Hot property paying off

Demand for high-quality commercial space looks likely to stay strong, says Rob Lang. Picture / Fotopress

AMP New Zealand Office Trust is on the prowl for acquisitions, undeterred by the recent surge in property values.

Chief executive Rob Lang said New Zealand's largest listed office property investor, which owns many landmark buildings, was looking at "a number of opportunities", but declined to elaborate further.

The trust has been one of the main beneficiaries of the surging commercial property market, which last year pushed up rents in prime properties by about 10 per cent in Wellington, and about 6 per cent in Auckland.

Its December half-year figures yesterday showed rental revenue had risen 4.8 per cent after stripping out contributions from its three acquisitions in Wellington - the State Insurance building, Pastoral House and Mobil on the Park.

Including these buys, rental revenue rose 34.2 per cent to $43.19 million.

But Lang said: "I do not believe the cycle has reached its zenith yet."

The trust has a full war chest, having raised about $31 million just before Christmas. It can spend another $70 million without breaching a self-imposed rule limiting gearing to 40 per cent of total assets. And an additional capital raising under way could extend that figure to as much as $90 million.

Net debt at December stood at $248 million.

Half-year net profit after tax fell from $17.3 million to $16.5 million, largely due to additional interest and capital-raising costs.

Lang said constraints on the supply of high-grade commercial property looked set to continue, even if the economy did slow as many economists predicted.

Developers were not starting new buildings as the chronic labour shortage had boosted construction costs and made planned developments uneconomic.

"In the short to medium term, demand for property looks good."

The trust's properties were 95.5 per cent leased and it had an average weighted lease term of 6.5 years. Of those leases coming up for renewal, the trust had a record of retaining 95 per cent, ahead of its three-year average of 90 per cent.

Lang said he expected an increase in net asset value from 90.7c a unit, when the portfolio is valued in June.

Unit holders would receive a distribution of 1.8c a unit for the second quarter, taking total distributions for the six-month period to 3.6c a unit. Lang also confirmed the trust was targeting an increased June year distribution of 7.3c a unit - up 4.3 per cent on last year.

As well as the acquisitions, the trust began a $23 million redevelopment at No 3 The Terrace in Wellington and completed its $7.5 million refurbishment of No 1 The Terrace.

One analyst said: "[the trust] is taking advantage of the strong market. They are in a good position with good quality buildings.

"For the remainder of the financial year, they should see some solid rental increases."