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ANZO first quarter profit drops on declining rental revenue, one-off costs

Friday 29th October 2010

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AMP NZ Office Trust, which last week convinced investors to approve a restructure of the property investor into a company, reported a 56% decline in first quarter earnings after unrealised losses on financial instruments and falling rental revenues weighed on earnings.

Net profit sank to $6.5 million in the three months ended Sept 30 from $14.7 million in the same period last year, the trust said in a statement. Most of that came from paper losses on the fair value of ANZO’s interest rate swaps and deferred tax, which the company was forced to recognise under New Zealand’s accounting rules. Net operating profit after tax, the favoured measure for property investors, fell 5.8% to $15.1 million in the period. Earnings per unit dropped 5.6% to 1.52 cents per unit.

Rental revenues for the period fell 2.1% to $34.2 million as the trust sold five retail units in Wellington’s Chews Lane precinct in May, and major tenant IAG’s lease at 151 Queen Street expired in late 2009, which helped bolster the prior period.

“The property market remains challenging,” said chief executive Scott Pritchard. “Leasing enquiry levels are higher than they were at this time 12 months ago, which has resulted in three new lease transactions.”

The earnings come a week after the listed property entity convinced investors to approve a bid to corporatise the trust in the face of strong opposition from Accident Compensation Corp., a major shareholder in ANZO. ACC opposed the bid, which keeps AMP Haumi Management in charge of the portfolio, saying the manager had performed poorly and imposed unreasonable fees.

AMP Haumi will rebate $1.1 million to the new company, AMP NZ Office, with the new management fees backdated to July 2009. It begins trading under its new banner on Monday.

Pritchard said the government’s removal of firms’ ability to claw back tax on the depreciation of buildings will drag on after-tax earnings by about 9% from June next year.

“We are targeting stability in earnings, with the potential for increased performance once the property market starts recovering,” he said.

ANZO’s interest costs rose 24% to $5.4 million after 21 Queen Street was included as an investment property in September last year. Its balance sheet remains strong, with gearing at 23.1%, and has an interest cover of 4.09 times, the trust said.

The occupancy rate increased to 90.8% from 90.2% in September after the company secured three new tenants for its troubled 21 Queen Street property.

ANZO shares were unchanged at 78 cents, and have risen 2.6% in value so far this year.

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