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ANZO Reports Annual Profit of $45.1m

NZX and media announcement – 15 August 2012

ANZO reports annual profit of $45.1 million and continued leasing progress

AMP NZ Office Limited (ANZO) performance summary for the twelve months to 30 June 2012

Profit performance

Net profit after tax of $45.1 million (2011: $10.4 million)

Net operating income


Net operating income is an alternative performance measure which adjusts net profit after tax for a number of non-cash items as detailed in the reconciliation below. This alternative performance measure is provided to assist investors in assessing ANZO’s performance for the year.

30 June 201230 June 2011
$M$M

• of $51.3 million (2011: $61.1 million) or 5.14 cents per share (2011: 6.13 cents per share) , consistent with guidance
• Increase in the current market value of $59 million or 4.8%.

Portfolio performance
• Portfolio occupancy and weighted average lease term of 94% and 5.9 years, respectively
• 16% of the portfolio leased including:
• 20,000 square metres (sqm) of vacant space
• 26,000sqm re-leased, to a total of 46,000sqm in the period
• Property and facilities management brought in-house
• Successful reinvestment of the Wellington Chews Lane proceeds into Bowen Campus with potential for further value-enhancing opportunities
Capital management
• New $125 million bank debt facility expiring July 2017
Corporate initiatives
• Decision taken to change name and corporate identity to better reflect the company’s core values

AMP NZ Office Limited (ANZO) (NZX:ANO) reported its financial results for the 12 months to 30 June 2012 today, showing a net profit after tax of $45.1 million compared with $10.4 million for the previous year.

Scott Pritchard, ANZO CEO, said that while 2012 income had been expected to be a cyclical low for ANZO, he was very pleased that the company had built a strong foundation for future income growth. The highlight for the year was the continued high level of successful leasing, he said.

“We have known for some time that the 2012 results would be impacted by the combination of vacancy from Westpac and BNZ leaving the portfolio, the impact of selling Chews Lane and the interruption to income from the ANZ Centre redevelopment. At the beginning of the year total occupancy fell to 89%. To have built that back to 94% is a terrific result for our team. It is also a testament to ANZO’s refreshed approach to clients combined with a portfolio of quality assets.”

“This leasing progress, our acquisition of Bowen Campus in Wellington and a positive outlook for the prime CBD office market puts the company in a strong position. We look forward to building on this in the coming year.”

Mr Pritchard said ANZO had leased a total of 110,000sqm over the last two years, an increase of 50% over the previous corresponding period.

Key factors driving this growth were the improved market conditions in Auckland, where vacancies in premium space continue to fall, and a continued flight to quality in Wellington where ANZO is strongly positioned as the owner of premium office space.

Mr Pritchard said that, it had been a highly successful year.

“Many of the gains followed changes in the company’s structure and culture over recent years. Since launching as a property investment product 15 years ago we have evolved into a client focused property investment enterprise. We have decided therefore to adopt a new name and corporate identity to better reflect the company we have become. Further details will be announced shortly,” he said.

Result overview

The main driver of the increase in net profit after tax to $45.1 million (2011: $10.4 million) was a turnaround in the valuation movement for ANZO’s property portfolio from a loss of $36.3 million last year to a gain of $5.5 million this year. Excluding Bowen Campus and Chews Lane, the portfolio weighted average (by income) capitalisation rate has compressed from 7.90% a year earlier to 7.78% and market rentals have increased slightly, both contributing to an increase in the current market value to 30 June 2012 of $59 million or 4.8%.

ANZO’s rental income was $127.3 million or 7.1% lower than the previous year (2010: $137 million). This was almost entirely due to the sale of the Wellington Chews Lane property, the departure of Westpac and BNZ from the portfolio and the redevelopment of Auckland’s ANZ Centre. Allowing for these events, like-for-like income was 3.4% higher than in the previous year due to higher occupancy within Zurich House

Interest expense was 6.7% lower, reflecting lower debt levels following the sale of Chews Lane and lower borrowing costs.

ANZO recorded a 19.3% total return for the year to 30 June 2012. This exceeded the benchmark New Zealand listed property sector return (excluding ANZO) of 11.6%. This outperformance has led to three performance fees being paid compared with two in the previous year This has contributed to the increase in management fees and administrative expenses.

Tax was $7.2 million (2011: $8.5 million) reflecting lower pre-tax profit.

The fair value loss in interest rate swaps of $5.1 million reflected the significant reduction in market interest rates since 30 June 2011.

Collectively the revaluation, Bowen Campus acquisition in Wellington and redevelopment of ANZ Centre in Auckland, offset by the sale of the remaining Chews Lane property, have increased the total value of ANZO’s portfolio to $1.32 billion (2011: $1.25 billion). This has been funded through an increase in bank borrowings to $346.5 million (2011: $282.5 million).

ANZO’s net tangible assets (value) per share at balance date was 88 cents per share, compared with 87.9 cents per share as last reported at 31 December 2011.

Capital management

The reinvestment of the proceeds of the Chews Lane sale into Bowen Campus was one of the highlights of the year. The acquisition provides an opportunity to invest in a strategic asset with an acceptable level of risk.

The Bowen Campus acquisition was funded through ANZO’s existing bank debt facilities. These were amended through a new $125 million tranche expiring in July 2017 and a reduction in the July 2013 expiry of $50 million.

The amended $475 million facility has a weighted average term to expiry of 32 years (2011: 3.3 years).

ANZO’s gearing increased to 27% at 30 June 2012, reflecting the ANZ Centre redevelopment and the Bowen Campus acquisition. This compares with 24% at 30 June 2011 and is well within our banking covenant of 50%.

Of ANZO’s drawn bank debt 63% was hedged through the use of interest rate swaps for an average term of 4.3 years. The additional debt drawn to acquire Bowen Campus has resulted in a significant reduction in ANZO’s weighted average debt cost to 6.8%

Corporate initiative

Today ANZO is announcing its intention to adopt a new company name and corporate identity, effective from 28 September 2012. This decision has not been made lightly. The highly respected AMP brand has supported ANZO to grow since its inception in 1997. However independent studies conducted shortly after corporatisation highlighted identity confusion in both property and investment markets.

ANZO has now grown into a business in its own right. A new name and corporate identity will better reflect this and the position the company now enjoys in the market and with its clients.

AMP Capital remains committed to the success of ANZO. It retains a 50% interest in AMP Haumi Management Limited, the Manager of ANZO.

Seismic review

As a result of Christchurch’s earthquakes in 2010 and 2011, clients have understandably become more focused on the structural integrity of buildings.

ANZO’s primary structural engineering adviser, Holmes Consulting Group (HCG), has continued its staged comprehensive review of ANZO’s portfolio to identify potential vulnerabilities should a large earthquake occur.

ANZO’s instructions to HCG have been to advise ANZO on a “best practice” basis. This considerably exceeds a simple level of compliance. The initial assessment across the portfolio is complete. More detailed studies involving computer-simulated 3D modelling on some buildings have also been completed. Advice to date continues to confirm that the ANZO portfolio, excluding the Central Police Station is compliant and well placed overall, relative to building code requirements in Auckland and Wellington.

Ongoing seismic improvement works will be funded through the use of ANZO’s policy of retaining 10% of operating income to fund long-term maintenance capital expenditure. The total cost of this programme is expected to be in the range of $15-$25 million over the next 5-8 years.

In June ANZO confirmed its intention to undertake seismic strengthening work at the former Central Police Station in Wellington, at a cost of $3 million.

Commercial terms have been agreed with the majority of clients within the building, enabling them to relocate to space in ANZO’s portfolio. These works are expected to commence in early 2013.

Portfolio performance

Continued leasing success in the year saw occupancy restored to 94%. Thirty-three new leases covering 20,000 square metres of vacant space helped rebuild occupancy following the departure of key clients Westpac and BNZ from the portfolio, which had resulted in a fall in total occupancy to around 89%.

Sixty-five leasing transactions of 46,000 square metres were secured in the period. This accounted for around 16% (by Net Leasable Area) of the portfolio. Leasing transactions in the period were secured on a weighted average lease term of 6.6 years. This increases ANZO’s weighted average lease term to 5.9 years from 5.8 years at 30 June 2011.

The Auckland leasing market has continued to strengthen, as evidenced by both Zurich House (post balance date) and ANZ Centre now being 100% leased. Significant progress has also been made on leasing the former Westpac vacancy at PwC Tower and at SAP Tower.

Vacancy in Auckland premium grade office space has fallen significantly over the 12 months to 30 June 2012. According to Colliers International Research at 30 June 2012 premium grade office vacancy was 7.7% compared to 13.5% at 30 June 2011. This tightening in supply has led to most research houses now forecasting a good level of market rental growth.

ANZO’s focus on strengthening key client relationships has continued. This has been evidenced by two key cross-city leasing successes, AON New Zealand and Regus. These two existing Auckland clients have committed to nine years and ten years respectively within State Insurance Tower and 171 Featherston Street, respectively.

Wellington occupiers continue to target prime and A grade quality buildings as evidenced by new clients Baldwin Holdings Limited and AON New Zealand. There remains the potential for new supply with premium vacancy remaining low at 3.0% and demand increasing from occupiers seeking strong buildings.

ANZ National Bank (ANZ) has committed to a further three floors or 3,900 sqm within the ANZ Centre in Auckland. ANZ will now occupy 21,500 square metres compared with their original commitment of 17,700 square metres.

Redevelopment works are progressing well at ANZ Centre in Auckland. The project is on budget and on track to reach practical completion in mid 2013. Phase one has been achieved (post-balance date). Over 6,700 square metres, or seven floors, have been delivered to the ANZ.

Earnings and distributions

ANZO shareholders will receive a fourth-quarter dividend of 1.26 cents per share plus imputation credits of 0.1495 cents per share, consistent with the previous dividend. Overseas investors will receive an additional supplementary dividend of 0.067842 cents per share to offset non-resident withholding tax. The record date is 30 August 2012. Payment will be made on 13 September 2012.

The Board of ANZO expects full year earnings for the 2013 financial year of approximately 5.7 cps (before performance fees) or 5.5 cps (assuming 50% of the maximum performance fee is payable). ANZO expects to pay a dividend at a similar level to the 2012 financial year, consistent with the plan to move to a 90% payout level by the 2014 financial year.


About ANZO

ANZO is New Zealand’s only specialist listed investor in prime and A-grade commercial office property. Listed on the New Zealand Exchange, ANZO currently owns 15 New Zealand office buildings – Auckland’s PricewaterhouseCoopers Tower, ANZ Centre, SAP House, AMP Centre and Zurich House; and Wellington’s State Insurance Tower, Vodafone on the Quay, 171 Featherston Street, 125 The Terrace, No. 1 and 3 The Terrace, Pastoral House, Mayfair House, AXA Centre, Bowen Campus and Deloitte House.

ENDS

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