AMP NZ Office Trust buys Wellington office tower for refurbishmentDecember 19, 2003 AMP NZ Office Trust (ANZO) has been named as the successful tenderer for Pastoral House, an 18-level CBD office tower in Wellington, and will carry out a full refurbishment programme. The purchase follows the announcement earlier this week of a series of initiatives expected to increase unitholder value and enhance the overall performance of ANZO. Executive manager Rob Lang said the purchase price for Pastoral House is $23.95 million and ANZO plans to spend another $15.5 million on the refurbishment, which will lift the property from its current B-grade comfortably into the A category. Following the refurbishment and leasing to new tenants, Pastoral House has a forecast yield on cost of 9.7 percent. Its value on completion has been independently estimated at $43.0 million. Mr Lang said the project will improve earnings per unit and net tangible assets per unit. “The project has a neutral effect in the current financial year to 30 June 2004, but will lift the distribution by an average of between 3 and 3.5 percent per annum over the following five years.” The purchase and refurbishment will be funded from ANZO’s existing balance sheet capacity. Mr Lang said the project represents a shift in focus within ANZO’s existing investment policy, which includes appropriate refurbishment opportunities. “We have been very encouraged by the tenant response to ANZO’s refurbishment and new construction project at No. 1 and 3 The Terrace, which adjoins Pastoral House in the Government sector of Wellington’s CBD. “Since that project was announced in September, we have acquired a great deal of market intelligence and tenant interest which has given us the confidence to embark on a second Wellington initiative in a short space of time.” ANZO’s existing Wellington properties are 100 percent occupied. Mr Lang said the Wellington CBD is experiencing reducing vacancy, a shortage of new supply and rental growth in the premium and A-grade categories, with demand driven mainly by Government organisations. Such tenants are considered to offer the most secure income streams and generally prefer longer lease terms than corporates. “The refurbishment of Pastoral House will make it one of the top three office buildings within the Government accommodation precinct, along with No. 1 The Terrace and Bowen House. Like No. 1 The Terrace, it will provide Government and commercial tenants with the efficiency and productivity gains that come from brand-new office space, but without the costs of moving into a new development. “For large tenants looking for multiple floors in Wellington, this will be the only option over the next three years.” Mr Lang said this is the first time that Pastoral House has been offered for sale. Wellington’s premium and A-grade assets are tightly held and rarely available for purchase. He said the purchase further consolidates ANZO’s position as New Zealand’s leading provider of premium and A-grade office accommodation. ANZO’s portfolio weighting (by value) to the Wellington market increases from 25.8 percent to 30.6 as a result, and the portfolio weighted average lease term will be extended when the refurbished property is leased to new tenants. A unit trust listed on the New Zealand Exchange, ANZO already owns seven of New Zealand’s premium office buildings with a total value of more than $578 million. ANZO’s total portfolio value will increase to more than $650 million on completion of the Pastoral House and The Terrace projects. Previously occupied by the New Zealand Dairy Board, Pastoral House is 37 percent vacant and this will rise to 42 percent within six months. Mr Lang said some vacancy was key to allowing the refurbishment to take place. Balancing that is a new 10-year lease to the BNZ of two levels (or about 10.6 percent of the net lettable area), beginning almost immediately, along with holding income from other tenants including NZ Trade & Enterprise. ANZO will progressively re-lease the space as the refurbishment rolls through the building, maintaining some cashflow throughout the project. The refurbishment will begin in mid-2004 and will be complete by July 2005. It will include new floor coverings and ceilings, new lift interiors, a major air-conditioning upgrade for high-density occupation, new lighting, a new access control system and the addition of sprinkler systems. The vendor was Pastoral House Partnership, a joint venture between Fonterra Co-operative and BNZ Properties Limited. The settlement date is January 30, 2004. Pastoral House – key facts:
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