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AMP NZ Office Trust first-quarter result

News release – October 22, 2009

AMP NZ Office Trust first-quarter result in line with expectations

AMP NZ Office Trust (ANZO), New Zealand’s largest listed investor in prime commercial office property, says performance for the three months to September 30, 2009 has been in line with expectations.

Higher rental revenues and lower interest costs have helped ANZO achieve a 19.9 percent increase in distributable profit1 for the quarter.

Chief executive Robert Lang noted that, although the result2 was undoubtedly positive, some figures appeared more favourable due to timing differences in comparison to the previous corresponding period. This effect would even out over the course of the financial year.

Rental revenues for the first quarter were up 6.8 percent to $34.99 million, as a result of rent reviews, new leases and lease renewals carried out during the second half of the 2009 financial year and in the first three months of the current 2010 financial year. Mr Lang said the first-quarter rental revenues included one-off payments arising from the high volume of rent reviews in the previous year, some of which had taken an extended period to settle in the current economic environment.

ANZO’s interest costs for the first quarter reduced by $2.13 million or 32.8 percent to $4.37 million, showing the effect of ANZO’s pro rata renounceable rights issue in May/June 2009, which raised $201.3 million in new equity capital used to retire bank debt.

Asset management fees for the quarter were also reduced by 15.5 percent, due to reduced portfolio values. ANZO’s net operating profit after current taxation – the profit available for distribution to investors – was $16.08 million, showing a $2.64 million increase over the previous corresponding period.

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Earnings per unit, based on operating profit after current taxation, were 1.61 cents per unit, compared with 1.95 cents per unit for the previous corresponding period. This reflects the increased number of units on issue following the capital-raising (about 45 percent higher than the previous corresponding period).

ANZO unit-holders will receive a gross first-quarter distribution of 1.764 cents per unit (net 1.499 cents per unit). The record date is 6 November 2009 and payment will be made on 13 November. While lower than the previous corresponding period this distribution is in line with projections announced during the capital raising. “We have previously advised that ANZO is targeting a full-year gross distribution of 7.058 cents per unit for the current financial 2010 year, representing an increase of 2.0 percent on the previous year. We remain confident in that projection, assuming no significant changes in market conditions during the year.”

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 a net 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 ANZO’s first-quarter financial statements are not audited.

profit of $14.69 million for the three months to September 30, 2009. This includes a gain in the fair value of ANZO’s interest rate swaps, as well as the revaluation on completion3 of the 21 Queen St redevelopment project. ANZO’s gearing at the end of the first quarter remained steady at 20.4 percent, one of the lowest ratios in the Australian and New Zealand listed property sectors and providing good headroom to the gearing covenants and interest cover ratios.

Portfolio occupancy was 90 percent, down from 97.2 percent at June 30, primarily as a result of 21 Queen St becoming part of the investment portfolio on completion of the redevelopment project, in combination with the expiry of IAG’s lease at 151 Queen St in Auckland.

Mr Lang noted that bringing portfolio occupancy back into line with ANZO’s recent high levels was a key focus and would deliver direct flow-through benefits to ANZO’s bottom line.

21 Queen St accounts for about 5.5 percent of the portfolio. Real estate services company CB Richard Ellis was last week confirmed as the first office tenant for 21 Queen St, taking a nine-year lease for all of Level 14, and there is active interest in the balance of the space.

Mr Lang acknowledged that the financial performance of the project had been disappointing, with the valuation on completion materially below the expected final cost. However, the valuation was influenced by the building’s largely vacant status and is expected to improve as further office tenants are secured.

In addition to the CB Richard Ellis lease, Mr Lang said other portfolio highlights of the quarter included: • A new 6-year lease to NZ Funds Management for 2 levels in ANZ Centre in Auckland • Lease renewals by insurance company IAG (five-and-a-half floors) and property agency DTZ (one floor) at State Insurance Tower in Wellington, and ANZ Bank (six levels) at the ANZ Centre in Auckland • A total of 21 rent reviews, representing about 10 percent of ANZO’s portfolio area and resulting in an average increase of 27.4 percent over the previous contract rents.

Due to successful lease renewals and new leases scheduled, lease expiries for the remainder of the financial year have been reduced from more than 11 percent of portfolio area to about 8 percent (including 21 Queen St) .

Rent reviews were scheduled to take place on about 33 percent of the portfolio area during the remainder of the year.

“We expect market conditions to remain challenging until at least the end of 2010, with unemployment in particular providing a test for property market fundamentals,” said Mr Lang. “Notwithstanding that, business confidence is on the increase and tenants are proving more willing to make office accommodation decisions.” ANZO is managed by AMP Haumi Management Limited. • ANZO’s annual unit-holder meeting is being held in Wellington today, followed by a presentation and tour of 21 Queen St in Auckland tomorrow.

3 As announced on October 16, the revaluation on practical completion of 21 Queen St showed a $4.5 million reduction in value. However, because other costs of the project were lower than expected, the net effect in ANZO’s financial statements is a reduction of $1.4 million.


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