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AMP NZ Office reports 1.1% fall in half-year distributable profit

Thursday 10th February 2011

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Commercial office property investor AMP NZ Office (Anzo) reported a 1.1% fall in half year distributable profit after tax to $31 million, with 35 new leases and eight extensions during the period.

Rental income for the six months to the end of December was $68.5 million, 2.6% lower than the previous interim period, Anzo said today.

That was mainly due to the sale of five retail units in Wellington's Chews Lane precinct in May last year, as well as the expiry of IAG's lease at 151 Queen Street in late 2009.

Debt levels remained stable, but interest expense was higher, as interest costs associated with the 21 Queen Street development had no longer been capitalised following practical completion in September 2009.

Lower administrative expenses were the result of a revised management fee structure, and included a one-off fee rebate of $700,000 relating to the 2010 financial year.

Increasing leasing activity resulted in 35 new leases being secured during the half year, including 13 new customers, and a further eight existing customers extending their leases, Anzo said.

Those transactions secured $8.6 million in annualised rentals and 21,300sq m of net lettable area.

Shareholders would receive a second quarter dividend of 1.474cps plus imputation credits of 0.2437cps, consistent with the first quarter dividend, the company said.

Full-year distributable earnings after tax were expected to range between 5.9c and 6.1c per share, consistent with the 2010 financial year.

For the 2012 financial year and beyond, the earnings outlook was affected by higher debt costs expected following refinancing, a loss of building depreciation, and a portfolio vacancy due to a departure by Westpac. During 2012, 30% of portfolio income was exposed to market rental risk.

Shareholders would receive a second quarter dividend of 1.474cps plus imputation credits of 0.2437cps, consistent with the first quarter dividend, the company said.

Anzo's portfolio is valued at $1.28 billion, with an occupancy rate by income of 92 percent.

The prime leasing market in Wellington was proving resilient, although a small decline in rents was possible. In Auckland, leasing activity was improving, indicating stabilising market conditions.

Anzo said a recent accounting standard amendment allowed it to restate its deferred tax liability to reflect the actual tax payable if its investment property assets were to be sold.

That resulted in the reversal of the deferred tax liability booked by Anzo as in June 2010 relating to the Government's removal of depreciation on building structures, as well as the reversal of deferred tax liabilities booked on revaluation gains and leasing costs or incentives amounting to $165 million in total.

Anzo's net tangible assets per share had therefore increased from 77cps to 93cps and no longer needed adjustment.

The net profit for the half year was $28.4 million after non-cash deferred tax changes and interest rate swap gains. A year earlier the company recorded a loss of $29.1 million.



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