ANZO chief executive Robert Lang confirmed that as previously signalled, the 2008 full-year gross distribution of 8.385 cents per unit is 8.0 percent higher than in 2007 and is ANZO’s highest-ever gross distribution derived from operating earnings.

Mr Lang said ANZO’s gross distributions have grown at almost twice the rate of the New Zealand listed property sector average over the past five years.

“New Zealand’s prime office sector is showing strong resilience in a number of important ways, and in the face of a worldwide economic slowdown, New Zealand is a standout performer among global office markets right now,” he said.

“This resilience, combined with the high-quality characteristics of its portfolio, has allowed ANZO to project a minimum year-on-year growth rate of 4 percent in the gross distribution for the current financial year to June 2009. Again, this would rank amongst the very best growth available in the sector.”

Mr Lang said ANZO’s rentals for the 12 months to 30 June 2008 were 12.3 percent higher than the previous year, at $120.27 million. This reflected the contributions from ANZO’s acquisitions of recent years, as well as higher rents following rent reviews and higher average occupancy.

While total direct expenses for the year were up 14.1 percent to $31.96 million, indirect expenses for the year reduced by 19.1 percent, primarily due to the conversion of ANZO’s interest-bearing mandatory convertible notes at the end of the previous financial year.

Operating profit after current tax (ANZO’s distributable profit) was $52.18 million, a 27.2 percent increase as mentioned above.

Earnings per unit for the year (based on operating profit before current taxation), were 5.0 percent higher at 8.36 cents per unit. Earnings per unit after current taxation were 7.58 cents (this is not directly comparable with the previous corresponding period as ANZO became a taxpayer for the first time in 2008).

ANZO unit-holders will receive a fourth-quarter net distribution of 2.045 cents per unit, plus imputation credits of 0.139 cpu. The record date is 2 September 2008 and payment will be made on 9 September.

The total net distribution for the full year was 7.613 cpu plus imputation credits of 0.772 cpu.

Mr Lang noted that the combination of the beneficial Portfolio Investment Entity (PIE) tax regime and higher distributions meant that ANZO unit-holders resident in New Zealand and paying tax at a rate of 33 percent received a 46.4 percent increase in “cash-in-the-hand” distributions in 2008. Unit-holders in the 39 percent tax bracket had seen their net cash distributions grow by more than 60 percent.

Given the strong prospects of growth and an expected minimum 4 percent increase in gross distributions, unit-holders can look forward to higher cash returns during the 2009 financial year.

The distribution for 2008 represents an attractive gross yield of 10.72 (1) percent for a unit-holder in the 33 percent tax bracket.

Although the sharemarket had fallen to three-year lows during the 2008 financial year, Mr Lang said ANZO’s total return (income yield plus change in unit price) leads the New Zealand listed property sector over one-, three- and five-year periods. ANZO’s compounding annualised total return since listing in 1997 of 9.8 percent has also outperformed the NZX Property Index and the NZX 50 Gross Index.

“This strong absolute and relative outperformance is due to ANZO maintaining a clear and focused strategy of investing in New Zealand’s highest-quality commercial office buildings, adopting stringent investment criteria, a modest risk approach to investing and managing its properties to the highest standards.”

Other highlights of ANZO’s 2008 financial year included:

* A $118.1 million (2) or 8.14 percent increase in the independent valuation of its portfolio, driven entirely by rental growth. Strong rental growth, both in the market and in ANZO’s portfolio, had more than offset the higher capitalisation rates adopted by valuers in response to a weaker economic climate and global capital market conditions. Four of ANZO’s 15 properties saw double-digit increases in value in the 2008 revaluation, with a fifth following close behind at 9.9 percent.

* The revaluation lifted the value of ANZO’s investment portfolio to $1.569 billion, as at the end of the trust’s financial year on 30 June 2008.

* ANZO’s net tangible assets (NTA) per unit under NZ IFRS increased from $1.37 to $1.47 per unit. Adjusted NTA (after excluding deferred tax on revaluation gains, which is not applicable to ANZO) climbed 9.4 percent from $1.49 to $1.63 per unit.
* Rent reviews, new leases and lease renewals completed during the year delivered an annualised increase in contract rentals of $6.62 million, with the full benefit to be reflected in the next financial year.
* Sixty-four rent reviews were completed, resulting in an average increase in contract net rents of 28.1 percent. Notwithstanding this, the 2008 revaluation confirmed ANZO’s portfolio under-renting (where lease contract rents are below market rents) at 12.2 percent.

* ANZO’s asset managers secured 44 new leases and lease renewals. The tenant retention rate for the year was 89 percent and over five years, has averaged more than 90 percent.

* At balance date, ANZO’s portfolio was 98.7 percent occupied. ANZO’s weighted average lease term (WALT) at balance date was 4.89 years.

* ANZO purchased 29 Willis Street in Wellington, a newly-built $77 million office and retail complex with 100 percent of the office space occupied by a Government tenant for 15 years. Approximately 26 percent of ANZO’s portfolio area is now occupied by Government entities.

* The redevelopment of 21 Queen Street in Auckland is on track to be completed in September next year. This will be one of Auckland’s first five-star green buildings and the only core CBD building to be delivered to the Auckland market with space available over the next two years. ANZO purchased this property in response to growing demand for A-grade and prime office space and a shortage of quality supply.

* ANZO extended its bank debt facility by $160 million to a total of $485 million to cover all currently-committed portfolio and capital expenditure. This facility does not expire until October 2009.

ANZO’s bank gearing (bank debt to total assets) at balance date was 25.6 percent, well below its self-imposed ceiling of 40 percent. At balance date, 89 percent of ANZO’s total bank debt was hedged through interest rate swaps for an average duration of more than five years. ANZO’s weighted average interest rate after including bank margin and fees was 7.52 percent. ANZO’s interest rate swap portfolio is not exposed to any swap maturities or unhedged swap maturities in the next 12 months. In addition, no more than 25 percent of ANZO debt cover matures in any 12-month period for the next four years.

Mr Lang said the outlook for ANZO and its investors was positive. Rent reviews would be a key source of earnings and distributions growth in the current year, with under-renting at 12.2 percent and more than 125,500 sqm or 50 percent of the portfolio subject to upward rent reviews.

ANZO’s clear and transparent strategy has underpinned its past performance and will continue to be the foundation of its future. New Zealand’s prime office market conditions remain favourable – despite the economic slowdown, market vacancy rates are maintaining their historical low levels, and near-term supply risks are also low. To date, “corporate New Zealand” is standing up well to the slowdown and central business district employment figures remain relatively robust, although ANZO’s board and management continue to closely monitor economic and property market conditions.

Mr Lang also noted that ANZO has a $4.1 million distribution reserve to cover any unplanned events.

ANZO is managed by AMP Haumi Management Limited.

About ANZO

ANZO is New Zealand’s largest listed investor in prime and A-grade commercial office property. A unit trust listed on the New Zealand Exchange, ANZO currently owns 15 New Zealand office buildings with a total gross value of more than $1.5 billion – Auckland’s PricewaterhouseCoopers Tower, ANZ Centre, IAG House, AMP Centre and 21 Queen Street; and Wellington’s State Insurance Tower, Vodafone on the Quay, HP Tower, 125 The Terrace, No. 1 and 3 The Terrace, Pastoral House, Mayfair House, AXA Centre, Deloitte House and 29 Willis Street.

Footnotes:
1. Based on ANZO’s unit price of $1.06 as at close of business on Monday 18 August 2008
2. Before deducting $5 million annual portfolio capital expenditure.

source : AMP NZ Office Trust (ANZO