KEY POINTS:
The country's largest commercial landlord declared a 47 per cent drop in net after-tax profit yesterday but emphasised a 27 per cent rise in distributional profit rather than the unfavourable bottom line.
AMP NZ Office Trust, with $1.6 billion of prime office blocks, suffered a net after-tax profit fall of $107 million from $225 million last year to $118 million this year.
But Rob Lang, chief executive, discouraged people from focusing on this unflattering figure, a point backed up by analyst Mark Lister of ABN Amro.
"We don't think it's a relevant number for investors because it involves non-cash items," Lang said. Lister agreed, saying operating revenue was more relevant. The NAPT drop was more reflective of international markets and changes to property valuations than it was of the trust's actions.
Lister said the trust remained the best vehicle in the listed property sector, closing on the NZX yesterday at $1.07, which he said was a huge discount to net asset backing of $1.63. He was yesterday retaining his "buy" recommendation at $1.32 and praised the trust's performance, fundamentals and outlook.
Lang said a major influence on the accounts was a 54 per cent decline in property revaluation rises which last year were up $249 million in the bullish market. This year's more bearish market saw revaluations rise by just $113 million. This was the unrealised net change in the value of investment properties.
"Valuations went up 54 per cent less this year than they did last year," Lang said. And that hit the trust's bottom line.
Although he acknowledged net after-tax profit was the figure most people concentrated on with companies, listed property trusts were different because the bottom line was affected by unrealised changes in property valuations which had no relevance to the payout to investors, Lang said.
Instead, he encouraged a focus on revenue which rose $13 million from $107 million to $120 million. Distributional profit was up 27.2 per cent. Plus this year's better distribution meant investors would get a payout 8 per cent higher than last year.
"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," Lang said.
Lister praised the trust for modest gearing levels, giving it a buffer in the tougher environment. The trust's bank gearing is 25.6 per cent, well below its self-imposed 40 per cent limit. High-quality tenants, including many government departments and multinational companies, were unlikely to fold up, he said.
This gave the trust more certainty of good rental income. The trust's portfolio had a high level of under-renting, standing at 12 per cent, meaning it could rely on more rental growth as it reviewed rents to market rates.
The trust's 15 buildings include the $300 million PricewaterhouseCoopers Tower on Quay St, the $224 million ANZ Centre on Albert St, the $121 million AMP Centre on Customhouse Quay and the $106 million IAG House on Queen/Wyndham St corner.
