Near-empty office tower echoing with investor disquiet

The office tower at 21 Queen St

Investors in the country's largest listed commercial landlord could see fireworks at the annual meeting in Wellington this week.

The board of AMP NZ Office Trust's manager is expected to be grilled on Thursday about the near-empty huge office tower in Auckland's heart.

Big value drops in the portfolio, calculated by one investor to be at least $60.5 million on four buildings alone, could also be a topic for discussion.

Some in the market are expecting huge changes at the trust which owns properties valued at $1.3 billion.

Changes might include:

* A new fee structure which aligns the manager with unitholder returns or an internalisation of the management contract.

* A change in the governance structure - if the trust stays externally managed - and more independent directors.

* That the manager will not charge a management fee on 21 Queen St until it is fully leased and earning a suitable return on cost.

The internalisation move was suggested at another property trust's meeting this month. The issue was raised at ING Medical Properties Trust's annual meeting at Ellerslie and a director said this was a trend in Australia.

The investor said that in the past three years, the AMP trust had destroyed unitholder value by overpaying for assets and engaging in an uncommitted redevelopment at 21 Queen St, Auckland.

The trust has defended this move, promised this month to announce more tenants soon and said the building was New Zealand's most eco-friendly.

The high-rise tower has only Dick Smith Electronics on the ground floor and all office levels empty apart from level 14, leased by CB Richard Ellis, which is already a tenant in the trust's PricewaterhouseCoopers Tower on Quay St.

Investors have criticised the trust for not selling more properties but instead tapping unitholders on the shoulder this year for $201 million at a 51 per cent discount to net tangible assets.

But Rob Lang, chief executive of the trust's manager, has defended the capital raising and said the trust was not forced into any positions. Its debt maturity profile meant it had time to find money, he said.

In the year to June 30, 2009, the trust made $59.2 million distributable profit, 13.4 per cent higher than in 2008, he said. The trust is one of the better-performing vehicles in the sector, Lang said.

"Eighteen months into the recession we have had only three small tenant defaults, one of which has already been replaced on better terms with no loss incurred. This represents a very small proportion of the trust's 220 tenants and reinforces the benefits of a high-quality tenant roll," he said.

AMP NZ Office Trust's AGM, Wellington, 2.45pm, Thursday at Featherston Room, Hotel Inter-Continental. A presentation will be made in Auckland at 21 Queen St on Friday at 10.30am.