AMP NZ Office Trust (ANZO), New Zealand's largest listed investor in prime commercial office property, today reported an interim net operating profit after tax of $32.1 million, up $5m on the same period last year.
The company said it was maintaining unit-holder distributions for the first six months of this financial year in line with expectations but expressed concerns about the impact of two of recommendations included in the recent report by the Tax Working Group.
Chairman Craig Stobo said the proposed removal of building depreciation and the introduction of a land tax, if adopted, would have a negative impact on the near-term stability of earnings and investor distributions for ANZO and other commercial property entities.
ANZO's prospective after-tax distributable profit for the coming 2011 financial year would be reduced by about 8-10 percent in a worst-case scenario, if the depreciation allowance on buildings was fully abolished.
"Listed property is an investment which is particularly popular with older investors, who are already finding it tough in this economic environment and depend on regular income from their investments," said Mr Stobo.
There was also a potential impact on businesses from the proposed land tax, as the most likely outcome was that this would be passed through to building occupiers as permitted by the majority of lease contracts.
"The burden of these proposed taxes is therefore going to be borne by investors who have taken steps to provide for their future, and the businesses which are providing jobs for the current generation of workers - neither of which have much ability to absorb new costs in the current economic environment," said Mr Stobo.
For the six months to December 31, ANZO unit-holders will receive a gross second-quarter distribution of 1.764 cents per unit (net 1.523 cents per unit). This was consistent with the first-quarter distribution on a gross basis.
Chief executive Robert Lang reconfirmed that ANZO was on track for a full-year gross distribution of7.058 cents per unit for this financial year, representing an increase of 2 percent on the previous year.
Mr Lang said ANZO's distributable profit for the six months was up 18.5 percent on the previous corresponding period, on the back of higher rental revenues and lower interest costs and asset management fees.
Rental revenues for the interim period rose 7.8 percent to $70.32 million, as a result of continued positive rent review outcomes, new leases and lease renewals. Mr Lang noted that the rental revenues figure included some payments in settlement of rent reviews begun during the previous financial year and reflected growth in market rentals which had taken place during past years.
ANZO's interest costs for the six months were down $3.22 million or 24.3 percent to $10.02 million, following the partial repayment of bank debt last financial year.
Asset management fees were 14.2 percent lower, due to reduced portfolio values.
Earnings per unit, based on operating profit after current taxation, were 3.22 cents per unit, compared with 3.94 cents per unit for the previous corresponding period. This reflected the increased number of units on issue following last year's capital-raising.
Taking into account a number of non-cash adjustments in reporting net profit, ANZO recorded an unrealised net loss of $27.76 million, for the six months. This included the interim portfolio revaluation announced in December, which resulted in a net decline of $63.12 million.
Portfolio occupancy remained relatively steady at 89.9 percent.
"Vacancy levels, both within the portfolio and in the market, are now rising off historic lows and this is translating into downwards pressure on rentals," said Mr Lang.
"We anticipate ANZO's distributable profit for the full financial year to 30 June 2010 to be approximately level with the previous year.
"Looking further ahead, growing ANZO's unit-holder distributions in 2011 will be contingent on factors such as achieving leasing targets for 21 Queen St, improving occupancy across the portfolio and market, and the proposed tax changes being considered by the Government."