AMP NZ Office Trust Interim ResultFebruary 4, 1999 AMP NZ Office Trust is pleased to announce its interim result, covering the six month period to 31 December 1998. The net surplus and Unit holder distributions have substantially exceeded prospectus forecasts made in November 1997. The highlights of the interim result are:
Net Surplus Up $3.06 millionIn the six month period to 31 December 1998, the Trust produced a net surplus of $18.92 million, which is $3.06 million or 19% ahead of prospectus forecast. The key drivers for the superior result were higher than forecast net income from the property portfolio and lower issue costs. Net income from the property portfolio, at $20.68 million, was 0.6% higher than forecast. This arose from a better than expected performance from both the office properties and the Wellington Parkroyal Hotel. Fund operating and net interest expenses in particular, were considerably lower than forecasts. This was in part, a reflection of the low interest rate environment which prevailed during the period and lower than forecast interest bearing liabilities. Higher than anticipated net income and lower interest expenses combined to contribute approximately $0.63 million to the $3.06 million excess over prospectus forecast. A favourable stamp duty ruling received during the period, which related to the original property acquisitions by the Trust, effectively reduced issue costs/stamp duty by $2.30 million, this figure contributing directly to the $3.06 million surplus excess. Portfolio Value MaintainedThe Trust’s policy is to undertake full property re-valuations at year end. Accordingly, the portfolio of properties was not re-valued during the period. Net asset backing has been maintained at 96 cents per unit. Distributions Up 31%As a result of a significantly higher than anticipated net surplus, the manager is pleased to announce an interim un-imputed distribution of 4.87 cents per unit. This includes a normal distribution of 3.71 cents per unit and an additional one-off distribution of 1.16 cents per unit arising from the issue cost saving. The total distribution represents a 31% increase over the prospectus forecast distribution. The increased distribution is in accordance with the Trust’s policy to distribute substantially all of its available net surplus and will be paid in late March. OutlookThe strong performance of the AMP NZ Office Trust continues to be underpinned by an exceptionally high portfolio occupancy level of 99%, weighted average lease term in excess of six years and a very strong tenant base largely comprising national corporates, major legal and accounting partnerships and multi-national tenants. These features combined with a market leading position as New Zealand’s largest investor in prime commercial office property ensures the Trust’s ability to capture and deliver above average performance in years to come. In the difficult economic and property market conditions experienced in 1998 AMP NZ Office Trust performed exceptionally well to exceed prospectus forecasts for the period. As the economy and business confidence progressively weakened over the course of 1998, absorption of central business district (“CBD”) office accommodation flattened and market vacancy increased. This was largely a result of an increase in the amount of sublease space released onto the market, particularly in Auckland. As a result, CBD office rentals were flat for the year with some sub-lessors offering accommodation at significant discounts to the balance of the market. The latest JLW Research statistics show total stock vacancy levels for Auckland and Wellington are 11.1% and 7.5% respectively, with vacancy in the premium office sector being considerably lower at 7.4% and 1.7% respectively. As a result of several new leasings the Trust’s Wellington portfolio is now 100% occupied while the Auckland portfolio is currently 98% occupied. The later part of the year was of note for the amount of newly built office accommodation added to the market. In Auckland, Oracle Tower, Deloitte House and the Heritage Centre collectively contributed around 21,864 square metres of new office accommodation, while Mobil on the Park in Wellington added 13,668 square metres of new space. Both cities also experienced the release of refurbished office accommodation during the period. Investment activity during 1998 was very subdued, the year notable for the absence of CBD investment transactions of significant size. Activity from the international market was also subdued, this largely comprising the sale of lower grade office property. The syndication market was active at the lower end of the market, these transactions generally involving fringe or suburban properties. Recent economic data suggests that growth in the New Zealand economy probably troughed sometime in mid-1998. A range of data suggests that growth, business confidence and the general investment environment have improved significantly. A period of steady, non-inflationary expansion, characterised by low inflation rates looks possible. Should this outlook transpire it should prove to be a significant positive for CBD office markets. While it is likely that the CBD office markets will remain flat until more tangible signs of a recovery in service sector earnings and employment are evident, these markets have traditionally responded fairly rapidly to an economic recovery, with absorption and occupancy levels rising, vacancy levels falling and higher demand causing rentals to rise. With its high occupancy level and dominant position in the prime CBD office market, the Trust is very well positioned to continue to deliver above average performance and to capture and benefit from the expected general economic and office market recovery. The Trust manager is looking forward to the challenges and opportunities during next six months and aims to continue building on the strong performances achieved to date. Anthony Beverley |