000

Group 2013 $000

Parent 2014 $000

Parent 2013 $000

Trade debtors:

Current 2,030 3,517 109 118

Past due:

Up to 3 months 1,087 613 – –

3–5 months 167 335 – –

Over 5 months 225 392 – –

Impaired 583 1,082 – –

Provision for doubtful debts (507) (941) – –

Term deposit interest receivable – 45 – 45

Prepayments 5,945 6,174 122 90

Goods and Services Tax – – 84 28

9,530 11,217 315 281

Analysis of trade debtors

Trade debtors are reviewed for objective impairment on an on-going basis. A trade debtor is considered past due when the counterparty has failed to make payment when contractually due. A trade debtor is considered impaired when the Group may not be able to collect all amounts due according to the original terms of the receivables. The Group provides for doubtful debts when the debt is considered to be impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows. Debtors are written off when recovery is no longer anticipated. There are no significant past due trade debtors at balance date which have been outstanding for more than a year (2013: $Nil).

Group 2014 $000

Group 2013 $000

Reconciliation of provision for doubtful debts

Balance at the beginning of the year 941 667

Provision for receivables impairment 434 815

Receivables written off during the year as uncollectible (306) (247)

Unused amounts reversed (562) (294)

Balance at the end of the year 507 941

69

12. INVESTMENTS IN CONTROLLED ENTITIES

Parent 2014 $000

Parent 2013 $000

Advances to controlled entities – current 837,227 877,338

Shares – non-current 181,901 181,901

1,019,128 1,059,239

Significant controlled entities

The Parent has control over the following entities:Ownership

2014Ownership

2013

Kiwi Property Holdings Limited 100% 100%

Sylvia Park Business Centre Limited 100% 100%

Kiwi Property Management Limited 0% –

Sylvia Park Business Centre Limited owns Sylvia Park Shopping Centre and an adjoining property at 77 Carbine Road. All other investment properties are owned by Kiwi Property Holdings Limited.

On 12 December 2013, the Trust’s Unit Holders approved the internalisation of the management of the Trust. The internalisation was implemented on 13 December 2013 by terminating the management arrangements of the previous manager, a wholly owned subsidiary of Commonwealth Bank of Australia, and approving the appointment of a new Manager, Kiwi Property Management Limited (‘KPML’), the sole share of which is held by Corporate Trust Limited on trust for a charity nominated by the board of KPML. KPML provides management services exclusively to the Trust and is entitled to be reimbursed and indemnified by the Trust for all of its costs. Although the Group does not directly hold any ownership interest in KPML, it has been determined that the Group controls this entity. Based on the terms of the Trust Deed under which KPML was established, the Trust is exposed to variable returns from its involvement with KPML and has the ability to affect those returns through its power over KPML.

KPML has operated on a break-even basis during the period from 13 December 2013 to 31 March 2014 and has minimal net assets and accordingly, no amounts have been attributed to non-controlling interests on the Statements of Comprehensive Income and the Statements of Financial Position as at and for the year ended 31 March 2014.

13. JOINT ARRANGEMENTS

On 31 January 2014, the Trust settled the sale of a 50% interest in 205 Queen, Auckland for $47.5 million. The Trust has determined that its retained interest of 50% in the property constitutes a joint arrangement. This is because relevant decisions about the property require the unanimous consent of both parties. This joint arrangement has been classified as a joint operation under NZ IFRS 11 Joint Arrangements. This is on the basis that the arrangement is not structured through a separate entity, and the parties have direct rights to the assets and obligations for the liabilities relating to their share of the property in the normal course of business. 50% of the income, expenses, assets and liabilities of the joint operation have been recognised in the Group’s financial statements.



14. INVESTMENT PROPERTIES

Group – 2014

Valuer(a) Ownership interest

%

Fair value 31 March

2013(b)(c)

$000

Capital movements

2014(c)

$000

Fair value changes

2014(c)

$000

Fair value 31 March 2014(b)(c)(h)

$000

Retail

Sylvia Park Shopping Centre Colliers 100 540,000 2,490 21,510 564,000

LynnMall Shopping Centre JLL 100 204,000 1,815 185 206,000

Northlands Shopping Centre(d) JLL 100 205,504 12,494 (12,676) 205,322

The Plaza Shopping Centre Colliers 100 196,000 (28) 28 196,000

Centre Place Shopping Centre Colliers 100 104,900 32,063 (14,463) 122,500

North City Shopping Centre CBRE 100 99,500 958 (4,058) 96,400

1,349,904 49,792 (9,474) 1,390,222

Office

Vero Centre JLL 100 273,000 847 25,153 299,000

ASB North Wharf CBRE 100 – 153,490 8,710 162,200

The Majestic Centre(e) CBRE 100 61,300 19,932 (4,632) 76,600

205 Queen(f) JLL 50 96,600 (44,047) 3,747 56,300

Unisys House(g) Colliers 100 67,000 3,774 (17,374) 53,400

44 The Terrace Colliers 100 27,100 121 (121) 27,100

525,000 134,117 15,483 674,600

Other

ASB North Wharf under construction CBRE 100 140,101 (140,101) – –

Adjoining properties Various 100 42,456 791 2,605 45,852

Development land Colliers 100 19,000 575 (75) 19,500

201,557 (138,735) 2,530 65,352

2,076,461 45,174 8,539 2,130,174

The accompanying notes (a) to (h) on pages 72 to 76 should be read in conjunction with this table.

71

Group – 2013

Valuer(a) Ownership interest

%

Fair value 31 March 2012(b)(c)

$000

Capital movements

2013(c)

$000

Fair value changes 2013(c)

$000

Fair value 31 March 2013(b)(c)(h)

$000

Retail

Sylvia Park Shopping Centre CBRE 100 500,000 3,142 36,858 540,000

Northlands Shopping Centre(d) JLL 100 214,226 5,903 (14,625) 205,504

LynnMall Shopping Centre JLL 100 184,500 7,437 12,063 204,000

The Plaza Shopping Centre Colliers 100 195,500 116 384 196,000

Centre Place Shopping Centre JLL 100 98,800 13,548 (7,448) 104,900

North City Shopping Centre CBRE 100 105,000 351 (5,851) 99,500

1,298,026 30,497 21,381 1,349,904

Office

Vero Centre Colliers 100 260,000 4,828 8,172 273,000

205 Queen CBRE 100 95,000 1,470 130 96,600

Unisys House Colliers 100 65,000 234 1,766 67,000

The Majestic Centre(e) CBRE 100 67,000 8,844 (14,544) 61,300

44 The Terrace Colliers 100 26,000 110 990 27,100

Beca House 100 54,000 (54,000) – –

567,000 (38,514) (3,486) 525,000

Other

ASB North Wharf under construction Colliers 100 78,700 57,908 3,493 140,101

Adjoining properties Various 100 41,976 263 217 42,456

Development land CBRE 100 23,225 (3,604) (621) 19,000

143,901 54,567 3,089 201,557

2,008,927 46,550 20,984 2,076,461

The accompanying notes (a) to (h) on pages 72 to 76 should be read in conjunction with this table.



The following notes relate to and should be read in conjunction with the tables provided on pages 70 and 71.

(a) Independent valuers

Valuer Abbreviation

CBRE Limited CBRE

Colliers International New Zealand Limited Colliers

Jones Lang LaSalle Limited JLL

(b) Effective date of valuations

All valuations are effective 31 March.

(c) Movement in investment properties

Group 2014 $000

Group 2013 $000

Balance at the beginning of the year 2,076,461 2,008,927

Capital movements:

Property disposals (50,207) (59,528)

Capitalised costs (including fees and incentives) 97,401 100,699

Capitalised interest and finance charges* 4,954 11,752

Capitalised manager’s fees and trustee’s fees 148 689

Amortisation of lease incentives, fees and fixed rental income (7,122) (7,062)

45,174 46,550

Fair value change to investment properties 8,539 20,984

Balance at the end of the year 2,130,174 2,076,461

*The effective interest rate applied to capitalise interest is 7.58% (2013: 8.28%).

(d) Northlands Shopping Centre, Christchurch

At 31 March 2014, Northlands Shopping Centre was independently valued by Jones Lang LaSalle (JLL) for financial reporting purposes. In preparing this valuation, JLL made an allowance for the cost of outstanding earthquake damage remedial works arising as a consequence of the 2010 and 2011 Canterbury earthquakes. JLL’s valuation of the Centre on an ‘as is’ basis is $205.3 million (2013: $205.5 million).

The Group holds material damage insurance, which provides it with cover for the cost of repairing the earthquake damage to the Centre to an ‘as new’ condition. The Group has received expert engineering and cost consultant advice as to the nature, scope and cost of the remedial works. It has also received legal and broking advice as to its entitlement under its material damage insurance. It has submitted a number of insurance claims, which as at 31 March 2014 total $89.9 million, net of payments received. The insurers have disputed parts of these claims.

In October 2013, the Group received a cash offer of $27.3 million (including payments made to date) from its insurers to settle all insurance claims relating to the Centre. The Group rejected this offer as it is significantly less than its entitlement under the policy and the quantum it has claimed. In an attempt to negotiate a settlement of the disputed elements of its claims, the Group and its insurers have commenced a formal mediation process with the intention of securing a settlement towards the middle of this year.

For financial reporting purposes, the Group has separately recognised an estimate of the amount it will receive under its insurance policy in respect of the claims made for the Northlands Shopping Centre. In the circumstances, the Group has made what it considers to be a reasonable estimate of the amount that will be recovered from the insurers in light of the difference in the two parties’ opinions. This estimate is $64.3 million (2013: $16.6 million). Accordingly, the financial statements record as a current asset, a net insurance receivable in respect of earthquake damage remedial works at the Centre of $64.3 million. Following the completion of the expert engineering and cost consultant advice, $49.4 million has been recognised in the current year as insurance income in the Statements of Comprehensive Income. The actual receivable may be higher or lower than the estimate made by the Group and recorded in its financial statements.

14. INVESTMENT PROPERTIES (CONT.)

73

(e) The Majestic Centre, Wellington

The Group is currently undertaking works to seismically strengthen the building, at an estimated cost of $53.6 million, so as to secure a ‘low risk’ classification (as defined by the New Zealand Society for Earthquake Engineering).

CBRE assessed the fair value of The Majestic Centre at 31 March 2014 at $76.6 million (2013: $61.3 million) after taking into consideration the $25.6 million (2013: $42.4 million) present value of the remaining estimated costs to complete the seismic strengthening works.

(f) 205 Queen, Auckland

On 31 January 2014, the Group settled the sale of a 50% interest in 205 Queen, Auckland for $47.5 million. As part of the agreement, the purchaser has a right to acquire the remaining 50% interest in the property at fair value (as determined by an independent valuation) at either March or September of each succeeding year, with an absolute obligation to purchase by no later than 31 March 2017. Accordingly as at 31 March 2014 this property is held for sale. Subsequent to balance date, the purchaser exercised its right to purchase the remaining 50% interest, refer to Note 26 for further details.

(g) Unisys House, Wellington

In November 2013, the Group entered into a Development Agreement with the New Zealand Government resulting in a new 18-year lease commitment as part of a comprehensive $67 million refurbishment, extension and earthquake strengthening of the 45-year-old office complex. Construction is programmed to commence in October 2014 and is scheduled to complete in July 2016.

Colliers has assessed the fair value of Unisys House at 31 March 2014 at $53.4 million. The valuation takes into account the new, long-term Government lease in conjunction with the extensive refurbishment. The valuation represents the present value of the building’s ‘on completion’ value, based on a capitalisation rate of 7.25%, plus the present value of income received less redevelopment costs expended from the valuation date until project completion.



(h) Fair value measurement, valuation techniques and inputs

The valuation techniques used in measuring the fair value of investment property, as well as the significant unobservable inputs used are as follows:

Group – 2014

Class of property

Fair value hierarchy

Fair value 31 March

2014 $000

Valuation techniques used Inputs used to measure fair value Range of significant unobservable inputs

Retail Level 3 1,390,222 Income capitalisation approach and discounted cash flow analysis

Gross market rent [per sqm] $155 – $7,968

Core capitalisation rate 6.5% – 8.3%

Other income capitalisation rate 7.1% – 9.0%

Discount rate 9.3% – 10.5%

Terminal capitalisation rate 6.8% – 8.8%

Rental growth rate [per annum] -0.7% – 3.5%

Expenses growth rate [per annum] -5.0% – 3.5%

Office Level 3 674,600 Income capitalisation approach and discounted cash flow analysis

Gross market rent [per sqm] $150 – $2,609


Other income capitalisation rate 6.9% – 9.5%



Rental growth rate [per annum] 0.0% – 4.5%

Expenses growth rate [per annum] 0.0% – 2.8%

Other Level 3 65,352 Income capitalisation approach, discounted cash flow analysis, sales comparison approach and residual approach

Gross market rent [per sqm] $10 – $800




Rental growth rate [per annum] 0.0% – 3.0%

Expenses growth rate [per annum] 0.0% – 4.0%

Total 2,130,174

During the year there were no transfers of investment properties between levels of the fair value hierarchy.

The adopted valuation of an investment property in the retail or office portfolio has been assessed within a range indicated by at least two valuation approaches; most commonly an income capitalisation approach and discounted cash flow analysis. The adopted valuation of a property in the other property portfolio, comprising adjoining properties and development land, has been assessed within a range indicated by at least two valuation approaches including an income capitalisation approach, discounted cash flow analysis, a sales comparison approach and a residual approach. Both the income capitalisation approach and discounted cash flow analysis contain unobservable inputs in determining fair value. These are summarised within the table above. The valuations of independent registered valuers are reviewed by the Group and adopted as the carrying value in the financial statements subject to any specific adjustments required. The Group’s management verifies all major inputs to the valuations, assesses valuation movements when compared to the previous year and holds discussions with the independent valuers as part of this process.


75

Valuation methodologies

Income capitalisation approach A valuation methodology which determines fair value by capitalising a property’s sustainable net income at an appropriate, market derived capitalisation rate with subsequent capital adjustments for near-term events, typically including letting-up allowances for vacancies and pending expiries, expected short-term capital expenditure and the present value of any difference between contract and market rentals.

Discounted cash flow analysis A valuation methodology which requires the application of financial modelling techniques. Discounted cash flow analysis requires explicit assumptions to be made regarding the prospective income and expenses of a property, such assumptions pertaining to the quantity, quality, variability, timing, and duration of inflows and outflows over an assumed holding period, typically ten years. The assessed cash flows are discounted to present value at an appropriate, market-derived discount rate to determine fair value.

Sales comparison approach A valuation methodology whereby the subject property is compared to recently sold properties of a similar nature with fair value determined through the application of positive and negative adjustments for their differing attributes.

Residual approach A valuation methodology used primarily for property which is undergoing, or is expected to undergo, redevelopment. Fair value is determined through the estimation of a gross realisation on completion of the redevelopment with deductions made for all costs associated with converting the property to its end use including finance or holding costs and a typical profit margin for risks assumed by the developer.

Unobservable inputs within the income capitalisation approach

Gross market rent The annual amount for which a tenancy within a property is expected to achieve under a new arm’s length leasing transaction, including a fair share of property operating expenses.

Core capitalisation rate The rate of return, determined through analysis of comparable, market-related sales transactions, which is applied to a property’s sustainable net income to derive value.

Other income capitalisation rate The rate of return which is applied to other, typically short-term or uncontracted, sources of property income to derive value and which is assessed with consideration to the risks in achieving each income source.

Unobservable inputs within the discounted cash flow analysis

Discount rate The rate, determined through analysis of comparable market-related sales transactions, which is applied to a property’s future net cash flows to convert those cash flows into a present value.

Terminal capitalisation rate The rate which is applied to a property’s sustainable net income at the end of an assumed holding period to derive an estimated future market value.

Rental growth rate The annual growth rate applied to market rents over an assumed holding period.

Expenses growth rate The annual growth rate applied to property operating expenses over an assumed holding period.



(h) Fair value measurement, valuation techniques and inputs (continued)

The following table shows the impact on the fair value of a change in a significant unobservable input:

Significant inputs Fair value measurement sensitivity to increase in input

Fair value measurement sensitivity to decrease in input

Gross market rent [per sqm] Increase Decrease

Core capitalisation rate Decrease Increase

Other income capitalisation rate Decrease Increase

Discount rate Decrease Increase

Terminal capitalisation rate Decrease Increase

Rental growth rate [per annum] Increase Decrease

Expenses growth rate [per annum] Decrease Increase

15. TRADE AND OTHER PAYABLES

Group 2014 $000

Group 2013 $000

Parent 2014 $000

Parent 2013 $000

Trade creditors 15,475 21,641 2,887 3,394

ASB North Wharf under construction land liability – 17,439 – –

Manager’s fees payable – 4,332 – 4,332

Interest and finance charges payable 3,681 4,696 – –

Development costs payable 10,179 7,483 – –

Employment liabilities 3,208 – – –

Rent in advance 212 195 – –

Goods and Services Tax 1,551 946 – –

34,306 56,732 2,887 7,726

16. INTEREST RATE DERIVATIVES

Group 2014 $000

Group 2013 $000

Interest rate derivative assets – non-current 7,931 388

Interest rate derivative liabilities – current (626) (6,303)

Interest rate derivative liabilities – non-current (12,582) (28,418)

Net interest rate derivatives (5,277) (34,333)


77

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 fair value of interest rate derivatives is based on the present value of the estimated future cash flows of these instruments. The fair value of interest rate derivatives not traded in an active market is determined by using valuation techniques. The valuation of these instruments is influenced by several factors, including the time of day pricing decisions are made, assessment of assumptions and the methodology adopted. Models use observable data to the extent practicable. However, areas such as volatility assumptions require management to make estimates. For example, the volatility of intra-day interest rates can result in a range of reasonably possible valuations, which require certain critical judgements to be made by management in determining their fair value. These values are verified against valuations prepared by the respective counterparties. The fair value change to the net interest rate derivatives during the year was a gain of $29.1 million (2013: $11.7 million).

At 31 March 2014, the Group had active interest rate derivatives with a notional contract amount of $585.0 million (2013: $545.0 million). The active derivatives mature over the next 4.67 years (2013: 4.04 years) and have fixed interest rates ranging from 2.91% to 7.04% (2013: 3.60% to 7.17%).

17. SECURED BANK LOANS

Details

Secured bank loans are provided by ANZ Bank New Zealand, Bank of New Zealand, Commonwealth Bank of Australia and Westpac New Zealand. At balance date the following facilities were available and drawn down:

Group 2014 $000

Group 2013 $000

Facility drawn down 786,500 681,000

Undrawn facility available 88,500 169,000

Total facility available 875,000 850,000

Weighted average interest rate for drawn debt (inclusive of active interest rate derivatives, margins and line fees) 6.01% 7.05%

Weighted average term to maturity for the combined facilities 3.4 years 3.8 years

Security

The bank loans are secured by a Global Security Deed dated 5 November 1998 and a Supplemental Deed dated 22 March 2004 (the Deeds). Pursuant to the Deeds, a security interest has been granted over all of the assets of the Trust and all the assets of its charging controlled entities (the Charging Group). As at 31 March 2014 the value of investment properties subject to that security interest was $2.13 billion (2013: $2.08 billion). The Charging Group comprises New Zealand Permanent Trustees Limited as trustee of Kiwi Income Property Trust and the Trust’s controlled entities Kiwi Property Holdings Limited and Sylvia Park Business Centre Limited. Under the terms of the Deeds, a security agent (acting on behalf of the banks) may require a Charging Group member to grant a mortgage over its real property if an event of default (as defined in the bank facility agreements) occurs. The Deeds also provide for a release of assets disposed of by the Charging Group provided that the disposal is in accordance with the bank facilities and that no event of default has occurred or would result from that disposal. The bank facilities permit the Charging Group to dispose of its assets, subject to certain conditions being satisfied. In addition, the Charging Group has given a negative pledge that (with certain exceptions) it will not create or allow any security interest to exist over its secured assets. Certain negative and positive undertakings have also been given as to the nature and conduct of its business.

Changes to bank debt facilities

On 3 May 2013, the maturity dates of $300 million of bank debt facilities with Commonwealth Bank of Australia were extended. The three facilities of $100 million each that were due to expire in April 2016, May 2017 and May 2018 were each extended for a further 12 months.

On 1 September 2013, the maturity dates of $165 million of bank debt facilities with Westpac New Zealand were extended. $65 million that was due to expire in April 2015 was extended to April 2016 and $100 million that was due to expire in April 2017 was extended to April 2018.



Changes to bank debt facilities (cont.)

On 11 December 2013, $25 million of new bank debt facilities were entered into, increasing the Group’s total facilities to $875 million. The facilities were provided by Westpac New Zealand and ANZ Bank New Zealand ($12.5 million each) and had maturity dates of April 2015 and August 2016 respectively.

At a special meeting of Unit Holders held on 12 December 2013, Unit Holders approved a resolution to increase the amount the Trust may borrow from 40% to 45% of the gross value of the Trust Fund.

18. MANDATORY CONVERTIBLE NOTES

120,000,000 mandatory convertible notes (MCNs) were issued in December 2009 at $1.00 each. The MCNs have a coupon rate of 8.95% per annum payable quarterly on 20 March, 20 June, 20 September and 20 December (or the next business day). On 20 December 2014 the MCNs convert into units in the Trust using a conversion price calculated on the lower of a 2% discount to the average of the daily volume weighted average unit price for the 20 business days prior to the conversion announcement date, or $1.20 per unit. The MCNs contain a debt and equity component due to the conversion feature, however, the equity component representing the value of the option component has been assessed and deemed to be insignificant and has therefore not been separately recognised as equity.

The MCNs are presented in the Statements of Financial Position as follows:Group

& Parent 2014 $000

Group & Parent

2013 $000

Liability component of the MCNs – current 119,730 –

Liability component of the MCNs – non-current – 118,947

Movement in liability component of the MCNs

Balance at the beginning of the year 118,947 118,245

Amortised interest costs 781 710

Movement in coupon interest accrual 2 (8)

Balance at the end of the year 119,730 118,947

Effective interest rate 9.58% 9.58%

Weighted average term to conversion 0.72 years 1.72 years

19. UNITS

Group & Parent Group & Parent

Date

2014 Number

000

2014 Amount

$000

2013 Number

000

2013 Amount

$000

Balance at the beginning of the year 996,463 914,227 981,294 897,689

Issue of units:

Distribution reinvestment at $1.0354 19-Jun-12 – – 7,368 7,629

Distribution reinvestment at $1.1398 18-Dec-12 – – 6,545 7,460

Performance fee reinvestment at $1.1540 18-Dec-12 – – 1,256 1,449

Distribution reinvestment at $1.1281 17-Jun-13 8,335 9,401 – –

Performance fee reinvestment at $1.1211 17-Jun-13 1,356 1,521 – –

Distribution reinvestment at $1.0817 10-Dec-13 8,616 9,320 – –

Balance at the end of the year 1,014,770 934,469 996,463 914,227

All units carry equal weight in respect of voting rights, distribution rights and rights on winding up of the Trust and have no par value.

17. SECURED BANK LOANS (CONT.)

79

20. CAPITAL MANAGEMENT

The Group’s capital includes units and retained earnings. Total capital is $1,188.5 million (2013: $1,132.1 million). The Group maintains a strong capital base to ensure investor, creditor and market confidence and to sustain the Group’s on-going activities. The impact of the level of capital on Unit Holder returns and the need to maintain a balance between the higher returns that might be possible with greater gearing and the advantages and security afforded by a sound capital position is recognised by the Group. The Group is subject to the following imposed capital requirements: the Trust Deed requires that the Group’s borrowings be maintained at no more than 45% (2013: 40%) of the gross value of the Trust Fund; the Group’s bilateral facility agreements with each of the banks listed in Note 17 require that total finance debt be maintained at no more than 45% of the gross value of the Trust Fund. Both of these capital requirements have been complied with throughout the year.

21. DISTRIBUTIONS TO UNIT HOLDERS

Distributions paid during the year comprised: Group & Parent – 2014 Group & Parent – 2013

Date declared cpu $000 cpu $000

Final distribution 10-May-13 (2013: 15-May-12)

Cash 3.30 32,883 3.50 34,345

Imputation credits 0.53 5,281 0.70 6,869

3.83 38,164 4.20 41,214

Interim distribution 8-Nov-13 (2013: 13-Nov-12)

Cash 3.20 32,197 3.30 32,626

Imputation credits 0.00 – 0.49 4,844

3.20 32,197 3.79 37,470

Total distribution

Cash 6.50 65,080 6.80 66,971

Imputation credits 0.53 5,281 1.19 11,713

7.03 70,361 7.99 78,684



22. FINANCIAL INSTRUMENTS

Summary of financial instruments

The following material financial assets and liabilities, that potentially subject the Group to financial risk, have been recognised in the financial statements:

Group 2014 $000

Group 2013 $000

Parent 2014 $000

Parent 2013 $000

Non-derivative financial assets

At amortised cost:

Cash and cash equivalents 9,187 12,026 4,854 10,186

Trade and other receivables 3,585 5,043 109 163

Insurance income receivable 64,320 16,575 – –

Other investments 172 209 75 75

Advances to controlled entities – – 837,227 877,338

Total non-derivative financial assets at amortised cost 77,264 33,853 842,265 887,762

Non-derivative financial liabilities

At amortised cost:

Trade and other payables (32,543) (55,591) (2,887) (7,726)

Secured bank loans (786,500) (681,000) – –

Mandatory convertible notes (119,730) (118,947) (119,730) (118,947)

Total non-derivative financial liabilities at amortised cost (938,773) (855,538) (122,617) (126,673)

Net carrying amount of non-derivative financial instruments (861,509) (821,685) 719,648 761,089

Derivative financial instruments held for risk management

At fair value through profit or loss (held for trading):

Interest rate derivative assets 7,931 388 – –

Interest rate derivative liabilities (13,208) (34,721) – –

Total derivative financial instruments at fair value through profit or loss (5,277) (34,333) – –

Net carrying amount of financial instruments (866,786) (856,018) 719,648 761,089

Fair values

The fair value of financial instruments traded in active markets (such as the mandatory convertible notes) is based on listed market prices at balance date. The fair value of financial instruments that are not traded in an active market (for example derivative financial instruments) is determined using valuation techniques such as discounted cash flows. The carrying value less impairment provision of other financial assets and liabilities are assumed to approximate their fair values.

The only financial instruments measured at fair value in the Statements of Financial Position are interest rate derivatives. Under the fair value hierarchy, the fair value estimation of interest rate derivatives is classified as Level 2 under NZ IFRS 13 Fair Value Measurement, meaning that they are estimated using present value or other valuation techniques based on market rates at 31 March 2014 of between 3.12% for the 90-day BKBM and 5.03% for the 10-year swap rate (2013: 2.64% and 3.96%, respectively) and incorporating adjustments for credit risk.

The fair value of all other financial instruments, excluding the mandatory convertible notes, is equivalent to their carrying value. The fair value of the mandatory convertible notes is $123.6 million (2013: $128.4 million) based on their listed market price and is classified as Level 1 under NZ IFRS 13.

During the year there were no transfers of financial instruments between levels of the fair value hierarchy.

81

General financial risk management principles

The Board of Directors of the Manager provides principles for overall risk management, as well as policies covering specific areas, such as interest rate risk, credit risk, use of derivative financial instruments and investing excess liquidity.

Key principles include:

ensuring that cash flows from rentals are efficiently used as they become available. This may be by way of capital expenditure for refurbishment or upgrade programmes, repayment of debt or by ensuring that cash balances are earning competitive interest returns

actively managing the Group’s debt through a disciplined strategy that ensures an on-going spread of maturities, maximises the term of renewal, and achieves an appropriate mix of fixed rate and short-term floating rate debt to meet the Group’s cash flow requirements, and

maintaining a strong financial position with prudent borrowing levels. The Trust Deed requires that borrowings be maintained at no more than 45% (2013: 40%) of the gross value of the Trust Fund. The Group’s bilateral facility agreements with each of the banks listed in Note 17 require that total finance debt be maintained at no more than 45% of the gross value of the Trust Fund.

Credit risk

In the normal course of business, the Group incurs credit risk from trade debtors and transactions with financial institutions. The risk associated with trade debtors is managed with a credit policy which includes performing credit evaluations on customers requiring credit which ensures that only those customers with appropriate credit histories are provided with credit. Collateral is obtained where possible. The risk from financial institutions is managed by placing cash and deposits with high credit quality financial institutions only. The maximum exposures to credit risk are outlined in the table on the previous page and are recognised net of any provision for losses on these financial instruments.

Concentrations

The Group has placed its cash and deposits with ANZ Bank New Zealand and ASB Bank, both of which are AA- rated by Standard & Poor’s. Insurance income is receivable from the Group’s panel of insurers who are all rated A or greater by Standard & Poor’s. The Group and Parent are not exposed to any other concentrations of credit risk other than advances to controlled entities.

Interest rate risk

The Group’s financial assets and liabilities which are exposed to interest rate risk include cash and deposits and secured bank loans. The Group’s secured bank loans are subject to floating interest rates. The Group adopts a policy of reducing the exposure to changes in interest rates by utilising interest rate derivatives to limit future interest costs in accordance with its Debt and Hedging Policy. The weighted average interest rate (including interest rate derivatives) and term to maturity of the Group’s secured bank loans are set out in Note 17.



Interest rate sensitivity

Fair value sensitivityAt balance date the Group’s only fixed interest rate assets or liabilities held at fair value were interest rate derivatives. A 1% increase or decrease in the interest rates attached to the interest rate derivatives would have increased/decreased the fair value movement in derivatives in the Statements of Comprehensive Income by $17.6 million (2013: $14.8 million) and $18.8 million (2013: $15.4 million) respectively, and correspondingly increased/decreased equity by $12.6 million (2013: $10.6 million) and $13.5 million (2013: $11.1 million) respectively. This analysis assumes all other variables remain constant.

Cash flow sensitivityThe Group’s assets and liabilities which are subject to interest rate changes, consist of cash and cash equivalents, secured bank loans and interest rate derivatives. A change of 1% in interest rates would have increased/(decreased) profit after income tax and equity in respect of these items by the amounts shown below. This analysis assumes all other variables remain constant.

1% Increase

$000

1% Decrease

$000

Group

2014

Cash and cash equivalents 66 (66)

Secured bank loans (5,663) 5,663

Interest rate derivatives 4,212 (4,212)

2013


Secured bank loans (4,903) 4,903

Interest rate derivatives 3,924 (3,924)

Parent

2014


2013


22. FINANCIAL INSTRUMENTS (CONT.)

83

Liquidity risk

Liquidity risk represents the Group’s ability to meet its contractual obligations. The following liquidity profile is analysed based on the remaining period at balance date to the contractual maturity dates and assumes all other variables remain constant. The Group evaluates its liquidity requirements on an ongoing basis. The Group generates sufficient cash flows from its operating activities to meet its obligations arising from its financial liabilities and has bank facilities available to cover potential shortfalls. Further details about the undrawn bank facilities available are given in Note 17. The following table outlines the Group’s liquidity profile based on contractual undiscounted cash flows.

Statements of Financial

Position $000

Contractual cash flows (principal and interest)

Total $000

0–6 mths $000

6–12 mths $000

1–2 yrs $000

2–5 yrs $000

> 5 yrs $000

Group

2014

Trade and other payables 28,862 28,862 28,862 – – – –

Secured bank loans 786,500 931,983 23,227 23,227 113,454 732,695 39,380

Interest rate derivatives 5,277 6,589 4,546 2,947 917 (1,500) (321)

Mandatory convertible notes 119,730 8,092 5,414 2,678 – – –

940,369 975,526 62,049 28,852 114,371 731,195 39,059

2013


Secured bank loans 681,000 843,692 23,247 23,247 46,493 688,652 62,053

Interest rate derivatives 34,333 39,119 8,172 7,100 9,341 13,755 751

Mandatory convertible notes 118,947 18,832 5,414 5,326 8,092 – –

885,175 952,771 87,961 35,673 63,926 702,407 62,804

Parent

2014


Mandatory convertible notes 119,730 8,092 5,414 2,678 – – –

122,617 10,979 8,301 2,678 – – –

2013


Mandatory convertible notes 118,947 18,832 5,414 5,326 8,092 – –

126,673 26,558 13,140 5,326 8,092 – –



23. TRANSACTIONS WITH RELATED PARTIES

The Group has no parent entity or ultimate controlling party. The Parent has three controlled entities as described in Note 12.

All trade receivables and trade payables detailed below are unsecured, interest free and receivable or payable on normal commercial terms.

As described in Note 9, the Trust’s Unit Holders approved the internalisation of the management of the Trust on 12 December 2013. As a result of this transaction, KIP NZ Limited (formerly Kiwi Income Properties Limited), KPM NZ Limited (formerly Kiwi Property Management Limited), Commonwealth Bank Australia Limited and ASB Bank Limited are no longer considered related parties as of 13 December 2013 and the related party transactions with these entities as set out below reflect only those transactions that were entered into up to 13 December 2013.

During the year, the following transactions were undertaken with related parties:

Group 2014 $000

Group 2013 $000

Parent 2014 $000

Parent 2013 $000

KIP NZ LIMITED (formerly Kiwi Income Properties Limited)

Manager’s fees

Prior to internalisation, KIP NZ Limited (KIP NZ) was the manager of the Trust. KIP NZ was entitled to receive a management fee comprising a base fee of 0.55% per annum of the average gross value of the Trust Fund for the year, and a performance fee calculated on Unit Holder returns above 10% per annum. The maximum performance fee payable in any year was capped at 0.15% per annum of the average gross value of the Trust Fund for the year. The total management fee payable, including both the base and performance fees, was capped at 0.70% per annum of the average gross value of the Trust Fund for the year. Further details of management fees are included in Note 7.

The base fee was calculated and paid quarterly in arrears. The performance fee was calculated and, where applicable, paid semi-annually in arrears. Performance fees were reinvested by subscribing for new units in the Trust. Further details of performance fees are included in Note 7.

During the period to 13 December 2013 (2013: year ended), the Group incurred manager’s fees as follows:

Total base fees incurred 8,198 11,135 8,198 11,135

Total performance fees incurred – 2,970 – 2,970

Proportion of manager’s fees on-charged to controlled entities – – (8,186) (11,097)

Proportion of manager’s fees capitalised to investment properties (140) (659) – –

Proportion of manager’s fees outstanding at balance date (included in trade and other payables) – 4,332 – 4,332

Termination of fund management arrangements

As detailed in Note 9, the Trust terminated KIP NZ’s fund management arrangements on 13 December 2013.

Termination payment 46,400 – 46,400 –

Units in the Trust

KIP NZ owned the following investment, and received the following distributions from the Trust during the period to 13 December 2013 (2013: year ended):

Units in the Trust (000 units) – 4,699 – 4,699

Distributions received 312 234 312 234

KIP NZ owned 6,054,933 units in the Trust which it sold for $1.06 per unit on 20 December 2013.

85

Group 2014 $000

Group 2013 $000

Parent 2014 $000

Parent 2013 $000

KPM NZ LIMITED (formerly Kiwi Property Management Limited)

Property management fees

Prior to internalisation, properties owned by the Group were managed, on normal commercial terms, by KPM NZ Limited (KPM NZ), a related entity of the former manager by virtue of a common parent company. During the year the Group incurred property management fees (including leasing, development and facilities management fees). Under the terms of the leases between the Group and its tenants, a large portion of the property management fees incurred were on-charged to those tenants.

During the period to 13 December 2013 (2013: year ended), the Group incurred the following property management fees:

Total property management fees incurred 11,784 13,726 – –

Proportion of property management fees on-charged to tenants (3,794) (5,280) – –

Net property management fees incurred by the Group 7,990 8,446 – –

Proportion of property management fees outstanding at balance date (included in trade and other payables) – 166 – –

In addition, during the period to 13 December 2013 (2013: year ended), KPM NZ paid expenditure on behalf of the Group for which it was reimbursed. Under the terms of the leases between the Group and its tenants, a large portion of this expenditure was on-charged to tenants.

Total expenses incurred on behalf of the Group 5,305 6,055 389 389

Proportion of expenses on-charged to tenants (3,014) (3,405) – –

Net expenses incurred on behalf of the Group 2,291 2,650 389 389

Proportion of expenses outstanding at balance date (included in trade and other payables) – 339 – 15

Tenancy relationship

KPM NZ had a tenancy relationship with the Group at 205 Queen on normal commercial terms and conditions.

Total rental including operating expenses paid to the Group 414 561 – –

Proportion of rental outstanding at balance date (included in trade and other receivables) – 3 – –

Termination of property management arrangements

As detailed in Note 9, the Trust terminated KPM NZ’s property management arrangements on 13 December 2013.

Termination payment 26,100 – 26,100 –

Payment received for net liabilities assumed by the Group 2,043 – – –



Group 2014 $000

Group 2013 $000

Parent 2014 $000

Parent 2013 $000

Commonwealth Bank of Australia

Commonwealth Bank of Australia (CBA) is the ultimate parent of the former manager. The following transactions were undertaken with CBA:

Revolving credit facility

The Group has a bilateral facility agreement in place with CBA. The agreement provides a committed revolving credit facility.

Total committed revolving credit facility (entered into prior to 13 December 2013) 300,000 300,000 – –

Portion of revolving credit facility outstanding at balance date 239,000 251,000 – –

Interest incurred under revolving credit facility for the period to 13 December 2013 (2013: year ended) (inclusive of interest rate derivatives) 13,134 23,181 – –

Proportion of interest incurred for the period to 13 December 2013 (2013: year ended) (inclusive of interest rate derivatives) outstanding at balance date (included in trade and other payables) – 2,091 – –

Interest rate derivatives

A number of interest rate derivatives were entered into with CBA on normal commercial terms (on a competitive pricing basis) for the purpose of limiting the Group’s exposure to interest rates.

Notional value of active derivatives at balance date (entered into prior to 13 December 2013) 220,000 205,000 – –

Net fair value liability of derivatives at balance date 4,508 16,192 – –

Units in the Trust

CBA and its subsidiaries owned the following investment, and received the following distributions from the Trust during the period to 13 December 2013 (2013: year ended):

Units in the Trust (in accordance with substantial security holder notices received by the Trust) (000 units) – 91,772 – 91,772

Distributions received 5,965 6,241 5,965 6,241

CBA owned 91,772,277 units in the Trust which it sold for $1.06 per unit on 20 December 2013 and ceased to be a substantial security holder on that date.

23. TRANSACTIONS WITH RELATED PARTIES (CONT.)

87

Group 2014 $000

Group 2013 $000

Parent 2014 $000

Parent 2013 $000

ASB Bank Limited

ASB Bank Limited (ASB) was a related entity of the former manager by virtue of a common ultimate parent company, the Commonwealth Bank of Australia. The following transactions were undertaken with ASB:

Term deposits

The Group entered into various short term bank deposits throughout the year with ASB on normal commercial terms (on a competitive pricing basis).

Total term deposits at balance date (included in cash and cash equivalents) – 5,750 – 5,750

Interest received on term deposits for the period to 13 December 2013 (2013: year ended) 39 617 39 617

Proportion of interest outstanding at balance date (included in trade and other receivables) – 45 – 45


ASB has tenancy relationships with the Group on normal commercial terms and conditions.

Total rental including operating expenses paid to the Group for the period to 13 December 2013 (2013: year ended) 7,017 2,516 – –

Proportion of rental outstanding at balance date (included in trade and other receivables) – – – –

New Zealand Permanent Trustees Limited

Trustee’s fees

The Trustee is paid a fee of $250,000 per annum plus 0.02% per annum of the average gross value of the Trust Fund in excess of $750 million for the year.

During the year the Group incurred trustee’s fees as follows:

Total trustee’s fees incurred 531 505 531 505

Proportion of trustee’s fees capitalised to investment properties (8) (30) – –

Proportion of trustee’s fees outstanding at balance date (included in trade and other payables) 137 127 137 127


Public Trust (the parent of New Zealand Permanent Trustees Limited) has a tenancy relationship with the Group at the Vero Centre on normal commercial terms and conditions.

Total rental including operating expenses paid to the Group 216 216 – –

Proportion of rental outstanding at balance date (included in trade and other receivables) – – – –



Group 2014 $000

Group 2013 $000

Parent 2014 $000

Parent 2013 $000

The Trust and its controlled entities

Advances have been made by the Trust to its controlled entities to finance the acquisition of properties and capital expenditure, and to fund working capital requirements. The advances are repayable on demand and interest may be charged on outstanding balances at a rate equivalent to the Group’s cost of funds. $1.9 million of interest was charged in the current year (2013: $10.2 million). The Trust received dividends from its controlled entities during the year, details of which are included in the Statements of Comprehensive Income.

The Trust offset tax losses of $13.5 million (2013: $5.1 million) against the taxable income of its controlled entities.

Key management personnel

Prior to internalisation, the Trust did not employ personnel in its own right. Under the terms of the Trust Deed, KIP NZ Limited (formerly Kiwi Income Properties Limited) was the manager. The manager and its related entity KPM NZ Limited (formerly Kiwi Property Management Limited), were responsible for the remuneration of their directors and personnel.

Subsequent to internalisation (from 13 December 2013) key management compensation was paid directly by the Group and comprised:

Compensation category:

Directors’ fees 136 – – –

Short-term employee benefits 1,174 – – –

Other long-term benefits – – – –

24. CASH FLOW RECONCILIATION

Group 2014 $000

Group 2013 $000

Parent 2014 $000

Parent 2013 $000

Profit after income tax 101,300 109,813 12,245 57,231

Items classified as investing or financing activities:

Intra Group investing transactions – – (100,834) (82,239)

Movements in working capital items relating to investing and financing activities 14,692 (63,015) – –

Non-cash items:

Movement in deferred tax asset (2,914) 3,289 (10,900) 3

Movement in deferred tax liability (7,539) (5,688) (75) (57)

Amortised interest expense on mandatory convertible notes 781 710 781 710

Fair value change to interest rate derivatives (29,056) (11,744) – –

Fair value change to investment properties (8,539) (20,984) – –

Movements in working capital items:

Trade and other receivables 1,687 557 (34) 89

Insurance income receivable (47,745) 46,425 – –

Income tax receivable/payable (3,296) 1,864 2,215 (1,655)

Trade and other payables (22,426) 10,383 (4,839) 1,924

Net cash flows from/(used in) operating activities (3,055) 71,610 (101,441) (23,994)

23. TRANSACTIONS WITH RELATED PARTIES (CONT.)

89

25. COMMITMENTS

Group 2014 $000

Group 2013 $000

Commitments

The following costs have been contractually committed to but not recognised in the financial statements as they will be incurred in future reporting periods:

Development costs at Centre Place Shopping Centre, Hamilton 1,015 13,719

Development costs at Northlands Shopping Centre, Christchurch 332 7,408

Development costs at ASB North Wharf, Auckland 415 13,004

Development costs at The Majestic Centre, Wellington 1,800 –

Internalisation transition costs 421 –

3,983 34,131

Operating leases

The Group has non-cancellable operating lease commitments as lessee as at the end of the financial year, payable as follows:

Group 2014 $000

Group 2013 $000

Within one year 501 –

One year or later and not later than five years 915 –

Later than five years – –

1,416 –

The disclosure above includes the lease commitments arising following the sale of the remaining 50% interest in 205 Queen (refer to note 26 for further details).

Ground leases

Ground leases exist over 205 Queen, ASB North Wharf and certain adjoining properties. In addition, ground leases also exist over parts of the land at Sylvia Park Shopping Centre, Centre Place Shopping Centre, North City Shopping Centre and Northlands Shopping Centre. The amount paid in respect of ground leases during the year was $17.7 million (2013: $1.8 million). This includes the upfront payment of $15.9 million for the initial 90-year ground lease at ASB North Wharf which has been capitalised to the investment property. The leases terminate between October 2014 and June 2179. Due to the duration of the leases and the different methods of calculating the lease payments, the total value of the overall commitment has not been calculated.

26. SUBSEQUENT EVENTS

Declaration of final distribution

On 19 May 2014 the Board of the Manager declared a final cash distribution of $32.5 million to Unit Holders for the six months ended 31 March 2014. This represents a cash distribution of 3.20 cents per unit (cpu). As a result of the internalisation, there are no imputation credits available for distribution, accordingly the payment comprises an excluded distribution of 3.20 cpu. The distribution record date is 5 June 2014 and payment will occur on 19 June 2014.

Sale of remaining 50% interest in 205 Queen, Auckland

On 5 May 2014, the purchaser of the first 50% tranche of 205 Queen, Auckland exercised its right to purchase the remaining 50% interest in the building at the 31 March 2014 independent valuation of $56.3 million. Settlement is due to occur on 3 June 2014.


Independent Auditors’ report

To the Unit Holders of Kiwi Income Property Trust

Report on the financial statements

We have audited the financial statements of Kiwi Income Property Trust (the “Trust”) on pages 50 to 89, which comprise the Statements of Financial Position as at 31 March 2014, the Statements of Comprehensive Income, the Statements of Changes in Equity and the Statements of Cash Flows for the year then ended, and the Notes to the Financial Statements that include a summary of significant accounting policies and other explanatory information for both the Trust and the Group. The Group comprises the Trust and the entities it controlled at 31 March 2014 or from time to time during the financial year.

Manager’s responsibility for the financial statements

The Directors of Kiwi Property Management Limited (the “Manager”) are responsible for the preparation of these financial statements in accordance with generally accepted accounting practice in New Zealand and that give a true and fair view of the matters to which they relate and for such internal controls as the Manager determines are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing (New Zealand) and International Standards on Auditing. These standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider the internal controls relevant to the Trust’s and the Group’s preparation of financial statements that give a true and fair view of the matters to which they relate, in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust’s and the Group’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Our firm had a tenancy relationship with the Group on normal terms within the ordinary course of trading activities during the year. We have no further relationships with or interests in Kiwi Income Property Trust or its controlled entities other than in our capacities as auditors and providers of audit-related and advisory services. These services have not impaired our independence as auditors of the Trust or the Group.

Opinion

In our opinion, the financial statements on pages 50 to 89:

(i) comply with generally accepted accounting practice in New Zealand;

(ii) comply with International Financial Reporting Standards; and

(iii) give a true and fair view of the financial position of the Trust and the Group as at 31 March 2014, and their financial performance and cash flows for the year then ended.

Report on other legal and regulatory requirements

We also report in accordance with Sections 16(1)(d) and 16(1)(e) of the Financial Reporting Act 1993. In relation to our audit of the financial statements for the year ended 31 March 2014:

(i) we have obtained all the information and explanations that we have required; and

(ii) in our opinion, proper accounting records have been kept by the Trust and the Group as far as appears from an examination of those records.

Restriction on use of our report

This report is made solely to the Trust’s Unit Holders, as a body. Our audit work has been undertaken so that we might state to the Trust’s Unit Holders those matters which we are required to state to them in an auditors’ 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 Trust and the Trust’s Unit Holders, as a body, for our audit work, for this report or for the opinions we have formed.

PricewaterhouseCoopers Auckland 19 May 2014

91

Unit and note holder statistics

TWENTY LARGEST UNIT HOLDERS As at 31 March 2014

Unit HolderNumber of units

% of total issued units

New Zealand Central Securities Depository Limited 564,278,106 55.61%

Investment Custodial Services Limited <C A/C> 35,475,602 3.50%

FNZ Custodians Limited 26,112,831 2.57%

Forsyth Barr Custodians Limited <1-33 A/C> 20,440,585 2.01%

Custodial Services Limited <3 A/C> 19,056,772 1.88%

Forsyth Barr Custodians Limited <1-17.5 A/C> 12,671,491 1.25%




New Zealand Depository Nominee Limited <1 A/C> 4,692,342 0.46%


Forsyth Barr Custodians Limited <1 E A/C> 4,342,384 0.43%

NZPT Custodians (Grosvenor) Limited 3,853,592 0.38%

Superlife Trustee Nominees Limited <SL Prop A/C> 3,765,156 0.37%


University of Otago Foundation Trust 3,025,476 0.30%

FNZ Custodians Limited <DRP NZ A/C> 2,571,611 0.25%

Investment Custodial Services Limited <R A/C> 2,302,529 0.23%

Croxen Investments Limited 1,672,241 0.17%


Total 732,466,205 72.18%

Total units on issue 1,014,770,280


Unit and note holder statistics (continued)

New Zealand Central Securities Depository Limited provides a custodial depository service to financial institutional Unit Holders and does not have a beneficial interest in these units. The detail of this holding is as follows:

Unit HolderNumber of units

% of total issued units

Accident Compensation Corporation 92,976,541 9.16%

Citibank Nominees (NZ) Limited 87,751,971 8.65%

HSBC Nominees (New Zealand) Limited <State Street A/C> 57,960,553 5.71%

BNP Paribas Nominees (NZ) Limited 46,740,385 4.61%

ANZ Wholesale Trans-Tasman Property Securities Fund 41,093,172 4.05%

National Nominees New Zealand Limited 37,693,427 3.71%

Guardian Nominees No2 Limited <WPAC Wholesale Property Trust> 37,667,917 3.71%

HSBC Nominees (New Zealand) Limited 29,671,201 2.92%

JPMorgan Chase Bank NZ Branch <Segregated Clients A/C> 26,887,869 2.65%

ANZ Wholesale Property Securities Fund 23,309,883 2.30%

MFL Mutual Fund Limited 21,758,087 2.14%

TEA Custodians Limited 17,497,766 1.72%

New Zealand Superannuation Fund Nominees Limited 17,062,252 1.68%

Mint Nominees Limited 11,364,852 1.12%

Private Nominees Limited 11,304,171 1.11%

Sovereign Services Limited 1,740,998 0.17%

Balance of 6 Unit Holders 1,797,061 0.20%

Total 564,278,106 55.61%

93

TWENTY LARGEST MANDATORY CONVERTIBLE NOTE HOLDERS As at 31 March 2014

MCN HolderNumber of MCNs

% of total issued MCNs

New Zealand Central Securities Depository Limited 31,175,946 25.98%



Forsyth Barr Custodians Limited <1-17.5 A/C> 3,300,308 2.75%




Clyde Parker Holland & Rena Holland 1,585,000 1.32%



Investment Custodial Services Limited <C A/C> 1,059,203 0.88%


Robert McLean and Linda McLean and Warwick Deuchrass <LF McLean A/C> 996,970 0.83%

Richard Izard and Patience Izard and Wayne Boyd <Izard Charitable Trust A/C> 750,000 0.63%

Society of Mary Trust Board 750,000 0.63%

Forsyth Barr Custodians Limited <1 E A/C> 733,696 0.61%

Mackenzie Charitable Foundation 640,000 0.53%

University of Otago Foundation Trust 566,395 0.47%

Frank Simon Pearson and Warwick John Greenwood <Tai Shan Foundation> 548,000 0.46%

JBWere (NZ) Nominees Limited <31933 A/C> 500,000 0.42%

Total 68,286,896 56.91%

Total MCNs on issue 120,000,000


Unit and note holder statistics (continued)

New Zealand Central Securities Depository Limited provides a custodial depository service to financial institutional MCN Holders and does not have a beneficial interest in these MCNs. The detail of this holding is as follows:

MCN HolderNumber of MCNs


Accident Compensation Corporation 24,905,323 20.75%

JPMorgan Chase Bank NZ Branch <Segregated Clients A/C> 2,463,079 2.05%

National Nominees New Zealand Limited 1,749,081 1.46%

BNP Paribas Nominees (NZ) Limited 1,000,000 0.83%

Public Trust Class 10 Nominees Limited 550,000 0.46%

New Zealand Permanent Trustees Limited 285,708 0.24%

Private Nominees Limited 162,246 0.14%

HSBC Nominees (New Zealand) Limited 25,000 0.02%

HSBC Nominees (New Zealand) Limited <State Street A/C> 22,147 0.02%

Courtenay Nominees Limited 11,780 0.01%

Citibank Nominees (NZ) Ltd 1,582 0.00%

Total 31,175,946 25.98%

SPREAD OF UNIT HOLDERSAs at 31 March 2014

Size of holdingNumber

of holdersNumber of units

% of total issued

units

1 – 1,000 547 290,674 0.03%

1,001 – 5,000 1,860 6,037,496 0.59%

5,001 – 10,000 2,240 17,589,321 1.73%

10,001 – 50,000 5,598 127,052,269 12.52%

50,001 – 100,000 735 50,607,343 4.99%

100,001 and over 387 813,193,177 80.14%

11,367 1,014,770,280 100.00%

SPREAD OF MANDATORY CONVERTIBLE NOTE HOLDERSAs at 31 March 2014

Size of holdingNumber of

holdersNumber of

MCNs


1 – 1,000 1,051 706,058 0.59%

1,001 – 5,000 722 2,447,892 2.04%

5,001 – 10,000 527 4,781,752 3.98%

10,001 – 50,000 845 22,145,403 18.45%

50,001 – 100,000 105 8,557,468 7.13%

100,001 and over 82 81,361,427 67.81%

3,332 120,000,000 100.00%

95

GEOGRAPHICAL DISTRIBUTION OF UNIT HOLDERSAs at 31 March 2014

CountryNumber of units

% of total issued

units

New Zealand 815,152,810 80.33%

United States 128,561,837 12.67%

Australia 24,494,521 2.41%

United Kingdom 20,217,247 1.99%

Japan 19,185,052 1.89%

Rest of the world 7,158,813 0.71%

Total 1,014,770,280 100.00%

SUBSTANTIAL SECURITY HOLDERS As at 31 March 2014

The following security holders had filed substantial security holder notices in accordance with the Securities Markets Act 1988.

Security holder

Number of units held at

date of noticeDate of notice

Number of MCNs held at date of notice Date of notice

Accident Compensation Corporation 84,326,597 6-Sep-121,2,3 24,042,122 4-Apr-134

ANZ New Zealand Investments Limited5 88,737,409 19-Dec-13 –

1. Nicholas Bagnall, Blair Tallott, Paul Robertshawe, Ian Graham, Blair Cooper and Ian Purdy are listed in the notice as employees and portfolio managers of Accident Compensation Corporation. Under current ACC investment policies, they have the discretion to exercise control over some or all the rights to vote and acquisition or disposal of some or all of the securities of which ACC is the beneficial owner.

2. Including personal holdings of Ian Purdy, an employee and portfolio manager of Accident Compensation Corporation (notice dated 6 September 2012) 84,383,674 units.3. Including personal holdings of Blair Cooper, an employee and portfolio manager of Accident Compensation Corporation (notice dated 6 September 2012) 84,385,126

units.4. Nicholas Bagnall, Blair Tallott, Paul Robertshawe, Blair Cooper and Ian Purdy are listed in the notice as employees and portfolio managers of Accident Compensation

Corporation. Under current ACC investment policies, they have the discretion to exercise control over some or all the rights to vote and acquisition or disposal of some or all of the securities of which ACC is the beneficial owner.

5. ANZ New Zealand Investments Limited’s relevant interests stated above arise only from the powers of investment contained in its investment management contracts with: The MFL Property Fund, ANZ Wholesale Property Securities Fund, ANZ Wholesale Trans-Tasman Property Securities Fund.

Some of the above relevant interests comprise a mixture of units which are legally and/or beneficially held and units over which voting control is held.


Trust Deed and NZX waivers

Trust Deed

Internalisation backgroundOn 12 December 2013, Unit Holders approved the internalisation of the Trust’s management (Internalisation). Details of the Internalisation transaction were outlined in the Notice of Meeting released on 20 November 2013 (Notice of Meeting) and are briefly summarised below. Settlement of the transaction occurred on 13 December 2013.

The Internalisation negotiated with Commonwealth Bank of Australia (CBA) involved:

a net payment of $70.5 million (plus GST) to CBA resulting from:

• aterminationpaymentof$72.5 million (plus GST) to CBA for the relinquishment of its fund and property management arrangements, and

• theacquisitionofthebusinessassets of the then Manager for $0.7 million (plus GST, if any), reduced by the assumption of $2.7 million (plus GST, if any) of employee liabilities.

the existing manager ceasing to hold office

the appointment of a new manager, controlled by Unit Holders, to assume the fund management and property management roles

existing management and other personnel transferring to new manager

transitional arrangements being implemented between the new manager and CBA while standalone systems are established for the Trust, and

amendments to the Trust Deed.

Amendments to Trust DeedTo give effect to the Internalisation, the following amendments have been made to the Trust Deed:

deletion of the provisions relating to the remuneration of the previous Manager and the insertion of provisions whereby the new Manager shall not be entitled, in respect of its services, to any fee in the nature of remuneration but shall be entitled to reimbursement and indemnification in accordance with the provisions of the Trust Deed

deletion of the provisions under which the manager of the Trust is entitled to receive a payment on cessation of office

clarification of the reimbursement of expenses provisions contained in the Trust Deed to provide that all costs, charges, disbursements and expenses incurred by the Manager in performing its functions of and incidental to the management of the Trust are reimbursable out of the Trust Fund

Unit Holders are given the right, by means of an Ordinary Resolution, to direct the shareholder of the Manager as to the individuals in respect of whom the shareholder of the Manager shall exercise its right to appoint and remove as directors under the constitution of the Manager

Unit Holders are given the right, by means of an Extraordinary Resolution, to direct the shareholder of the Manager (including as to terms) to dispose of all or any of the shares in the Manager or to vote its shares in the Manager

express provisions to confirm that the payment of directors’ fees to the directors of the Manager would be reimbursable out of the Trust Fund

inclusion of an express provision entitling the Manager to act as a property manager for the Trust, and receive and retain fees and other remuneration for acting in that capacity, and

other minor variations of a consequential nature, including updating current references to the Listing Rules and other relevant legislation and regulations.

NZX waivers

Listing Rules 3.4.3, 3.5.1 and 9.3.1 – Internalisation waiversOn 20 November 2013, New Zealand Stock Exchange Regulation (NZXR) granted the Trust waivers from Listing Rules 3.4.3, 3.5.1 and 9.3.1, which were required in relation to the proposal for Internalisation (Internalisation Proposal).

NZXR granted a waiver from Listing Rule 3.4.3 so that the board of the Manager could pass resolutions in connection with the Internalisation Proposal, on the following conditions:

a) The independent directors of the Manager were only permitted to vote on such resolutions as were necessary to put the Internalisation Proposal before a meeting of Unit Holders; and give effect to the Internalisation, if it was approved by Unit Holders.

b) The waiver would only apply to any director of the Manager who was considered to be an ‘interested’ person within the meaning assigned to that term in section 139 of the Companies Act 1993, where that person was ‘interested’ solely because that person was a director of the Manager and/or a related company of the Manager, but for no other reason.

NZXR granted a waiver from Listing Rule 3.5.1 so that the directors of the new Manager could be paid remuneration out of the Trust Fund at the same level as was then paid by the Manager, without seeking separate Unit Holder approval under Listing Rule 3.5.1. That waiver was subject to the following conditions:

a) Unit Holders approved the Internalisation Proposal.

b) The amendment to the Trust Deed which authorised the reimbursement of the directors fees from the Trust Fund on a similar basis to what was then paid by the Manager was explicitly outlined in the resolution in the Notice of Meeting seeking Unit Holder approval of the Internalisation.

c) The existence and effect of the waiver decision was disclosed in the Notice of Meeting.

97

d) Any increase to the then level of directors’ remuneration (beyond what was permitted by Listing Rule 3.5.1) would be approved by Unit Holders in accordance with Listing Rule 3.5.1.

e) The Notice of Meeting disclosed the quantum of directors’ current remuneration; a statement to the effect that this level of remuneration was at or below market rate; the fact that the Trust would bear the cost of directors’ fees going forward if Internalisation was approved; and that NZXR had an opportunity to review and approve the Notice of Meeting.

NZXR granted a waiver from Listing Rule 9.3.1 which authorised Robert Narev and his ’Associated Persons’ (MFL Mutual Fund Limited (MFL) and certain trustees of private trusts of which he was also a trustee) to vote as they saw fit in respect of resolution 3 of the Internalisation Proposal. That waiver was subject to the following conditions:

a) Mr Narev would abstain from all discussions and resolutions of the board of MFL Mutual Fund Limited concerning the proposed Internalisation.

b) The existence and effect of the waiver decision was disclosed in the Notice of Meeting.

c) Mr Narev had certified, in a form acceptable to NZXR, that he had made his decision with respect to the Internalisation without the undue influence of CBA or Associated Persons of CBA; other than holding the office of director of the Manager, he had no relationship with CBA or the Manager which would make him an Associated Person of either party; other than the directors’ fees and reimbursement of expenses as a director of the Manager, he would not receive any remuneration or payment from either CBA or the Manager as a result of the Internalisation proceeding; and none of the associated entities of Mr Narev listed in paragraph 12 of Appendix One of the NZX waiver decision had any relationship with CBA or the Manager other than by reason of the interest of Mr Narev.

d) The waiver should not apply if Mr Narev or any Associated Person of Mr Narev was a party to or beneficiary of a transaction effected for the purposes of the Internalisation Proposal, otherwise than as a result of the fact that Mr Narev was a director of the Manager (except for being party to or beneficiary of a transaction solely in its capacity as a Unit Holder).

e) The waiver should not apply to the extent that CBA was a beneficiary of any of the private trusts of which Mr Narev acted as trustee.

Listing Rule 9.3.1On 10 December 2013, NZXR granted the Trust a further waiver from Listing Rule 9.3.1. That waiver allowed each of MFL and CBA and its subsidiaries (together, the ‘CBA Group’) to vote on resolution 4 of the Notice of Meeting, which related to the proposed increase in directors’ fees pursuant to Listing Rule 3.5.1 which was to be voted on by Unit Holders. In granting the waiver, NZXR required confirmation from the independent directors that the proposed fees had been set on an arm’s length and commercial basis and certain confirmations from MFL and CBA. On this basis, NZXR was satisfied that neither CBA, nor any member of the CBA Group nor MFL unduly influenced the formulation, design or negotiation of the proposed adjustment to directors’ remuneration.

Listing Rule 7.3.2(b)On 5 July 2011, NZXR granted the Trust a waiver from Listing Rule 7.3.2(b) in relation to the issue of Units on an ongoing basis to the Manager (or its nominee) equivalent to the performance fee in accordance with clause 26.11 (previously clause 25.11) of the Trust Deed. The waiver allowed the Trust to issue Units to the Manager in this way beyond the 12-month period permitted by Listing Rule 7.3.2(b), subject to the following conditions: that the manner in which the performance fee is calculated and Units issued does not materially change (unless both Unit Holder and MCN Holder approval is obtained); that the number and price of Units issued in respect of the Manager’s performance fee and the existence of the waiver are disclosed in each annual and interim report in the period in which the Units are

issued; that the aggregate price of Units issued relating to the payment of the Manager’s performance fee does not exceed 0.15% of the average gross asset value of the trust fund in respect of any financial year; and that any amendments to the terms on which the Units are issued are approved in accordance with the Trust Deed and the Listing Rules. This waiver is equivalent to the waiver granted to the Trust by NZXR on 4 July 2008 (for a three-year period), except that this waiver applies indefinitely.

However, following Internalisation no further Units are to be issued to the Manager. Accordingly, the Trust ceased to rely on this waiver from the time Internalisation took effect in December 2013.

Listing Rule 7.11.1 On 2 October 2008, NZXR granted the Trust a waiver from Listing Rule 7.11.1 in relation to its allotment of Units under its Distribution Reinvestment Plan. Under the terms of the Distribution Reinvestment Plan, applications to participate must have been received by the record date for entitlement to the distribution. The price per Unit under the Distribution Reinvestment Plan is calculated based on the volume weighted average market price (Average Unit Price) over the 10 business days immediately succeeding the Ex Date for the distribution, with Units being allotted at the time the distribution is paid. This means that the price per Unit could not be calculated in time to allow allotment within five business days after the closing date for applications as required by Listing Rule 7.11.1. The waiver allowed the Trust to proceed with allotment within three business days of determining the Average Unit Price and entitlement of Unit Holders.

Listing Rule 7.11 was amended with effect from 1 January 2014, to allow allotments under a distribution reinvestment plan to occur on the distribution payment date (in accordance with Listing Rule 7.3.10(e)). Accordingly, the Trust will not rely on the waiver in relation to distributions made after 1 January 2014.


Listing Rules 3.1.1(a), 3.1.1B(a), 3.3.2 to 3.3.12, 3.4.3 and 3.5On 11 May 2005, NZXR granted the Trust waivers from Listing Rules 3.1.1(a), 3.1.1B(a) (now Listing Rule 3.3.3(a)), 3.3.2 to 3.3.12 (now Listing Rules 3.3.5 to 3.3.15), 3.4.3 and 3.5 in relation to the application of the Listing Rules to the Trust’s corporate governance structure, in light of the fact that those Listing Rules are not readily applicable to an issuer who is a Unit Trust where the directors for the purposes of the Listing Rules are the directors of the Manager. The waivers allowed the Manager, amongst other things, to appoint its own directors without Unit Holder approval, provided those who are considered to be independent directors are notified to the market, and to fix the remuneration of the Manager’s directors, provided that such

remuneration is paid directly from income of the Manager.

Following Internalisation, the Trust continues to rely on the waiver from Listing Rule 3.1.1(a) to the extent that the provisions of Appendix 6 of the Listing Rules include matters covered by Listing Rules from which the Trust and the Manager have sought waivers from.

The Trust also continues to rely on the waiver from Listing Rule 3.4.3, given the management structure of the Trust. That waiver provides that directors of the Manager should be permitted to vote in transactions that the Manager is entering into relating to the day to day operations of the Trust. However, directors should abstain from voting on any transaction entered into by the Manager on behalf of the Trust with another entity, for which the

director would be ‘interested’. It will be necessary to continue to rely on this wavier given the relationship between the Manager, the Trust and Unit Holders, where potentially every director of the Manager could be deemed to be ‘interested’ in decisions relating to the investment of the Trust Fund.

Following amendments to the Listing Rules and Internalisation, the Trust will no longer rely on the waivers from Listing Rules 3.1.1B(a) (now Listing Rule 3.3.3(a)) and 3.3.2 to 3.3.12 (now Listing Rules 3.3.5 to 3.3.15), which relate to the Board making determinations of a director’s independence and appointment of directors. Nor will the Trust rely on the waiver from Listing Rule 3.5, as any further increase in directors’ remuneration will be approved in accordance with Listing Rule 3.5.1.

Trust deed and NZX waivers (continued)

99

FINANCIAL PERFORMANCEYear ended 31 March

(Restated)1

2010 $m

2011 $m

2012 $m

2013 $m

2014 $m

Net rental income 133.7 137.8 144.0 135.5 148.7

Net interest and finance charges (47.7) (48.2) (48.7) (49.7) (55.7)

Manager’s base fees (9.7) (10.4) (10.8) (10.4) (8.1)

Manager’s performance fees – – – (3.0) –

Management and administration expenses (2.9) (2.8) (3.2) (3.0) (6.2)

Operating profit before other income/(expenses) and tax 73.4 76.4 81.3 69.4 78.7

Fair value change to interest rate derivatives 4.0 (11.2) (2.3) 11.7 29.1

Fair value change to investment properties (74.7) (82.4) (9.6) 21.0 8.5

Impairment of investment properties – – (26.9) – –

Insurance and litigation settlement income – – 67.1 16.6 52.9

Termination of management arrangements – – – – (74.5)

Other non-operating income and expenses (2.7) (1.0) (0.7) (1.1) (4.1)

Profit/(loss) before income tax 0.0 (18.2) 108.9 117.6 90.6

Current tax benefit/(expense) (10.7) (8.6) (13.1) (10.2) 0.3

Deferred tax benefit/(expense) 2.2 0.4 (6.6) 2.4 10.4

Profit/(loss) after income tax (8.5) (26.4) 89.2 109.8 101.3

DISTRIBUTIONSYear ended 31 March

2010 cpu

2011 cpu

2012 cpu

2013 cpu

2014 cpu

Cash distribution 7.50 7.00 7.00 6.60 6.40

Imputation credits2 1.33 0.88 1.35 1.02 –

Gross distribution 8.83 7.88 8.35 7.62 6.40

1. Due to an amendment to NZ IAS 12 – Income Taxes during the 2011 year, certain comparative data for the 2010 year was restated to reflect the reversal of deferred tax on revaluation gains and deductible capitalised costs which were no longer required to be provided for.

2. Due to the tax deductibility of the internalisation payment, the Directors have determined that there are no imputation credits available to be attached to the 2014 final distribution. As the Trust is a Portfolio Investment Entity, the payment will be an excluded distribution for tax purposes, with no tax payable by New Zealand resident investors.

Five-year summary


Five-year summary (continued)

FINANCIAL POSITIONAs at 31 March

(Restated)1

2010 $m

2011 $m

2012 $m

2013 $m

2014 $m

Assets

Investment properties 1,848.7 1,984.7 2,008.9 2,076.5 2,130.2

Cash and cash equivalents 117.8 107.3 62.8 12.0 9.2

Other assets 18.3 20.6 88.0 38.0 96.4

Total assets 1,984.8 2,112.6 2,159.7 2,126.5 2,235.8

Liabilities

Secured bank loans 571.0 759.0 769.5 681.0 786.5

Mandatory convertible notes 261.7 117.6 118.2 118.9 119.7

Deferred tax liability 97.5 99.6 106.8 101.1 93.5

Other liabilities 66.0 93.5 92.5 93.4 47.6

Total liabilities 996.2 1,069.7 1,087.0 994.4 1,047.3

Unit Holders’ funds 988.6 1,042.9 1,072.7 1,132.1 1,188.5

Bank debt gearing ratio2 24.4% 32.7% 33.8% 31.8% 35.2%

Net tangible assets per unit $1.22 $1.07 $1.09 $1.14 $1.17

PROPERTY METRICSAs at 31 March

2010 2011 2012 2013 2014

Number of core properties 14 15 12 11 12

Net lettable area [sqm] 349,152 382,132 360,565 338,986 373,277

Occupancy rate [by area] 97.0% 97.1% 96.2% 97.2% 97.1%

Weighted average lease term [years] 4.3 4.0 3.9 4.3 4.7

Weighted average capitalisation rate 7.86% 7.99% 7.78% 7.52% 7.19%

1. Due to an amendment to NZ IAS 12 - Income Taxes during the 2011 year, certain comparative data for the 2010 year was restated to reflect the reversal of deferred tax on revaluation gains and deductible capitalised costs which were no longer required to be provided for.

2. For 2010 to 2013, the bank debt gearing ratio was calculated as bank debt less MCN proceeds on deposit over total assets (excluding MCN proceeds on deposit). For 2014, as all MCN proceeds have been utilised, the bank debt gearing ratio is calculated as bank debt over total assets.

101

Glossary

Amortisation – The systematic and regular write-down of an asset over its projected life.

Capital expenditure – Expenditure on non-routine works to improve the value and/or performance of an asset.

Capitalisation rate – A market-derived rate of return or yield applied to a property’s net income to determine its value at a specific date.

Distributable income – The amount of income available for distribution.

Distribution – The amount paid by the Trust to Unit Holders. The Trust pays distributions for the periods ended 31 March and 30 September.

Distribution Reinvestment Plan (DRP) – The Trust’s Distribution Reinvestment Plan dated 20 May 2014. The plan provides Unit Holders with the option of reinvesting distributions without incurring any transaction costs.

Earnings per unit (EPU) – Calculated as profit after income tax for the period divided by the weighted average number of units on issue for that period, adjusted for the conversion of the Trust’s MCNs.

Imputation credits – Credits that represent tax paid by the Trust. By attaching imputation credits to distributions, the tax paid by the Trust effectively flows through to Unit Holders to offset any New Zealand tax liability.

Independent valuation – An assessment of a property’s current market value by an independent registered valuer.

Internal rate of return (IRR) – The average annual total return from a property investment over a specified time period.

KIP and KIPGC – NZX codes for Kiwi Income Property Trust’s units (KIP) and 8.95% Mandatory Convertible Notes (KIPGC).

Listing Rules – The Main Board/Debt Market Listing Rules of NZX Limited dated 30 October 2013.

Manager – Kiwi Property Management Limited is the Manager of the Trust. Please refer to the Corporate Governance section for further details on the role of the Manager.

Mandatory Convertible Notes (MCNs) – The unsecured subordinated 8.95% mandatory convertible notes issued pursuant to the Offer Document dated 10 November 2009. MCNs can be bought and sold on the NZX Main Board.

Market capitalisation – The market value of the Trust calculated by multiplying the number of units on issue by the unit price (as quoted on the NZX).

MCN holder – Means a holder of Mandatory Convertible Notes.

Net lettable area (NLA) – The floor area of a building for which rent can be charged.

Net rental income – Represents gross rental income less property operating expenditure including the amortisation of lease incentives and rental income resulting from the straight-lining of fixed rental increases.

Net tangible asset backing (NTA) – The value of assets less all debts and other liabilities, normally divided by the number of units on issue and expressed as an amount per unit.

NZX – The New Zealand Stock Exchange operated by NZX Limited.

NZX 15 – Benchmark index produced by NZX comprising the top 15 companies listed on the NZX Main Board by free-float market capitalisation.

NZX 50 – Benchmark index produced by NZX comprising the top 50 companies listed on the NZX Main Board by free-float market capitalisation.

NZX Main Board – The main board equity securities market operated by NZX.

NZXR – New Zealand Stock Exchange Regulation.

Occupancy – The amount of net lettable area occupied as a percentage of total net lettable area.

Over or under renting – Where the contract rental being paid under the lease is more than or less than the market rent achievable on the open market.

Portfolio Investment Entity (PIE) – An entity, such as the Trust, that qualifies for the PIE tax regime introduced from 1 October 2007. Under this regime, no further New Zealand tax is payable by Unit Holders on distributions they receive from the Trust.

Record date – The date fixed by the Manager for determining Unit Holders’ entitlements to distributions and MCN Holders’ entitlements to interest payments.

Registrar – Link Market Services Limited as the entity responsible for maintaining the Unit Holder and MCN Holder records registers.

Rent review – A date stipulated in a lease at which the landlord and tenant review the contracted rental being paid under the lease.

Swap – An agreement involving two parties to exchange one entitlement for another. The Trust may enter into swaps to exchange a floating interest rate obligation with a fixed interest rate obligation.

Total return – The return, including unit price movements and the reinvestment of all cash distributions and imputation tax credits.

Trust – Kiwi Income Property Trust, a unit trust registered under the Unit Trusts Act 1960 and governed by the terms of the Trust Deed.

Trust Deed – The trust deed under which Kiwi Income Property Trust was formed.

Trust Fund – Has the meaning given to that term in the Trust Deed.

Unit – An undivided share in the equity of the Trust. All units carry equal voting rights and participate in distributions from the Trust. Units can be bought and sold on the NZX Main Board.

Unit Holder – A holder of a Unit.

Unit price – The price transacted for a unit in Kiwi Income Property Trust recorded by the NZX.

Weighted average lease term (WALT) – The average remaining lease term weighted by gross income.

Yield – The annual income of an asset expressed as a percentage of value, cost or purchase price.


Glossary (continued)


TRUST

Kiwi Income Property Trust Level 14, DLA Phillips Fox Tower 205 Queen StreetPO Box 2071Shortland StreetAUCKLAND 1140

Telephone: +64 9 359 4000Facsimile: +64 9 359 3997Website: kipt.co.nzEmail: [email protected]

MANAGER

Kiwi Property Management Limited Level 14, DLA Phillips Fox Tower 205 Queen StreetPO Box 2071Shortland StreetAUCKLAND 1140

Telephone: +64 9 359 4000Facsimile: +64 9 359 3997Website: kipt.co.nzEmail: [email protected]

TRUSTEE

New Zealand Permanent Trustees LimitedLevel 35, Vero Centre48 Shortland StreetPO Box 1598Shortland StreetAUCKLAND 1140

Telephone: +64 9 985 5300Facsimile: +64 9 302 3696Website: trustee.co.nzEmail: [email protected]

REGISTRAR

Link Market Services LimitedLevel 7, Zurich House21 Queen StreetPO Box 91976AUCKLAND 1142

Telephone: +64 9 375 5998 or 0800 377 388Facsimile: +64 9 375 5990Website: linkmarketservices.co.nzEmail: [email protected]

AUDITORS

PricewaterhouseCoopers New ZealandPwC Tower188 Quay StreetPrivate Bag 92162AUCKLAND 1142

Telephone: +64 9 355 8000Facsimile: +64 9 355 8001Website: pwc.co.nz

LEGAL ADVISOR TO THE MANAGER

Russell McVeaghVero Centre48 Shortland StreetPO Box 8Shortland StreetAUCKLAND 1140

Telephone: +64 9 367 8000Facsimile: +64 9 367 8163Website: russellmcveagh.com

LEGAL ADVISOR TO THE TRUSTEE

Kensington Swan89 The TerracePO Box 10246WELLINGTON 6143

Telephone: +64 4 472 7877Facsimile: +64 4 472 2291Website: kensingtonswan.com

BANKERS

ANZ Bank New ZealandBank of New Zealand Commonwealth Bank of Australia Westpac New Zealand

VALUATION PANEL

CBRE LimitedColliers International New Zealand LimitedJones Lang LaSalle Limited

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CONSISTENTLY DELIVERING€¦ · 40 Investor relations 42 The Board of the Manager 44 Corporate governance 47 Investment and ... existing and new institutional and retail investors,