Debt rises but higher rentals buoy trust

Executive manager Rob Lang describes the trust's gearing level as 'comfortable'. Picture / Fotopress

A rising debt burden has nudged down the bottom-line profit of the country's largest listed office trust, but its rental income has risen sharply.

AMP NZ Office Trust's loans from the Bank of NZ rose from $196 million last year to $253 million, mainly to fund portfolio growth and expansion.

That means the trust is paying $9.8 million in interest costs, compared with $4.3 million last year.

The trust's net surplus is down 2.6 per cent, from $26.3 million last year to $25.6 million in its preliminary nine-month result out yesterday.

But the expanded portfolio meant rental income shot ahead from $46.7 million last year to $65.3 million in the latest period.

Trust executive manager Rob Lang attributed the bottom-line drop to the cost of paying more in interest, due to rising borrowings to fund three new buildings and purchase $62 million worth of units in a buyback last year.

The three new buildings are State Insurance, Mobil on the Park and Pastoral House, all in Wellington.

The trust has also borrowed to redevelop Pastoral House, 1 and 3 The Terrace in Wellington.

The trust's debt-to-assets ratio is 35 per cent, although it can borrow up to 50 per cent. Management has imposed a 40 per cent limit.

Lang said the move to borrow more money had helped the trust increase its assets without exposing it to any sudden interest rate rises.

"The trust's gearing level is comfortable and we have more than 90 per cent of our interest rate risk hedged for an average term of 5.7 years," he said. "We have less than a quarter of our fixed cover expiring at any one year, so we're not exposed to sudden increases in interest rates."

The expanded portfolio and the bull property market boosted rental earnings.

The trust has a 96 per cent occupancy rate and a weighted average lease term of 6.4 years. It leased 29,000sq m of office space in the last nine months and made 12 rent reviews.

Its distribution to unitholders rose 9.6 per cent. Investors will be paid 5.8c a unit at the end of this month. Lang predicted a 7.3c payout for the full year ending June, a 4.3 per cent rise on last year's distribution.

The trust owns $760 million of office blocks, up from $600 million last year. Its units are trading around 91c. The trust is managed by AMP Multiplex Management.

Former BT Funds Management chief executive Craig Stobo and former Ernst & Young real estate partner Graeme Horsley were last month appointed independent directors of the trust's manager. Stobo was also appointed chairman.

* Macquarie Goodman Property Trust's annual result for the March year is due out next Friday.

Office blocks include

* PricewaterhouseCoopers building on Auckland's waterfront.

* ANZ Centre on Albert St in Auckland.

* State Insurance Tower (former BNZ Building) on the Lambton Quay/Willis St corner in Wellington.

* 1 and 3 The Terrace, HP Tower and Pastoral House in Wellington.