ING Property Trust announces record profit

NEWS RELEASE I N G P R O P E R T Y T R U S T Auckland • 28 May 2007

ING Property Trust announces record profit

ING Property Trust (the “Trust”) today announced a record unaudited after tax profit of $121.0 million for the year ended 31 March 2007, an increase of 32% on the $91.4 million after tax profit reported for the year ended 31 March 2006. The result includes property revaluations of $77.6 million ($49.5 million in 2006).

Andrew Evans, Director, said “One of the key strengths of the Trust is the breadth and depth of properties and tenants, and the associated diversification benefits they bring. With this also comes an opportunity to undertake building expansion works and other high return, value-add projects to satisfy the occupancy requirements of tenants from within the portfolio. Adding value through active building and tenant management remains a core focus."

With the increasingly competitive local investment environment the Trust will continue to seek opportunities both off market and through joint ventures and development arrangements. The success of the Manawatu Business Park joint venture is an example of the types of development that the Trust will target going forward. A critical element of the transaction is the mitigation of development risk with a land return being paid to the Trust until developments are completed.

The Board of ING Property Trust Management Limited (the “Manager”) will continue to seek innovative ways to add value for unitholders.

Highlights

• A gross dividend of 10.5 cents per unit for the 12 months to 31 March 2007

• A total unitholder return of 22.6% for the 12 months to 31 March 2007

• A strong focus on leasing saw the property portfolio maintain a near 100% occupancy at year-end and record an 87% tenant retention rate

• A weighted average lease term of 4.8 years, providing strong rental security

• The largest diversified property vehicle listed on the New Zealand stock exchange with a portfolio of 97 buildings valued at $1.0 billion. The Trust provides space solutions for over 350 tenants

• The acquisition of a 50% interest in the 70 hectare Manawatu Business Park in Palmerston North and successfully signing up 5 new tenants for 10,000 sqm of new space

• The largest ever property revaluation gain experienced by the Trust saw the net asset backing per unit increase to $1.30 at 31 March 2007

• Taking advantage of the continued strength in demand for investment property assets with the sale of 3 properties for $36 million, realising gains of $7.5 million

• Active portfolio management and the remoulding of the property portfolio (through acquisition and disposal) continued to ensure investors benefit from sound financial returns across the entire property cycle.

Adding value

This year there has been significant opportunity to add value to the Trust at all levels. Industry wise the recent passing by Government of new tax legislation that has significant benefits for most Trust unitholders.

The Government passed the Taxation (Savings Investments and Miscellaneous Provisions) Act 2006 on 12 December 2006 with the legislation taking effect from 1 October 2007. Michael Smith, Chairman, said that “this significant piece of legislation will provide a considerable enhancement in after tax returns for most of our New Zealand resident investors.” He went on to comment that he does not believe the impact of the increased net distribution has been fully reflected in the unit price yet.

At the strategic level the Trust announced in 2006 that it would invest in bare land and projects to provide a pipe line of new investment properties. This was followed by the announcement that the Trust had acquired a 50% interest in North East Industrial Limited, which owns 70 hectares of industrial zoned land in Palmerston North, recently renamed the Manawatu Business Park. The acquisition includes three brand new investment properties leased on long term arrangements to strong tenants. Since the initial acquisition in July 2006 a further five tenants have signed agreements for new buildings to be constructed for them at the Manawatu Business Park. Upon completion these new buildings will add an additional $1.0 million of rental income and deliver property yields of between 8.7% and 10.0%.

Another strategic initiative was the proposal to investigate international expansion. The economics of investing into the Japanese real estate market are compelling, more so with the property recovery and emergence of the rent growth cycle that is occurring. Despite the recognition of the enhanced returns this strategy was projected to deliver, some unitholders were of the view that the additional risk of offshore investment did not justify the investment. After reviewing all feedback the Board of the Manager determined to defer offshore investment by the Trust.

The Board is continuing to evaluate the benefits to both the Trust’s and Calan Healthcare Properties Trust’s unitholders of a merger based on a scrip for scrip exchange. An announcement on the status of the discussions between the Boards of the respective Trusts is expected shortly.

Within the portfolio itself, the Manager has seen a continued focus on adding value through our relationships with our tenants and through executing specific building opportunities as they occur.

Examples include: (i) the $7 million capital expenditure on constructing a new cool storage facility to the rear of an existing building owned by the Trust and (ii) lease restructuring and building upgrades which have significantly enhanced the value of the property assets.

Acquisitions

During the year properties with a combined value of just over $74 million were acquired. The acquisitions include the 50% interest in North East Industrial Limited (the owner of 70 hectares of industrial-zoned land in Palmerston North together with three new income earning assets), the five level IBM office building located on Hobson Street close to the Viaduct Basin, and a new purpose-built distribution centre in Whangarei for United Carriers. The United Carriers property was acquired in an off-market transaction and is subject to a 15 year lease. The other acquisitions include a 17 unit convenience retail centre at 792 Great South Road, Manakau adjacent to the new Telstra Events Centre and two strategic acquisitions being (i) the purchase of the land interest in the Woolworths Hamilton property not already owned by the Trust and (ii) the purchase of 19 car parks in the purpose-built car park building adjacent to the Citibank building in downtown Auckland.

Post balance date the Trust has acquired an industrial building in Napier that is earmarked for conversion to bulk retail. This project, which commenced with a site rezoning, is underway.

Acquisition of development land in Albany

The Board today announces its intention to take part in a new development initiative with an expected end value in excess of $150 million at Albany City on Auckland’s North Shore.

This follows the successful negotiation by the Trust to acquire, for $24.44 million, a perpetual leasehold interest in a 4.8 hectare undeveloped site in Albany from Albany City Holdings Limited (“ACHL”) a company associated with the St Laurence and Symphony groups. The Trust has also agreed to enter into a development agreement with Symphony Projects Management Limited (“SPML”) who as developer, will put together three separate but complimentary development proposals for the land. The Trust has the right, but not the obligation, to proceed with any development proposed by SPML. If the Trust elects not to proceed with a development, the Trust’s leasehold interest in the land will be repurchased by Symphony.

Development of the land is expected to commence shortly and would continue over the next three to five years.

Mr Evans said “The Albany transaction continues the Trust’s strategy of acquiring bare land with experienced developers in structured transactions. The Albany acquisition is another example of how this strategy can provide the Trust with a pipeline of quality completed buildings at below market prices."

“This transaction provides the Trust with a share of the development profit and a return on its capital during the development phase while exposing it to minimal if any tenant, construction or delivery risk.

Accordingly, the Board of the Manager expects that the asset will provide an attractive risk adjusted total return to the Trust."

The leasehold interest being acquired by the Trust occupies a high profile corner site on Oteha Valley Road in the Albany City precinct. The Albany City precinct is predominantly leasehold land, and is a green fields town centre development that is currently experiencing significant development activity that is reflective of the high tenant demand. The subject site has four street frontages and is in close proximity to North Harbour Stadium, the new Westfield retail centre currently under development and the Albany Mega Centre already owned by the Trust.

Mr Evans said “The demographics in the surrounding area are superior to the Auckland average and the catchment is currently under serviced by the types of developments the Trust intends to undertake. The area is also benefiting from significant development including Westfield’s new Albany shopping centre, the park n’ ride bus service and the North Shore City Council’s new lakes reserve. These and other developments are expected to make Albany City the commercial centre for the North Shore of Auckland."

Work on the first development by the Trust will commence shortly. A Mitre 10 Mega store has been secured as the anchor tenant for the first development, which will have an expected end value in excess of $50 million.

From settlement, a return of 8.0% p.a. on the purchase price will accrue and will become a development cost credited to the Trust prior to the distribution of any profits from development. In effect this means the acquisition will achieve an 8.0% return from settlement.

The development arrangements between the Trust and SPML provide for the development profit (appraisal based end value less cost) from each of the three developments to be distributed 30% to the Trust on a first call basis and 70% to SPML. Any profit beyond the level agreed in the feasibility study for each project is to be split 50/50. The leasing, construction and delivery risk rest primarily with the developer.

A concessionary ground rental has been negotiated so that ground rental costs prior to development are minimised, as well as in times of vacancy.

A waiver from NZX Listing Rule 9.2 (subject to certain conditions) has been obtained from NZX Regulation for the transaction. Therefore, the transaction and its related party aspects will not require unitholder approval. The acquisition is still conditional upon Trustee approval and some procedural requirements.

Active portfolio management

The active management of the property portfolio and tenants continues to be a primary focus of the Trust’s property management team. Active portfolio management incorporates portfolio rebalancing and the recycling of capital by way of asset sales when it is determined that value has been maximised, or the future return – risk profile of an asset does not meet the Trust’s ongoing criteria.

As previously identified the strong market conditions continued over the year with a high level of demand from private buyers for smaller real estate investment through to large offshore purchasers for more significant assets.

The Trust took advantage of the high level of demand by unconditionally selling three assets for $36 million, which realised gains of $7.5 million for the Trust.

In addition to the core hold portfolio, 18 properties have been identified by management for future sale. A number of these properties will require reworking prior to them being taken to the market. However through this process the Manager will be able to maximise the value increment for our unitholders.

Capital improvements

There remains a strong focus on upgrading and improving the Trust’s property assets, and at the same time maximising the value-added opportunities inherent in the portfolio.

Over the year, in excess of $12 million has been invested back into Trust properties to ensure the assets are of the highest possible standard and best able to meet the ongoing needs of tenants.

A number of significant building projects are either underway or were completed during the year. These include construction of a new purpose-built cool store facility in East Tamaki, the construction of an additional retail unit in previously redundant space at the Waitakere Mega Centre and lease restructuring and adding value in conjunction with building upgrades.

In the main building works and property redevelopments were completed in conjunction with new longterm leases. Through this structure the risks associated with property development are considerably reduced and property returns in the form of capitalisation rates are 1.0% to 2.0% higher than are possible through buying developed assets on market.

Management continues to investigate other redevelopment and add-value opportunities within the portfolio – this will remain a core focus and capital will continue to be spent on the Trust’s buildings to ensure the properties are maintained to the highest standard. Management expects annual capital expenditure to be between $10 and $15 million on projects with returns averaging from 8.5% to 9.0%.

Portfolio occupancy

It has been another strong year in-terms of maintaining a high capacity utilization level within the property portfolio.

The portfolio began the financial year with a record-high occupancy rate of 99.4% (3,325 sqm vacant). By year end the property management team of the Manager had improved on the previous record with the Trust experiencing a new record high occupancy rate of 99.8% (983 sqm vacant as at 31 March 2007.) With only 7.6% of the leases due to expire over the next 12 months, occupancy levels should remain at their current high level. Between 13% and 14% of leases are due to expire in each of the following two years. The property management team is in discussion with tenants with leases due to expire over the next 24 months and is focused on ensuring the Trust maintains a high tenant retention rate.

Tenant retention

Due to the strong focus on active tenant and building management, the Trust achieved a tenant retention rate of 87% in 2007. In real terms this equates to 31 tenants being retained representing 47,000 sqm of space and $7.2million of annual rental. Of the space that has been vacated in the portfolio new tenants have been secured and the ingoing rental is typically higher than the rental paid by the outgoing tenant.

Portfolio weighted average lease term (WALT)

The WALT for the entire portfolio has been maintained at 4.8 years at year end. This is particularly pleasing from a risk management perspective when recognition is given to the breadth and depth of the portfolio as well as the highly diversified nature of the buildings, tenants and locations.

New leasings

The Manager has maintained the focus on actively managing tenants and upcoming vacancies to ensure that a high level of portfolio occupancy is maintained. During the period 19 new leases were entered into.

This represents 10,000 sqm leased to new tenants producing $2.2 million of net rental per annum. The average lease term from the new leases is an attractive 7.4 years.

Rental reviews and rental levels

It has been another successful 12-month period in terms of rental reviews. During the reporting period, 110 rental increases were achieved, accounting for a total of $2,490,857 of additional rental income at an average increase of 8.6%. On an annualised basis this equates to an increase of 3.6%. This is well above the budget for the year of 2.1%.

A number of the reviews completed have been subject to CPI rent review mechanisms. If these are removed leaving market only reviews, the annual average increase is close to 4.0%.

Over the next 12 months, 90 rental reviews are due to be concluded.

As at 31 March 2007, the property portfolio in aggregate is 4.5% under-rented. This suggests there are excellent prospects for natural rental growth to flow through over the next 12 months.

Valuations

The valuation policy of the Manager is to procure that independent registered valuers complete property valuations, of each property of the Trust, in each financial year. The same valuer does not value a building for more than two consecutive years, resulting in a rotation of valuers on a regular basis. The core long-term ‘hold’ properties are held at current market value, as assessed by an independent valuer, less an allowance for disposal cost.

The year-end property revaluations were the highest ever achieved by the Trust, with an increase of $77.6 million. The revaluation gains had a positive impact on the Trust’s net asset backing per unit, which rose from $1.17 as at 31 March 2006 to $1.30, an increase of 11.1%.

The properties identified on the disposal list are held in the Trust’s accounts at the lower of cost or net realisable value. The Trust achieved a further $13.7 million of valuation gains from the properties identified for future sale.

Interest rate management

The Trust’s interest rate management strategy is to minimise interest rate costs while limiting the risk of future interest rate increases by utilising hedges and swaps. At balance date, the Trust had $341.1 million of drawn down debt, of which the interest rate risk on $278.0 million was covered by way of swaps. The effective interest rate as at 31 March 2007 (including swaps and margins) was 6.95%.

Income distribution

The Trust declared gross dividends totalling 10.50 cents per unit for the 12-month period to 31 March 2007. The dividends declared had imputation credits of 1.83 cents per unit attached. A gross dividend for the quarter ended 31 March 2007 of 3.0 cents per unit was declared today which includes imputation credits of 0.99 cents per unit. The record date for the distribution will be 15 June 2007, and the payment date will be 22 June 2007. The final quarter distribution includes a one-off imputation credit of 0.50 cents per unit due to the transition into the PIE regime. Under the terms and conditions of the Dividend Reinvestment Plan, no discount will be applied in the calculation of the strike price for the current distribution.

Property overview

Over the past 12 months the New Zealand property market has shown a high level of resilience despite the continued rises in the official cash rate by the Reserve Bank of New Zealand (from 6.75% to 7.75% over the past 2 years). Generally the Manager has seen improving occupancy rates, rising rental levels and firming yields. This has reflected both the prevailing positive sentiment towards property as well as a strength in the underlying economic drivers.

At the fundamental property level the dynamics across the industry remain compelling. Building vacancy levels in most sectors remain at historic lows which is providing landlords with the ability to increase rental levels. Construction cost, which have seen significant increases over the past few years have now started to moderate however are still positive. The high cost for tenants to relocate has assisted with the tenant retention rate within the Trust’s portfolio.

Executive management Andrew Evans, the Managing Director of the Trust's management company will step back from the day to day running of the Trust to focus more on the development of ING’s overall real estate investment and management business. ING is one of the world’s largest real estate managers. In New Zealand, ING’s real estate interests include the management of the Trust, another listed property trust and a number of other properties. Andrew’s new role will focus on the strategic growth of ING New Zealand's real estate business as well as investigating other property-based opportunities. Andrew will remain as a director of the Trust.

Peter Mence, will take over responsibility for the day to day management of the Trust and his full focus will be to generate increased returns for unit holders. Peter has 26 years experience in the property industry, including 14 years with ING. Peter, in his current role as Property Services Manager, has been actively involved in the Trust’s growth since ING became involved with it nearly four years ago.

Looking ahead

The Manager continues to have a positive view on the New Zealand property sector. The fundamentals at the asset level in the main remain compelling and there is little evidence of exuberance or over building in any particular area, which has been a contributing factor in previous property slowdowns. With the positive supply and demand balance rental growth is set to continue to be a factor in the market.

However, the Manager expects to see some moderation in the rate of rental growth in the retail and industrial sectors as the economy slows and the effect of the high New Zealand dollar impacts business.

The office sector is the most robust with the tight occupier market, lack of new supply and cost of new development pushing rents up.

The Manager remains confident that property sector fundamentals will be positive over the coming 12 months with the property portfolio well positioned to benefit from the strength in the local market.

ENDS

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