KEY POINTS:
AMP NZ Office Trust, the country's biggest and richest office landlord, is raising $70 million to escape punitive interest rates.
The trust yesterday announced a private institutional placement, saying it would issue 52.2 million new units at a discounted rate of $1.34 to the $1.39 the trust had traded at just before the deal was announced.
Rob Lang, the trust's executive manager, said the business faced very high interest rates.
So it had to find smarter ways to manage its treasury functions.
Lang said: "We have to think harder about our capital management to remain efficient smart investors.
"Listed property trusts need to become smarter now to manage their capital and for us this is the smartest and most sensible thing to do."
The trust borrowed $70 million from the BNZ and Westpac at a floating rate and was paying 8.1 per cent in interest rates.
It is this debt the trust wants to replace by raising money through the placement.
The trust's other debt is fixed at an average rate of 7 per cent.
The trust owns property valued at $1.4 billion and has borrowings of $337 million.
Most of the trust's debt was arranged long before the Reserve Bank increased the official cash rate.
But climbing rates forced the real estate trust to work out new ways to borrow money for expansion.
The trust said the placement was going to European, American, Asian, Australian and local institutions.
"The placement will be carried out over the next two days, with trading in units halted during the placement process," the trust said.
It expects settlement by Monday.
The placement, which is not underwritten, is being managed by First NZ Capital and Macquarie Securities (New Zealand).
The placement will reduce the trust's gearing from about 28 per cent to about 23.3 per cent.
In a separate deal, the trust is about to embark on a massive expansion and refurbishment of the former Downtown House in Auckland which was until recently occupied by Air New Zealand.
The block is at 21 Queen St opposite the former Chief Post Office.
The trust is paying $33 million for the office block but will spend $65 million to $70 million on its refurbishment.
Cladding will be ripped off, the interior gutted and up to four extra levels will beadded.
Lang said that to get rights to build higher, the trust would apply to buy transferable development rights or heritage bonus points, probably from a historic property whose owner was deprived of development opportunities due to the heritage status.
Under Auckland City rules, the historic building's owner is able to sell "air space" or air rights to other owners like the trust, enabling more floors to be built on a site than would otherwise be possible.
Last week, the trust announced its portfolio revaluations and found its properties were worth $253 million more than last year.
AMP NZ OFFICE TRUST
*Owns buildings valued at $1.4 billion.
*About to start work on a Queen St block.
*Provides offices for about 16,000 people.
*Owns 24ha of office floor space.
*Raising $70 million to repay debt.
