Wellington, May 11 NZPA - Goodman Property Trust is seeing the property market improve, but expects the effects of higher interest costs and lower property valuations to hit earnings this year.

The trust posted an after-tax loss of $7 million for the year ended March 31 due to a deferred tax charge, an improvement on the previous year's net loss of $74.1m.

Profit before tax of $12.5m compared with a loss of $83.7m the previous year, mainly due to a smaller portfolio devaluation in 2010.

Net property income rose 2.4 percent to $106.2m, as completed development projects and rental growth offset two asset sales, realising $53.3m, and a small reduction in occupancy.

"Considering the environment and the fact that for the last 12 months NZ spent most of it in recession, I think we're pretty happy that 96 percent of the space we've got is occupied," trust chief executive John Dakin said.

Increased interest costs, the loss of rent after the asset sales and lower growth were expected to contribute to a decline in 2011 operating earnings to between 8.6c and 8.8c per unit.

That equated to a decline of 3-5 percent on last year's $77.5m earnings.

"It's cost us a bit on the earnings, but it's been more important to preserve the value of the business in the last 18 months," Mr Dakin said.

During the year, the trust raised $150m through a corporate bond issue, diversifying the debt funding sources and extending the weighted term of its credit facilities by about a year.

The value of the trust's property portfolio declined by 3.3 percent, or $49.9m, to $1.5 billion. That was an improvement on the previous year's 10.3 percent devaluation.

The market was recovering, although it was difficult to forecast how quickly, he said.

Valuations appeared to have stabilised, with assets selling at about book value, and demand for new buildings indicated an increase in business activity.

The trust had won $39.6m in new development commitments from Kmart, IBM and Ingram Micro during the period.

The level of development activity was fairly light, but the trust had improved its market share, he said.

Defaults were rare, with 90 days arrears accounting for less than $100,000 out of a rent roll of $106m.

"We've got a very high quality business with people like Toll and Linfox and Air New Zealand and New Zealand Post paying the rent, so we've got a really strong core of stable cashflows," Mr Dakin said.

"The drive for us is going to be around leasing up the vacant space we've got, and that's heading in the right direction, and cranking through our land -- it's only 10 percent of our business, but if we can get new buildings on that land and people paying rent then we can get more cash through the door."

The trust had gearing of 37 percent, meaning net borrowings made up 37 percent of property assets, an increase on the previous year's 35.3 percent.

That was within the board's target range of 35-40 percent, and below the 45 percent maximum allowed under banking covenants.

Units in the trust were trading steady at 99c late today.