AMP NZ Office Trust records 47 net surplus lift

News release

AMP NZ Office Trust records 47 percent lift in net surplus following PricewaterhouseCoopers Tower completion

AMP NZ Office Trust (ANZO) has announced a net surplus for the year to 30 June 2002 of $30.9 million, a 47.7 percent increase over the previous year.

The lift in net surplus is largely a result of the development profit margin from ANZO’s PricewaterhouseCoopers Tower project on Auckland City’s waterfront.

Valued at $170.0 million, the new Quay St building was officially opened by the Prime Minister in June and incorporates the latest in office development – from hotel-styled public lobbies, high-speed lifts and ultra-large column-free office floors.

The project earned ANZO a development profit margin of $22.3 million. Included within this are interest savings made possible by ANZO’s use of funds from the sale of the Wellington Parkroyal Hotel 12 months ago. ANZO has decided to distribute this portion of the profit to its investors, in recognition of the fact that many unit-holders rely on yield rather than capital gain.

This treatment, which has a neutral effect on total returns, means ANZO will maintain a consistent un-imputed distribution of 7.1 cents per unit for the full year.

A unit trust listed on the New Zealand Stock Exchange, ANZO invests predominantly in prime CBD office properties in major New Zealand cities. ANZO owns seven of New Zealand’s premium office buildings – Auckland’s PwC Tower, ANZ Centre, NZI House and Quay Tower; and Wellington’s IBM Centre, 125 The Terrace and No. 1 The Terrace.

To enable meaningful year-on-year comparisons following two key portfolio events, ANZO has released normalised figures for 2002. The 2001 financial statements contained a full year’s revenue and expenses from the Wellington Parkroyal Hotel, since sold by ANZO. Meanwhile, during the 2002 year, the PricewaterhouseCoopers Tower development contributed additional revenue, property expenses and indirect expenses. The normalised figures exclude the effects of both properties.

The term “core portfolio” refers to the six properties which made up ANZO’s investment portfolio for most of the 2002 financial year.

ANZO’s executive manager, Robert Lang, said the core portfolio had once again benefited from a market lift in premium rents and positive outcomes from rent reviews, new leases and lease renewals. Total operating income from the core portfolio was $47.3 million, an increase of $1.6 million or 3.6 percent over the previous year.

A continued focus on cost containment and operational efficiencies limited the rise in total direct operating expenses to $0.2 million or 2.0 percent. “This is a creditable outcome, particularly in the context of a substantial increase in worldwide insurance premiums in the last 12 months,” said Mr Lang.

Overall, the value of ANZO’s portfolio improved from $385.0 million to $555.9 million with the completion of the PricewaterhouseCoopers Tower. Excluding this property, the value of property assets declined in value by 2.8 percent from $397.0 million to $385.9 million.

Mr Lang said three main factors contributed to the drop in value – weaker capitalisation rates and discount rates adopted by property valuers, over-renting in the portfolio and the write-off of capital expenditure projects carried out to help make ANZO properties a better leasing proposition.

“Over-renting in ANZO’s portfolio is currently 12.4 percent, down from 19.1 percent last year, and if current conditions continue, the future impact of over-renting is expected to reduce significantly,” said Mr Lang.

Including the development profit margin from the PricewaterhouseCoopers Tower, net tangible assets per unit rose 2.2 percent from $0.854 per unit to $0.873.

Twenty new leases and renewals were completed in the core portfolio, with a further six new leases secured for the PricewaterhouseCoopers Tower while it was under development. Ten rent reviews were settled during the year, seven of which resulted in increased rentals.

Office occupancy across the ANZO portfolio reached 95 percent at year-end.

“The completion of PricewaterhouseCoopers Tower was a tremendous achievement for ANZO. The development was completed ahead of schedule and in line with our target valuation of $170.0 million. Occupancy in the building is currently 91 percent and represents an excellent result given that it’s been only three months since the doors opened. Tenant enquiry on the balance of the space continues,” said Mr Lang.

“Feedback from tenants occupying PricewaterhouseCoopers Tower, industry and property market commentators and the public has exceeded ANZO’s expectations. ANZO’s position as New Zealand’s leading supplier of premium office accommodation is now confirmed.

Mr Lang said the PricewaterhouseCoopers Tower’s income yield on project cost for the first year to 30 June 2003 is forecast to be 8.8 percent, rising to 9.8 percent when the building is fully occupied. In both cases, the yield is accretive to (adds to) ANZO’s earnings.

ANZO is managed by AMP Henderson Global Investors, New Zealand’s largest private property investment manager with $1.5 billion of property under management.

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