AMP NZ Office Trust Inaugural ResultAugust 10, 1998 AMP NZ Office Trust has announced its inaugural result, covering the seven month period to the 30th June 1998. The net surplus and unit holder distributions have substantially exceeded prospectus forecasts made in November 1997. The highlights of the result are:
The manager believes that current economic and property market conditions have combined to consolidate and further improve the competitive performance potential of the prime office sector in general, and the Trust in particular. Net Surplus Up $7.78 MillionIn its first seven months the Trust has reversed its prospectus forecast of a net deficit of $4.50 million into a net surplus of $3.28 million, representing an increase of $7.78 million. Net income from the portfolio at $23.93 million was 1.8% higher than anticipated. This reflects the strength and growth of the Trust’s income and tenancy base. All rentals achieved on new leasings in the portfolio have exceeded the November 1997 forecasts. The Trust also incurred lower than expected issue and stamp duty costs, this arising in part from a favourable stamp duty ruling obtained during the period. These represent a $7.42 million reduction to the forecast costs. Portfolio Valuation MaintainedNet unrealised revaluation gains based on independent valuations by JLW Advisory were positive at $.023 million, this lifting the total surplus to $3.30 million for the period. The net revaluation gain is less than the $2.30 million forecast in the prospectus however it is not unexpected given current economic and property market conditions. Net asset backing has been maintained at 0.96 cents per unit. Distributions Up 68%As a result of a significantly better than expected net surplus, the manager is pleased to announce a total distribution of 6.67 cents per unit. This represents a 68% increase over the prospectus forecast of 3.97 cents per unit. The increased distribution is in accordance with the Trust’s policy to distribute substantially all of its net surplus and will be paid on the 28th September 1998. OutlookCurrent economic and property market conditions have reinforced and further improved the competitive performance potential of the prime office sector in general, and the Trust in particular. The deterioration in the global economic and financial markets over the first half of 1998 has had a significant affect on the domestic property market. The key Auckland and Wellington office markets have both experienced a noticeable slow-down in leasing and investment activity, and sentiment is generally weak. Although net absorption improved over this period, most research houses are now forecasting a deterioration in absorption and vacancy levels on a market wide basis over the short to medium term. A feature of the present environment is that there is a diverse and often contradictory range of signals coming from the market, and this is causing some confusion. What this illustrates, and what commentators are increasingly focusing on, is that different sectors of the office market are being affected differently and will respond differently to this environment. The consensus view appears to be that prime office will out-perform the non-prime sector. In recently published reports, JLW Research and Richard Ellis separately identify an increasing segmentation between superior quality and lower quality office property; both are forecasting the prime sector to out-perform the balance of the office market over the medium term. The key driver for this is that demand/supply is expected to be much more balanced in the prime sector. Vacancy levels in top quality buildings in both Auckland and Wellington are predicted to be significantly lower than the market average. As a consequence, rental increases and sector growth are forecast to be strongest in the prime sector. The Trust has what many commentators believe to be the best quality central business district office portfolio in New Zealand. It owns three of what are recognised as the best five buildings in Auckland and two of the best three in Wellington. As such, it is ideally positioned to capture the out-performance predicted for this sector. As well as dominating the premium sector, the Trust is well positioned from a defensive perspective should the market deteriorate from here. With occupancy in the portfolio at 99.1%, current actual and pending vacancy is exceptionally low. This, coupled with an average weighted lease term across the portfolio of 6.5 years, ensures the Trust is well placed in terms of the security and surety of its income. This is very important in the current environment. The unique nature of its portfolio, the strength of its income and tenant base, and its dominant position in the prime office sector, combine to ensure that the Trust is very well positioned to continue to deliver above average performance in a market which is likely to become increasingly competitive over the short to medium term. The Trust will be releasing its annual report in early October and will be holding a General Meeting at the PARKROYAL Hotel at 11.00am on 23rd October 1998. Anthony Beverley |