AMP NZ Office Trust - 30 June 2000 Annual ResultSeptember 7, 2000 AMP NZ Office Trust announces its result for the full-year to 30 June 2000 Key aspects of the result are:
Operating ResultFor the full-year to 30 June 2000, the Trust produced an operating result (before revaluation and tax) of $31.9 million, down 11.7% compared to the previous 1999 result. If the abnormal items that affected the 1999 result are excluded, specifically the $2.4 million stamp duty refund and the 50% management fee rebate, the operating result (before revaluation and tax) is marginally ahead for 2000. The rent reviews undertaken during the year, along with several new leasings that increased the portfolio occupancy rate to 100%, were the main catalysts for gross rental income increasing by $0.78 million. Office property and other expenses increased by $0.87 million or 10.2%. This increase can be attributed to changes in the treatment of electricity expenses which are now accounted for on a gross rather than net basis. If the effect of this change is excluded, office property and other expenses declined by $0.5 million. A challenging commercial business market continued to impact on the performance of the Wellington Parkroyal Hotel. Hotel revenue fell by $0.70 million or 3.2%. The high fixed cost of hotel services resulted in a marginal decline in expenses of only $0.12 million or 0.8%. Indirect Trust costs increased by $1.2 million (+14.4%) to $9.4 million largely as a result of the previously discounted management fee adjusting to a market level. Interest costs declined by $0.5 million as a result of a lower convertible note interest charge. In May the Trust established a $140 million loan facility with the Bank of New Zealand to fund the construction of the PricewaterhouseCoopers Tower. Funding costs associated with the PricewaterhouseCoopers Tower are being capitalised and therefore do not impact on interest expenses in the accounts. Revaluation Write-downThe Trust's policy is to undertake full property re-valuations at the financial year-end. We believe the weakness experienced in the CBD property market over the past two years has levelled out. However, the fall in market rentals and its effects are still being reflected in valuations, which in line with rising interest rates, resulted in a devaluation of the Trust's portfolio to $457.6 million (after realisation and capital costs) as of 30 June 2000. This represents a $24.4 million (5.0%) write-down on a prior net value of $482.0 million. The Wellington Parkroyal Hotel was not revalued during the period due to its re-classification as a property intended for sale. While the write-down is disappointing, the Trust's portfolio held its value more effectively than other commercial property portfolios, which anecdotally declined by about 5-10% during the same period. The diversity and quality of the Trust's properties and tenants, rent review performance, 100% occupancy, and management initiatives helped minimise the impact of the write-down. Net SurplusIn accordance with accounting standards, the unrealised revaluation write-down is brought to account in deriving the net surplus for the period. As a consequence the positive operating result of $31.9 million is offset by the revaluation write-down to generate a net surplus (after revaluation and taxation) of $7.5 million. There were no abnormal items to report during the year. DistributionWhile the revaluation write-down is brought to account as a revaluation loss in the net surplus for the period, it does not impact on the operating result and amount available for distribution. The amount available for distribution to unit holders for the full-year to 30 June 2000 is $17.8 million or 7.15 cents per unit. This is 19.5% less than the 8.88 cents distributed in the previous year, noting that this amount included one-off abnormal gains, specifically the stamp duty refund and the management fee rebate. After allowing for these items to enable a like-for-like comparison, the distribution for the previous period equated to 7.18 cents per unit or 0.4% more than the current proposed distribution of 7.15 cents per unit. An un-imputed interim distribution of 3.5 cents per unit was made in April 2000. In accordance with a full distribution of 7.15 cents per unit, a final un-imputed distribution of 3.65 cents per unit will be paid to unit holders on 2 October 2000. The distribution reflects the Trust's policy to distribute substantially all of its available net surplus. Legal ProceedingsOn 13 July 2000 the recently incorporated Society for the Protection of Auckland City and Waterfront Incorporated filed proceedings in the Auckland High Court against the Auckland City Council ("Council") and AMP Henderson Global Investors, the manager of AMP NZ Office Trust. The proceedings seek an order quashing the resource consent the Council granted in respect of the PricewaterhouseCoopers Tower. These proceedings allege that the Council acted unlawfully in granting the resource consent without first publicly notifying the fact that AMPAM had applied for consent. The Council and AMPAM are strenuously defending the proceedings and AMPAM is hopeful of success at an early date. As a result of these proceedings the Trust has entered into its 2000 accounts a contingent liability sum of $10.0 million. General Market OverviewThe New Zealand economy grew strongly during the year under review. However, its performance was uneven, with strong economic growth in the first half of the year being followed in the second half by weakening business and consumer sentiment and lower growth. This was despite continuing strong performance from the export sector. A growing economy would normally lead to increased demand for property. However, general investor sentiment was subdued, dominated by concern about the growing disparity between prime and secondary office property. Tenant activity increased during the year, particularly demand by tenants for prime office accommodation. The overall market picture tells one story however, there were marked variations between the performances of the different office sectors. These variations reflect a number of significant trends transforming the way office space is used, how much is used and what is used. In short, tenant demand is increasingly favouring prime over secondary space, large over small floor plates, and prime locations. These trends are very positive for the Trust. They reinforce our long held view that the prime office market will out perform the secondary office market. Most importantly, we believe that these trends will continue to underpin the future performance of the Trust. For the 12 month period to 30th June the overall vacancy rate for the total Auckland CBD office stock declined from 14.3% to 14.1% of total stock. In the prime sector, vacancy rates decreased from 12.9% to 10.6%. Vacancy rates in the secondary quality sector still remain relatively high and increased over the second half of the year from 15.2% to 16%. This indicated the low level of tenant interest in this accommodation quality category. Independent property market researcher Jones Lang LaSalle's (JLL) five-year total market vacancy forecast for the Auckland CBD is 13.1%, compared with the prime sector vacancy rate forecast at only 7.8%. Vacancy rates for the total Wellington CBD office market increased from 8.0% to 8.2% of the total stock. In the prime sector, vacancy rates decreased from 10.7% to 10.2%. However, vacancy rates in the secondary quality sector increased from 7.4% to 7.7% and suggest that the vacancy dynamic in the Wellington CBD will increasingly mirror that found in Auckland, specifically, low vacancy rates for prime property and higher vacancy rates for secondary property. The JLL five-year total market vacancy forecast for Wellington is about 7.2%, with the prime sector vacancy rate forecast to be about 5.2%. Portfolio Operations OverviewDuring the period in review, the Trust continued to maintain a tight focus on actively managing the portfolio. Despite the office property sector failing to capture any significant spillover benefits from a growing economy, the achievements recorded at the asset and portfolio level during the period are a strong indication of how active management can add to performance in challenging market conditions. Key operational highlights included:
Looking to the future, the Trust will continue to crystallise value-adding opportunities by actively managing the portfolio. Achievements over the past year have established a strong platform for the present year and the future. The Trust will be releasing its annual report in early October, and will be holding a General Meeting at the Wellington Parkroyal Hotel in late October 2000. The record date is the 22 September followed by the ex date on the 25 September 2000. Robert Lang |