Global downturn results in 10.63 percent portfolio value decline for ANZO

March 12, 2009

AMP NZ Office Trust (ANZO), New Zealand’s largest listed investor in prime commercial office property, has completed an interim nine-month independent revaluation of its investment portfolio, resulting in a decline in values of 10.63 percent (1).

The revaluation was carried out by independent registered valuers CB Richard Ellis and Colliers International. It will be reflected in ANZO’s third-quarter financial results to 31 March 2009 (2), and will also be updated and audited for ANZO’s year-end financial statements as at 30 June 2009.

ANZO chief executive Robert Lang said the reduction in value of $166.85 (1,3) million over the nine months to 31 March 2009 was primarily attributable to the increase in the capitalisation rates adopted by valuers, which rose from an average of 7.05 percent as at 30 June 2008 to 7.84 percent.  The valuers found that current market rents in ANZO’s portfolio have stabilised over the past year, highlighting the resilience of the prime office sector.

“Capitalisation rates across all sectors of real estate have softened over the past 12 months. In the case of ANZO’s office properties, relevant factors influencing capitalisation rate movement include a slowing rate of market rental growth, increasing risk premiums, general market access to credit and market liquidity.  There is also evidence of a two-tiered market developing with sales and leasings in some circumstances characterised as distressed events, and therefore not representing market-based transactions.  Investors and valuation practitioners increasingly have to be careful how they interpret this information when assessing market values and rents,” said Mr Lang.

He added that – in the context of falls in the values of almost all assets worldwide – all of New Zealand’s listed property sector would be facing similar and in some cases more aggressive downwards pressure on values. Mr Lang noted that the revaluation is unrealised and does not affect distributions to ANZO’s unit-holders. ANZO remains New Zealand’s third-largest listed property trust, with a revised portfolio value of $1.4 billion (1).

“At the portfolio level, the outlook is encouraging, with over 10,000sqm leased or renewed in both Auckland and Wellington over the past three months, for terms ranging up to 12 years. In addition, more than 18,000sqm of rent reviews have been completed and a new market-leading rent agreed in Wellington,” he said.

“Furthermore, ANZO remains on track for a record full-year gross distribution to investors.” “The $166.85 million reduction compares to an increase in ANZO’s portfolio value of $118.0 (4) million over the previous financial year alone, or $540 million over the previous five years – a compounding annual portfolio capital gain of more than 14 percent,” he commented.

ANZO’s net tangible assets (NTA) under NZ IFRS is forecast to decrease from $1.47 (5) per unit to $1.23 per unit. ANZO’s adjusted NZ IFRS NTA (after excluding deferred tax on revaluation gains – which ANZO is not required to pay under New Zealand tax law) is projected to be $1.34 per unit, down from $1.63 per unit (5).

Gearing (for loan covenant purposes) is expected to rise to approximately 33.2 percent at 31 March 2009 as a result of the valuation movement.  Looking ahead to ANZO’s financial year-end at 30 June 2009, and after allowing for committed capital expenditure, gearing is projected to increase to approximately 35.5 percent, below the 40 percent loan covenant limit.

Having renewed 50 percent of its total bank debt facility of $485 million in November 2008 for an attractive three-year term, ANZO has progressed negotiations on the remainder on a similar basis and will announce the outcome of this as soon as possible.

A significant positive to arise from the revaluation was confirmation of portfolio under-renting at 5.9 percent. Notwithstanding the valuers’ findings that rental growth has stabilised, ANZO will continue to receive higher rental revenues as rent reviews recognise the growth that has taken place over the previous two-, three- and even five-year periods.

The rent reviews carried out over the first six months of ANZO’s financial year resulted in an average increase of 25.5 percent over the previous contract rentals, equating to a total annualised increase of $2.95 million. Approximately 130,600sqm or 52 percent of ANZO’s portfolio is subject to rent reviews over the remainder of the current financial year and 2010.

ANZO is managed by AMP Haumi Management Limited.

Footnotes:
1. Excludes 21 Queen St in Auckland, which is classified as a development property and is held at cost.
2. Any movement in valuations due to market circumstances between today and 31 March 2009 will be included in the third-quarter financial result.
3. Before deducting an estimated $3m portfolio capital expenditure over nine months to 31 March 2009
4. Before allowing for capital expenditure of $5m for the full year
5. As at 30 June 2008

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 $1.5 billion – Auckland’s PricewaterhouseCoopers Tower, ANZ Centre, IAG House, 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.

Valuations carried out by Colliers International and CB Richard Ellis.