ANZO reports six-monthly operating profit of $26.6 million

NZX and media announcement – 15 February 2012

ANZO reports six-monthly operating profit of $26.6 million, a de-risked portfolio through leasing momentum and an improving outlook

AMP NZ Office Limited (ANZO) performance summary for the six months to 31 December 2011

Profit performance

• After-tax operating profit of $26.6 million (2010: $31.0 million) or 2.67 cents per share (2010: 3.11 cents per share)

• Net profit after tax of $20.4 million (2010: $28.4 million), after non-cash deferred tax and interest rate swap movements

Portfolio performance

• Portfolio occupancy ahead of expectations reaching 92%

• Continued leasing momentum, 32 leasing transactions completed, representing around 11% of the portfolio

• Significant leasing progress in PwC Tower, with 4,600 square metres of vacant space leased

• Commencement of the redevelopment works at the ANZ Centre, Auckland

• Property and facilities management brought “in-house”

Enhanced earnings security, significant balance sheet capacity

• An overall weighted average lease term of 6.2 years, providing a solid platform for potential earnings growth

• Significant balance sheet capacity and banking covenants headroom, with borrowings at 22% of asset values

AUCKLAND: AMP NZ Office Limited (ANZO) (NZX:ANO) today reported its financial results for the six months to 31 December 2011, with an after-tax operating profit of $26.6 million compared with $31 million for the same period last year.

Total rental income, of $64.5 million, was reduced 5.8% during the period as a result of the successful sale of the Chews Lane property in Wellington and the departure of major client Westpac from the PwC Tower.

However total occupancy was ahead of forecast, with sustained leasing momentum putting the company in a good position for future earnings, Scott Pritchard, ANZO’s CEO, said.

“This has been a good six months. We have successfully undertaken some major re-leasing and commenced the ANZ Centre re-development initiatives.

“For the past 12 months we have focused on reducing risk and improving long-term earnings security. We are pleased that both these goals have been largely achieved.

“We continued to win private and government organisations as new clients. With an increase in the average length of lease terms we believe a strong platform for potential earnings growth has been established,” he said.

At the start of the period the imminent departures of Westpac from the PwC Tower, Auckland and the BNZ from the State Insurance Tower, Wellington had represented a potential fall in total occupancy to around 89%. However this was rebuilt to 92% with 29,400 square metres of premium office space let during the period.

The weighted average lease term across properties has increased to 6.2 years up from 5.8 years at the beginning of the period.

Market indications for the prime CBD office space that ANZO specialises in continue to improve in Auckland and Wellington, Mr Pritchard said. This puts the company in a good position to grow earnings through improving occupancy, potential acquisitions and improving market rentals.

Continuing a programme of ongoing organisational improvement, property and facility management work was brought “in-house”, effective from 1 December 2011. This new approach will help keep the company close to its clients and responsive to their needs.

Result overview

ANZO’s rental income was $64.5 million or 5.8% lower than the previous interim period (2010: $68.5 million), primarily due to the sale of the Wellington Chews Lane property and the Westpac and BNZ departures from the portfolio. Allowing for the sale of Chews Lane rental income was 2.6% lower than the previous interim period.

Interest expense was also 7.2% lower, reflecting lower debt levels following the sale of Chews Lane

Management fees and administrative expenses were $2.0 million higher. This reflected a $1.0 million performance fee, based on ANZO out-performing against its peers, paid in the first quarter, and a one-off fee rebate of $0.7 million being accounted for in the previous interim period.

Tax was $3.4 million compared with $5.0 million in the previous period. This reduction was a result of higher deductible leasing costs following on from successful leasing within Zurich House, SAP Tower and the PwC Tower.

The fair value loss in interest rate swaps of $7.9 million reflected the significant reduction in market interest rates since 30 June 2011.

ANZO retained the strongest balance sheet in the listed property sector with gearing of 22% at 31 December 2011. This compared with 24% at 30 June 2011 and was well within its banking covenant of 50%.

An internal review of the 30 June 2011 valuations was undertaken. The review indicated that there was no material value movement in the period and that the 31 December 2011 investment property book values were consistent with ANZO’s policy of carrying investment property at fair value.

ANZO’s net tangible assets (value) per share at balance date was 88.0 cents per share, down marginally from 88.5 cents per share at 30 June 2011.

Portfolio performance

It has been a good six month period for ANZO with continued leasing success and strengthening of key client relationships. Thirty-two leasing transactions were secured in the period, including four lease restructures accounting for 11% (by NLA) of the portfolio. The key achievement for the period was securing PricewaterhouseCoopers for an additional 9 year term.

The 29,400 square metres of leasing transactions in the period were secured on a weighted average lease term of 7.3 years extending ANZO’s weighted average lease term from 5.8 years to 6.2 years.

Auckland leasing momentum continues with 82% of all leasing transactions occurring in the city. The weighted average lease term in Auckland is now 7.7 years compared to 3.8 years 12 months ago. Major leasing highlights in the period include:

• Welcoming several new clients to the portfolio including Hesketh Henry Partnership within PwC Tower and Regus within Zurich House,

• Nine leasing transactions in PwC Tower, including law firm Lowndes Jordan,

• Five leasing transactions at Zurich House, including GlaxoSmithKline, and

• Five leasing transactions at SAP Tower, including Wilson Parking.

The outlook for prime CBD office space has improved in recent months, with most research houses now forecasting market rental growth in Auckland and Wellington. Wellington occupiers are demanding quality buildings in response to heightened earthquake awareness while in Auckland reduced supply of prime space is the main driver of forecast rental increases.

Following the February 2011 earthquake in Christchurch ANZO asked engineering firm Holmes Consulting to provide independent advice on the structural integrity of its buildings. This preliminary advice confirmed that ANZO’s portfolio scored in the upper quartile of the current Building Code’s loading standard strength requirement for new buildings.

Earnings and distributions

Twelve months ago ANZO’s focus was on reducing downside risk to earnings and improving long-term earnings security. With a portfolio weighted average lease term of 6.2 years (up from 4.6 years twelve months ago) occupancy of 92% and major impending expiries being renegotiated this has largely been achieved. ANZO is now well positioned to drive earnings growth through improving occupancy, improving market rentals and the potential for acquisitions.

Given the sale of Chews Lane, full-year distributable earnings after tax are expected to be at the lower end of the guidance. This remains unchanged between 5.1 and 5.4 cents per share.

ANZO shareholders will receive a second-quarter dividend of 1.26 cents per share plus imputation credits of 0.1668 cents per share – consistent with the first-quarter dividend. Offshore investors will receive an additional supplementary dividend of 0.075688 cents per share to offset non resident withholding tax. The record date is 1 March 2012 and payment will be made on 8 March 2012.

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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 14 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 and Deloitte House.

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