ANZO third-quarter result in line with expectations

April 23, 2010

AMP NZ Office Trust (ANZO), New Zealand’s largest listed investor in prime commercial office property, remains on track for a solid full-year performance after posting its third-quarter result today.

ANZO has previously indicated that its distributable profit for the full financial year to 30 June 2010 to be approximately level with the previous year, with unit-holder gross distributions for the full year expected to be 2.0 percent higher.

Announcing ANZO’s result for the nine months to 31 March 2010, chief executive Robert Lang said the distributable profit (1) of $46.99 million represented an 11.9 percent increase over the previous nine-month period, again as a result of higher rental revenues and lower interest costs and asset management fees.

ANZO’s rental revenues were 4.9 percent higher at $104.81 million, reflecting continued positive rent review outcomes, new leases and lease renewals.

Meanwhile, bank interest costs were down $4.4 million or 22.3 percent, following both the reduction of bank debt last financial year and a 15.1 percent reduction in asset management fees.

Earnings per unit, based on net operating profit after current taxation (the profit available for distribution to investors), were 4.71 cents per unit, compared with 6.10 cents per unit for the previous corresponding period. This reflects the increased number of units on issue following last year’s capital-raising.

ANZO unit-holders will receive a gross third-quarter distribution of 1.764 cents per unit, consistent with the first and second quarters. The net distribution will be 1.475 cents per unit. The record date for the third-quarter distribution is 7 May 2010 and payment will be made on 14 May.

ANZO is required under the New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) to take into account a number of non-cash adjustments in reporting net profit. As a result, ANZO has recorded an unrealised net loss of $17.39 million for the nine months. This includes the interim portfolio revaluation announced in December 2009, which resulted in a net decline of $63.12 million (2), as well as a gain in the fair value of ANZO’s interest rate swaps. The net loss for the nine months compares with a loss of $122.5 million for the previous nine-month period. Mr Lang reiterated that the unrealised loss under NZ IFRS does not affect the profit available for distribution to investors.

ANZO’s gearing ratio remains one of the lowest in the Australian and New Zealand listed property sectors, at 21.7 percent as at 31 March 2010, compared with the loan covenant ratio of 40 percent.

As at 31 March 2010, ANZO had 99.6 percent of its total bank debt fixed through interest rate swaps, at a weighted average interest rate of 8.11 percent (including margin and line fee). The interest cover ratio for the 12-month period ending 31 March 2010 was a healthy 3.44 times, compared with a covenant of 2 times.

In late February, proposed changes to the governance and control of ANZO for the benefit of unit-holders, to be approved by unit-holders by 30 June 2010, were announced. These include a proposed new corporate structure and governance model that clearly separates the interests of ANZO and the Manager, and a management fee structure that strongly incentivises the Manager to deliver the best investment outcome for ANZO’s investors.

As part of the move to a corporate structure, Mr Lang noted that there is a requirement to ensure ANZO’s next (fourth-quarter) dividend is paid to unit-holders before 1 July 2010, which is earlier than the usual August/September payment date.

ANZO’s portfolio occupancy rate as at 31 March 2010 remained relatively steady at 89.6 percent, with a weighted average lease term of 4.39 years. To date during the 2010 financial year, ANZO’s asset managers have secured 13 new leases (including three new tenants to the portfolio), covering 19,100 sqm of floor area and a further eight lease renewals accounting for 14,000 sqm. Rentals have so far been agreed on approximately half of these renewals, representing an average 15.96 percent increase over the previous contract rentals.

ANZO has also completed 62 rent reviews covering 64,450 sqm of space, resulting in an average net increase over the previous contract rents of 23.96 percent.

Key portfolio events of the third quarter have included:

• Confirmation of the second-largest lease transaction by floor area in ANZO’s 12-year history – a new six-year lease to the Department of Corrections for the majority of the space in Wellington’s Mayfair House. This has reduced ANZO’s lease expiry profile for the remainder of the 2010 year to 1.6 percent of portfolio area.
• A successful marketing campaign for the sale of five individually-titled retail units in Wellington’s Chews Lane precinct, which has resulted in all five being sold for a total of $11.7 million (before deducting disposal costs). The total realised (before deducting disposal costs) was 11 percent ahead of ANZO’s current book values for the five units. Settlement is due to take place in June 2010 and ANZO will use the sale proceeds to repay bank debt.

Mr Lang said, like others involved in property investment, ANZO’s board and management were looking forward to more detail about the Government’s proposed tax changes being made available in next month’s Budget. As noted in ANZO’s interim result announcement in early February, this – along with other factors such as achieving leasing targets and improving occupancy within the Auckland market – will influence ANZO’s unit-holder distributions in 2011.

ANZO is managed by AMP Haumi Management Limited.

Footnotes:
1. In common with virtually all of New Zealand’s listed property entities, ANZO continues to hold the view that distributable profit is the most relevant indicator of profit. Under NZ IFRS, net profit after tax (NPAT) now includes a number of non-cash adjustments – some of which will never crystallise – such as deferred tax. Other non-cash adjustments include the fair value of interest rate swaps and unrealised revaluation gains/losses on investment properties. These do not affect the profit available for distribution to investors. It should also be noted that the presentation of this result and the accompanying comparative figures is consistent with ANZO’s previous practice since its adoption of NZ IFRS in July 2006.

2. Includes capital expenditure of approximately $3 million for the six-month period to 31 December 2009.

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).