Solid full-year result for ANZOAugust 11, 2011 AMP NZ Office Limited (ANZO) has posted a solid result for the full year to 30 June 2011. Operating profit was ahead of forecasts at $61.1 million (2010: $60.7 million) driven by improved occupancy, resilience in market rents and lower expenses. Net profit after tax was $10.4 million (2010: $43.0 million loss). Highlights of the year include:
Financial performance While property expenses have reduced from the previous year due to a lower level of non-recoverable expenses, this favourable result has been offset by increased interest costs due to the completion of the Zurich House redevelopment. This therefore requires interest costs associated with that asset to be expensed rather than capitalised. ANZO has recorded a 28.9 percent total return for the year to 30 June 2011 compared with the benchmark New Zealand listed property sector return (excluding ANZO) of 21.3 percent. This outperformance has led to two performance fees being paid in the final two quarters of the financial year. Notwithstanding these two performance fees - being $956,475 and $1,010,895 respectively - the fee rebate of $741,756 as a result of the corporatisation has led to ANZO’s total fees payable to the manager being $0.7m lower than the previous period. Leasing costs as a result of the considerable leasing successes during the year have contributed to a decline in the current tax charge from $9.4 million to $8.5 million. As a result of these movements, operating profit after current tax has increased to $61.1 million from $60.7 million, or 6.13 cents per share compared with 6.08 cents per share for the previous year. This represents a solid result, ahead of guidance at the half year of 5.9 to 6.1 cents per share. As a result of the early adoption of NZ IAS 12 (Income Taxes), ANZO’s deferred taxation liability in relation to investment properties now represents the tax consequences of a sale at market valuation, with the comparative period balances being restated accordingly. The deferred tax expense is mainly due to an increase in the provision for depreciation recovered, compared with the prior year’s reduction in the provision for depreciation recovered due to the change in the company tax rate from 30 percent to 28 percent and devaluations. ANZO’s annual portfolio revaluation as at 30 June 2011 resulted in an unrealised decline in value of $36.3 million or 2.8 percent. Excluding the ANZ Centre (the valuation of which takes into account the cost of the upcoming redevelopment including contingency and an assumed development profit), the decrease in portfolio value was limited to $19.6 million or 1.8 percent. The weighted average capitalisation rate across the portfolio (excluding the ANZ Centre) was 8.04 percent, down from 8.14 percent a year earlier. The revaluation brings the total value of ANZO’s portfolio to $1.25 billion, with net tangible assets per share reducing from 93.5 cents per share to 88.5 cents per share. A non-cash accounting adjustment of $8.2 million was made by way of a write off against the opening balance of capitalised rental incentives and leasing fees. This accords with investment property valuations being stated inclusive of these amounts in accordance with NZ IFRS. Capital management ANZO’s revised dividend policy, adopted during the year following a board review, is to pay out around 90 percent of annual distributable income. This is being phased in over the next three years. As announced in March, the third and fourth quarter dividends for the 2011 year have been based on the expected 2012 dividend, resulting in an 89.3 percent total payout ratio for the 2011 financial year. The sale in July of almost all of ANZO’s remaining retail and office investments in Wellington’s Chews Lane realised a total of $48.9 million. A 3.3 percent premium to the property’s 2010 financial year valuation. The proceeds are expected to be reinvested in future value enhancing opportunities. One retail unit remains for sale. Following settlement of the Chews Lane transaction (post balance date), ANZO’s gearing is 21 percent. After commitments it increases to 25 percent. The board of ANZO considers the current level of gearing to be suboptimal and will continue to consider accretive opportunities over time. Corporate initiatives Portfolio performance The key success for the period was the new 15 year lease with ANZ. ANZ will become ANZO’s largest customer by agreeing to lease an additional 10 floors. This will take the bank’s total occupancy within the ANZ Centre to 17,700sqm. This lease commitment requires ANZO to undertake a comprehensive redevelopment of the ANZ Centre during the next two years. Leasing momentum continues at Zurich House with infrastructure consulting firm Parsons Brinckerhoff committing to nine years. This lifts building occupancy to 70 percent, up from 10 percent 12 months ago. Further leasing successes during the year increased ANZO’s WALT to 5.8 years from 4.6 years at 30 June 2010. Major leasing transactions during the year are outlined below:
Post balance date two further key leasing transactions have been achieved. They are PwC leasing over 10,000sqm within PricewaterhouseCoopers Tower for a nine year term and Marsh Mercer committing to 3,000sqm within SAP House (151 Queen Street) for a ten year term. Adjusting for post balance date leasing, ANZO’s WALT as at 30 June 2011 is now 6.2 years. Rent reviews settled during the year equated to 16 percent of ANZO’s portfolio by net property income. This resulted in a weighted average reduction in contract rents of 1.7 percent, better than market forecasts. This again evidences a stabilisation of market rents. Scott Pritchard, chief executive of ANZO, said: “Enquiry levels remain strong, particularly for high quality space. The resilience of the portfolio’s contracted rentals through market rent reviews over the past two years demonstrates the merits of ANZO’s strategy of owning high quality real estate.” Property management The manager will provide property management services on a cost recovery basis. Importantly this market leading transparent approach will bring ANZO into closer contact with its customers with a continuing focus on service levels and performance. This initiative will commence on 1 December 2011 for an initial 3 year term. Outlook ANZO has previously provided earnings guidance for the year to 30 June 2012 of between 5.1 cents per share and 5.4 cents per share. The expected reduction in earnings from the 30 June 2011 financial year is principally due to lower occupancy. This arises from the departures of Westpac from the PricewaterhouseCoopers Tower and the Bank of New Zealand from the State Insurance Tower. Scott Pritchard said: “While global economic conditions remain uncertain, ANZO’s balance sheet strength and recent portfolio improvements ensure it is well positioned. The Auckland and Wellington office markets have stabilised. The earnings outlook for ANZO highlights how property lags the general economy. That said, we are confident that stability in earnings will return with the potential for growth from 2012-13 onwards”.
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