Not for distribution in the United States or to U.S. persons

ANZO to reduce gearing to 19.3 percent
Operating profit increases for nine months to 31 March 2009

May 7, 2009

AMP NZ Office Trust (ANZO) today announced an underwritten renounceable rights issue to raise $201 million.

On the completion of the rights issue ANZO’s gearing will be approximately 19.3 percent, based on ANZO’s 31 March 2009 nine-month interim financial statements. The reduction in gearing along with the successful negotiation of a new bank facility will greatly reduce funding costs.

The independent chairman of the manager of ANZO, Craig Stobo, said the rights issue and the initiative to reduce gearing had the support of its major investor as an appropriate measure to strengthen ANZO in the current environment.

“While we are confident about the overall position of ANZO, as evidenced by our 9 month operating performance, the likelihood that the current period of low economic activity will continue in the next year has caused us to take a more cautious outlook.  We have taken the view that a conservative strategy puts ANZO in the strongest position to absorb any further adverse external events while giving it the ability to take advantage of any favourable opportunities that do occur,” Mr Stobo said.

The renounceable rights issue of 9 new units for every 20 units held is attractively priced at $0.65 per unit. This represents a 21 percent discount to the weighted average market price of $0.82 for existing units for the last 5 trading days prior to the announcement of the offer and is an attractive discount to the adjusted net tangible asset value (NTA) of $1.11 per unit (1).  Based on the subscription price the targeted FY10 gross distribution yield to Unit Holders (2) is 13.8 percent.

“A renounceable rights issue is the fairest way to raise new capital. It gives all Unit Holders the opportunity to participate on an equal basis.  Those that choose not to subscribe can sell their rights and gain a benefit too,” Mr Stobo said.

The issue is fully underwritten by First NZ Capital Securities Limited.  ANZO’s largest Unit Holder, Haumi Company Limited, which holds approximately 19.9% of the units, is taking up its full entitlement of units.  

Chief Executive Officer of ANZO, Rob Lang, said a 79 basis points increase in capitalisation rates reflected in ANZO’s revaluation announcement of 12 March 2009 and a further tightening of credit markets in the last three months had contributed to the decision to reinforce the funding base of ANZO by raising equity capital. 

“A stronger ANZO is in the interests of all Unit Holders.  The application of equity plus the conclusion of bank negotiations to repay an existing $242.5 million expiring (October 2009) facility and to enter into a new $100 million facility for three years from June 2009 will create a capital structure that provides a buffer for the current economic and market conditions.” 

The decisions announced today also aim to stabilise the current and future distribution outlook. 

For the financial year to 30 June 2009, ANZO is projecting a revised gross distribution of 6.92 cents per unit. This reflects the increase in units as a result of the rights issue, the outcome of the bank facility refinancing negotiations and a decision by the Board to stabilise distributions in the context of the market environment.

“We believe it is in the best interests of Unit Holders to take a more conservative approach at this time, in order to reduce volatility of future distributions.  The gross distribution profile will still be very competitive” Mr Lang said.

For the year ending 30 June 2010, ANZO targets gross distributions per unit of 7.058 cents, representing a 2010 gross yield (3) of approximately 11.8 percent per annum on a theoretical ex-rights issue unit price of $0.76. (4)

Looking into the future ANZO’s manager has adopted a cautious policy that initially targets a minimum annual growth in gross distribution payments to 2 percent.

“If it turns out that circumstances allow ANZO’s performance to continue as it has over recent years, we will revisit the distribution policy at an appropriate time,” Mr Lang said. 

The timetable for the rights issue is:

* The Manager may close the Offer later than the Closing Date.

The offer is open to Unit Holders with a registered address in New Zealand, Australia, or Hong Kong.

Bank Facility Renegotiation
In November 2008, ANZO successfully renegotiated half of its outstanding debt facilities, due for repayment in October 2009, with Westpac and the Bank of New Zealand (BNZ) for what the Manager considers to be an attractive three year term and no changes to covenants. 

ANZO has now agreed terms and conditions (subject to documentation) with BNZ and Westpac to repay the other half of its facility and enter into a new $100 million facility for a three year term commencing June 2009.  As a result of the rights issue the new facility is on more beneficial terms, covenants and margin pricing compared to alternative offers.  ANZO’s key financial and gearing covenants will remain unchanged.

ANZO’s bilateral bank facility arrangements and key gearing and financial covenants (following the rights issue) can be summarised as follows:

The recent aggressive easing of the OCR has resulted in a change in the value of ANZO’s interest rate swap portfolio, leading to a mark to market liability of $27.4 million as at 31 March 2009.  Following the successful completion of the rights issue and repayment of bank debt ANZO will have fixed debt (swap) cover in excess of its needs.  As a result ANZO will cancel a number of swaps with the principal value of approximately $80.0 million.  There will be a swap cancellation fee of approximately $13 million (8), the final value of which is subject to market conditions at the time of cancellation.

Unit Holder Distributions
As part of its capital structure review, ANZO’s manager has revised downwards the distribution policy to reflect current market uncertainty about future rental growth and market vacancy levels.

Under the new policy and subject to certain assumptions regarding the market environment and portfolio performance ANZO will target minimum annual growth of gross distributions of 2 percent beginning in the next financial year.   While this is a downwards revision from the policy previously outlined, the manager believes it is appropriate to take a more conservative approach at this time, in order to reduce volatility of future distributions.

The reduction of the FY09 gross distribution referred to above reflects an expected payout ratio of less than 90 percent of distributable profit. 

Q3 Financial Performance – Summary of the Nine-month Period Ending 31 March 2009
ANZO’s rentals have continued to increase during the nine months, primarily as a result of positive rent review outcomes. ANZO’s rentals this year are also showing the benefit of the acquisition of Wellington’s Chews Lane in May 2008.

Rentals for the nine months were $100.0 million, reflecting an 11.6 percent increase over the previous comparable period (the nine months to 31 March 2008). On a “same properties” basis, rents were up 8.0 percent.  Rent reviews completed during the nine-month period to 31 March 2009 delivered an average increase in the affected contract rents of 26.8 percent (an annualised increase in those contract rents of $4.6 million).  Rent reviews covering approximately 27.7 percent or 70,031sqm of the portfolio remain under negotiation.

In spite of the economic uncertainty, ANZO’s portfolio of premium office buildings continues to enjoy high occupancy rates, strong and high quality lease covenants and high tenant retention rates.  As at 31 March 2009, ANZO’s investment portfolio had occupancy levels of 97.5 percent, a weighted average lease term of 4.9 years and was 5.9 percent under-rented (9). 

Operating profit before current taxation was 6.5 percent higher the previous comparable period (the nine months to 31 March 2008), at $47.1 million. Operating profit after current taxation (ANZO’s distributable profit 10) increased by 4.7 percent to $42.0 million.

Based on operating profit before current taxation, earnings per unit gained 6.5 percent to 6.85 cents per unit. Earnings per unit based on operating profit after current taxation were 6.10 cents per unit, a 4.6 percent increase over the previous comparable period.

ANZO Unit Holders will receive a net cash third-quarter distribution of 1.341 cents per unit plus imputation credits of 0.023 cents per unit. ANZO’s total gross distribution for the nine months will be 5.556 cents per unit compared to 6.201 cents per unit paid in the previous comparable period, representing a 10.4 percent decline.

The record date for the second-quarter distribution is 22 May 2009 and payment will be made on 29 May 2009.

The New Zealand equivalent to International Financial Reporting Standards (NZ IFRS) requires ANZO to take into account a number of non-cash adjustments in reporting net profit for the nine months. These include:

• The interim nine-month independent revaluation of its investment portfolio (the outcome of which was previously announced to the market on March 12, 2009), which showed an unrealised net reduction of
  $172.0 million (11);
• An impairment in the value of the redevelopment project at 21 Queen Street in Auckland, amounting to
  $19.1 million;
• An unrealised loss of $31.9 million on the fair value of interest rate swaps; and
• A deferred tax benefit of $39.4 million.

As a result of these factors, for the nine months to March 31, 2009, ANZO has recorded a net loss of $141.6 million.

The loss – and the contributing factors – do not affect the profit available for distribution to ANZO investors.

Commenting on the valuation of 21 Queen Street, Mr Lang said this is expected to improve following completion of the project later this year and it achieving fully-leased status. The property has been independently valued at $87 million. The valuation was in accordance with valuation standards, as if it were fully completed as at the valuation date of 31 March 2009, but with the office space vacant and with leasing-up allowances, discounting the value for leasing risks in the current market environment.

NZ IFRS then requires ANZO to report this valuation, less the cost to complete. As a result, the project has a fair value of $73.9 million as at 31 March 2009. The cost incurred in the project at that date was $93.0 million, leading to an impairment in the financial statements of $19.1 million.

As at 31 March 2009 total assets were $1.49 billion, including the work in progress at the 21 Queen Street development, and total liabilities were $650.0 million.  Gearing was 32.4 percent.  ANZO’s adjusted NTA as at 31 March 2009 was $1.33 per unit. 

ANZO’s equity (Unit Holder funds) as at 31 March 2009 was $842.8 million.

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 $1.4 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.

This announcement does not constitute an offer of securities or a proposal or an invitation to make an offer (and, in particular, does not constitute an offer of securities in the United States of America or to any “US Person” (as defined in Regulation S under the US Securities Act), or to any person acting for the account or benefit of a “US Person”).  Distribution of this presentation (including an electronic copy) may be restricted by law and, if you come into possession of it, you should observe any such restrictions.