ANZO announces outcome of interim portfolio revaluation

December 17, 2009

AMP NZ Office Trust (ANZO), New Zealand’s largest listed investor in prime commercial office property, has recorded an unrealised reduction in the value of its portfolio over the past six months.

Chief executive Robert Lang said the unaudited, interim valuation as at 31 December 2009 showed a decrease of $60.2 million (1,2) or 4.32 percent over the six months since 30 June 2009. The total portfolio value is now $1.33 billion.

The revaluation will be reflected in ANZO’s interim financial result to 31 December 2009, due to be announced in February 2010. Mr Lang reiterated that the unrealised decline in portfolio value does not affect distributions to unit-holders, which ANZO has confirmed are on track to increase by 2 percent on a gross basis for the full financial year.

He said the revaluation was in line with the expectations outlined in previous communications to the market and investors, including the 2009 annual report and the prospectus issued earlier in the year.

“The balance sheet remains in strong shape to withstand the valuation headwinds lingering in the wake of the global financial crisis,” said Mr Lang.  Following the current revaluation, ANZO’s gearing ratio will still be one of the lowest in the Australian and New Zealand listed property sectors and is forecast to be approximately 21.8 percent as at 31 December 2009, compared with the loan covenant ratio of 40 percent.  The prospective interest cover ratio for the 2010 financial year is a healthy 3.7 times, compared with a covenant of 2 times.

ANZO’s net tangible assets (NTA) per unit as at 31 December 2009 under NZ IFRS is forecast to decrease to approximately $0.92 per unit, down 5.15 percent from $0.97 per unit at 30 June 2009. The adjusted NZ IFRS NTA (after reversing deferred tax on revaluation gains, which ANZO is not required to pay under current New Zealand tax law) is expected to be approximately $0.96 per unit, a 5.88 percent decrease from $1.02 at 30 June 2009.

Mr Lang said a notable feature of the interim revaluation was a relative stabilisation of the capitalisation rates used by valuers. The weighted average market capitalisation rate adopted by the valuers across ANZO’s portfolio remained essentially unchanged at 8.08 percent. The main drivers of the valuation decline were lower effective market rents, extended periods for re-leasing vacant space, and weaker rental growth expectations.

He also cautioned that there continued to be a shortage of transactional evidence, in terms of both new leases and sales, to support valuations.

Mr Lang said although ANZO’s portfolio is now 2 percent over-rented, the leases subject to rent reviews during the remainder of ANZO’s 2010 financial year – totalling 56,700 sqm – are still predominantly under-rented, providing continued prospects for revenue growth.

In the financial year to date, 48 rent reviews, covering a total of 57,360 sqm, have so far been settled, reflecting an average increase of 24.6 percent over the previous contract rentals.

Portfolio occupancy remains consistent with the 90 percent reported in ANZO’s first-quarter financial result. The recently-completed 21 Queen St accounts for about 5.0 percent of the portfolio and with this property excluded, portfolio occupancy is 94.9 percent. Real estate services company CB Richard Ellis has been confirmed as the first office tenant for 21 Queen St, taking a nine-year lease, and ANZO remains in negotiations with other prospective tenants.

New Zealand’s economy continues to face headwinds. However, the recent increase in economic activity points to an improvement in business conditions.

Mr Lang said there has been a distinct uplift in leasing enquiry, both in the market and within ANZO’s portfolio, in recent months as tenants look to capitalise on favourable market terms.  “There is a clear sense that tenants are looking to capture cheap rents and incentives while they last.  While vacancy rates have increased in line with expectations, recent significant leasings in the Auckland market have improved the near-term supply risks.”

ANZO’s next scheduled revaluation will occur as part of its financial year end reporting as at 30 June 2010. Mr Lang said that while he expected that the worst of the valuation declines were now behind ANZO, the road to a full market recovery is likely to be bumpy. As property and credit markets improve, the lack of suitable transactional evidence characterising the current valuation environment will have less of an impact and valuations are likely to adjust to take into account better-quality valuation information.

ANZO is managed by AMP Haumi Management Limited.

Footnotes:
1. Before allowing for capital expenditure of approximately $1.5 million.
2. Also taking into account ANZO’s redevelopment of 21 Queen St in Auckland, which reached practical completion during the interim period.

Valuations carried out by Colliers International and CB Richard Ellis.
* Ground lessors’ interest. Valued on DCF basis to reflect 49-year remaining fixed (highly over-rented) cash flow
** Held as development property as at 30 June 2009. Practical completion achieved on 25 September 2009, market value assessed at $66.5 million
*** The 30 June 2009 capitalisation rate includes 21 Queen Street.  If excluded, the total weighted average portfolio capitalisation rate was 8.03%. 

About ANZO
ANZO is New Zealand’s largest listed investor in prime and A-grade commercial office property. A unit trust listed on the New Zealand Exchange, ANZO currently owns 15 New Zealand office buildings with a total gross value of more than $1.3 billion – Auckland’s PricewaterhouseCoopers Tower, ANZ Centre, 151 Queen Street, AMP Centre and 21 Queen Street; and Wellington’s State Insurance Tower, Vodafone on the Quay, HP Tower, 125 The Terrace, No. 1 and 3 The Terrace, Pastoral House, Mayfair House, AXA Centre, Deloitte House and 29 Willis Street (Chews Lane).