Biggest listed property company back in black

AMP NZ Office Trust has come back into the black after bottom line losses in recent years due to downward property valuations.

The portfolio continued to lose value in the 12 months ending June 2011 but at a much reduced rate.

In common with the reporting of other listed property companies recently, the company’s official media statement highlights a confusing array of positive financial movements.

The balance sheet appendix to the Stock Exchange shows that rental income was the same as the previous year at $137 million. Direct expenses reduced this to $101.1 million. There was a range other “indirect” costs such as interest ($22.5 million), and non-operating costs including $36 million in downward revaluations of investment properties ($115 million last year).

All of these direct, indirect and non-operating expenses reduced the profit before tax to $23.3 million. Tax took $12.9 million (affected by higher provision for Zurich House), leaving the bottom line profit at $10.4 million (a loss last year of $43 million). 

But the total amount that will be paid out for the 5.47c a share dividend will be $61 million, which is the operating revenue minus expenses and tax, but before the other abnormal items like devaluations. The company has a policy of paying out approximately 90% of after tax revenue.

Devaluations mostly affected the ANZ Centre in Auckland and Chews Lane in Wellington (sold at $15 million loss over three years in two tranches). The total portfolio is now worth $1.254 billion compared with $1.276 billion last year.

Because the company recorded a 28.9% total return compared with the benchmark New Zealand listed property sector return (excluding AMP NZ Office Trust) of 21.3%, this meant the then external manager enjoyed two performance fees in the final two quarters of the financial year of $956,475 and $1,010,895 respectively.

However, one of the biggest changes for the company during the year was the adoption of a corporate rather than trust structure (while retaining an external manager) and this resulted in a fee rebate of $741,756 and therefore management fees that were $700,000 lower than the previous period.

The company negotiated a new $400 million bank debt facility, increasing the size and term of funding, providing for all committed capital projects.

Gearing is 25%. “The board of ANZO considers the current level of gearing to be suboptimal and will continue to consider accretive opportunities over time”.

As a result of corporatisation, the company now has its own board of directors independent of the external manager. Another consequence was the change in fee structure, resulting in the manager reducing its base fee and putting a performance fee in place where the manager is rewarded when outperforming listed peers.

Portfolio occupancy increased to 94% from 90%. Highlights include a new 15 year lease with ANZ which will take an additional 10 floors in the ANZ Centre, Auckland to 17,700sqm. This lease requires the company to redevelop ANZ Centre during the next two years.

Post balance date, AMP NZ Office has struck two big leases – PricewaterhouseCoopers leasing 10,000sq m in PricewaterhouseCoopers Tower, Auckland for nine years; and Marsh Mercer committing to 3000sq m in SAP House (151 Queen Street, Auckland ) for 10 years.

After a review of its existing outsourced property management arrangements, the manager will provide these services by directly employing employ 14 property management professionals to handle the day-to-day affairs. 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.”