AMP NZ Office Trust 2000 Interim ResultFebruary 22, 2000 AMP NZ Office Trust is pleased to announce its interim result, covering the six-month period to 31st December 1999. The highlights of the interim result are:
Net surplus of $16.36 millionIn the six-month period to 31st December 1999, the Trust produced an after tax net surplus of $16.36 million. This was ahead of forecasts due to the better than expected performance of the office properties. After adjusting for abnormal items in the previous comparable period the year-on-year net surplus was ahead by 2.5%. This also includes an allowance for the management fee increase, which has been adjusted to a market level in the current period. The Wellington Parkroyal Hotel continues to perform strongly, however, revenue was below the record levels achieved in the comparable period in the previous year. Hotel management fees and operating expenses were also lower than expected, lifting the net surplus position of the Trust. Other positive contributions to the net surplus came from the Trust’s operating and interest expenses, which were in line with forecasts for the period. Interest expenses were below those in the corresponding period in the previous year due to lower-than-forecast interest bearing liabilities and the reducing convertible note interest component. There are no abnormal items to report this year. Portfolio Value MaintainedThe Trust’s policy is to undertake full property re-valuations at its financial year-end date of 30th June. Hence, the portfolio of properties was not re-valued during the period. Net asset backing on a fully diluted basis has been maintained at 92.7 cents. DistributionsAs a result of the net surplus, the Manager is pleased to announce an interim un-imputed distribution of 3.50 cents per unit. The distribution is in accordance with the Trust’s policy of distributing most of its available net surplus, and will be paid in late March. OutlookAlthough general property market activity increased as 1999 drew to a close, the office market environment remained difficult and challenging. The economy showed strong signs of improvement in 1999, which was coupled with continuing low rates of inflation and GDP growth for the September quarter of 2.3%. GDP year-on-year to September grew at an annual rate of 1.9%. This failed to have a material influence on the performance of the CBD commercial property market, which generally lags behind the rest of the economy by between 12 and 18 months. It is expected to have a positive impact on the property sector and the Trust from 2000. Leasing activity continued for prime propertiesLeasing and investment activity increased as the year progressed, though the number of transactions remained below historic levels. Despite overall activity picking up, market rentals across the wider CBD commercial market have generally remained static. However, in certain areas, particularly well located and prime quality buildings, rents achieved in new leasing transactions were encouraging. This particularly applied to leases completed by the Trust, confirming the relative superior performance characteristics of prime property compared to the rest of the commercial property market. New leases completed during the second half of 1999 saw occupancy in The ANZ Centre (formerly Coopers & Lybrand Tower), for example, increase from 95.2% to 100%. The Trust leased part of level 8 and all of level 13 to ANZ Bank, a transaction that included building naming rights. In addition, the Trust re-negotiated a new lease with New Zealand Funds Management who now occupy all of levels 18 and 10. The Trust also leased all of Level 11 in Quay Tower to HIH Winterthur. Portfolio occupancy up, rental values ahead of expectationsSeveral further successful lease negotiations were completed within the portfolio during the period, which significantly, took the portfolio occupancy rate from 97.4% recorded in June 1999 to 99.8% as at 31st December 1999. This is a significant achievement for the Trust and has resulted in only 150 square metres remaining available in the Auckland portfolio and 125 square metres in Wellington (or a total of 275 square metres from a portfolio size of 113,916 sqm). Rents achieved in leasings and in portfolio rent reviews were pleasing, and generally ahead of expectations. This level of occupancy combined with the tenure and covenant of the leases ensured a strong cash flow that underpinned the Trust’s performance over the interim period to 31st December 1999. Looking forwardIt is anticipated that the positive direction of the economy will continue to inject confidence and improve activity in the property sector. However, it is likely to take some time before the sector responds in a significant fashion following two years of slow and limited growth. The level of activity in recent months, in particular the influence this has had on the prime CBD commercial sector, is encouraging. The Trust remains committed to the prime CBD sector, which it believes will respond strongest once economic growth flows through to CBD employment and other CBD market drivers. In addition, the properties are well positioned to meet the demands of modern CBD tenants. All the leasings achieved by the Trust during 1999, and many of the lease transactions completed elsewhere in the market, were the result of tenants migrating from poorer to higher quality premises of the type owned by the Trust and demanded by today’s discerning tenants. With portfolio occupancy nearly reaching 100% and a strong dominating position in the prime market – the Trust owns three of the five best buildings in Auckland, and two of the best three in Wellington – the Trust will benefit from anticipated demand from tenants and the consequential rental growth. The new century will hold many challenges. The Trust is involved in a number of significant projects and has a full schedule of activity in the year ahead. The Trust aims to continue to build on the strong performances achieved to date. Anthony Beverley |