AMP NZ Office Trust operating profit up 8.4 percent for first quarter

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1 News release AMP NZ Office Trust operating profit up 8.4 percent for first quarter New Zealand s largest listed investor in prime commercial office property, AMP NZ Office Trust (ANZO), has reported an 8.4 percent increase in operating profit before taxation to $9.01 million for the three months to September 30, ANZO s rental revenue for the first quarter was $25.31 million, 12.6 percent higher than the previous comparable period, as a result of rent reviews, new leases and new additions to the portfolio (the acquisition of Wellington s Mayfair House and the recently-completed No. 1 The Terrace development project). ANZO executive manager Robert Lang said continued growth in prime office market rentals was highlighted by the fact that on a same properties basis (excluding Mayfair House and No. 1 The Terrace), rental revenue increased 5.1 percent. ANZO adopted the new New Zealand International Financial Reporting Standards (NZ IFRS) on July 1, 2006 (the commencement of the 2007 financial year) and ANZO s first-quarter result has been prepared in accordance with the new standards. A detailed explanation of the changes relating to NZ IFRS and their effect on ANZO s financial statements is attached as a schedule to this announcement and is available online at Under NZ IFRS and following the redefinition of ANZO s distributable profit announced earlier in the year the $9.01 million operating profit before taxation represents the profit available for distribution to unitholders. Earnings per unit assessed on the same basis were up 4.5 percent to 1.87 cents per unit. In line with expectations unit-holders will receive a first-quarter distribution of cents per unit, a 2.27 percent increase over the previous comparable period. The record date is November 2, 2006 and the payment date is November 9, After allowing for non-cash adjustments, as required under NZ IFRS, ANZO s net profit for the first quarter was $7.02 million, up 12.0 percent. The non-cash adjustments are subject to fair value assessments throughout the financial period, including the change in fair value of investment properties, which will be determined and reflected in the net profit announced following the close of the full year financial reporting period on June 30, ANZO s portfolio occupancy has remained unchanged at 99%. Eight new leases were secured during the first quarter, covering a total area of 2,600 sqm, and six of the 11 properties in the portfolio are fully occupied. ANZO has less than 7.3% of its net lettable area expiring in each of the next two years and together with a tenant retention rate in excess of 90% provides a high level of stability and certainty with respect to occupancy and future cash flows. 1 ANZO s first-quarter results each year are unaudited.

2 Ten rent reviews were completed during the quarter, resulting in an average increase of 15.5 percent over the three-year terms of the review periods. A further 45 reviews are pending this financial year, presenting opportunities to capture under-renting (where contract rents are below market levels) in the portfolio and increase rental revenue. Mr Lang commented: With high portfolio occupancy, market vacancy at near-historic lows, robust tenant enquiry and a high number of rent reviews pending, ANZO is in a strong position to improve earnings and distributions. In addition, ANZO s gearing (bank debt to total assets) is 29.8%, giving ANZO a strong balance sheet from which to grow the portfolio and further enhance unit holder returns. Unit-holders can be confident that their distributions will continue to grow in line with, or better than, the previous year. ANZO is managed by AMP Multiplex Management Limited. About ANZO ANZO is New Zealand s largest listed investor in premium and A-grade commercial office property. A unit trust listed on the New Zealand Exchange, ANZO currently owns 11 New Zealand office buildings with a total gross value of more than $1 billion Auckland s PricewaterhouseCoopers Tower, ANZ Centre, IAG House and Quay Tower; and Wellington s State Insurance Tower, Vodafone on the Quay (formerly Mobil on the Park), HP Tower, 125 The Terrace, No. 1 and 3 The Terrace, Pastoral House and Mayfair House. Media enquiries: Robert Lang Executive Manager AMP NZ Office Trust Office: Mobile: robert.lang@anzo.co.nz -ends- October 18,

3 Schedule 1. AMP NZ OFFICE TRUST ADOPTION OF NZ IFRS On 1 July 2006, AMP NZ Office Trust (ANZO) adopted the new New Zealand International Financial Reporting Standards (NZ IFRS) which has resulted in a number of accounting policy changes. Entities complying with NZ IFRS for the first time are required to restate their comparative financial statements to reflect the adoption of NZ IFRS for the comparative period. Most adjustments required on transition to NZ IFRS have been made against opening retained earnings as at 1 July 2005 (referred to in this document as transition date ). The most significant differences in accounting policies that have impacted ANZO following adoption of NZ IFRS include: 1. Investment and Development Properties Under the previous reporting standards Investment Properties were measured at net current value being market value less an allowance for disposal costs. Under NZ IFRS Investment Properties are to be measured at fair value with no allowance for disposal costs. On initial adoption of NZ IFRS, the value of investment properties increased to reflect the add-back of disposal costs previously deducted from independent valuations. The change in carrying value of investment properties has been restated through retained earnings. On an ongoing basis the adoption of NZ IFRS will result in no recognition of disposal costs in future Investment Property valuations. 2. Deferred Tax Under the previous accounting standards income tax was accounted for on a partial basis. Under NZ IFRS ANZO is required to account for income tax on a comprehensive basis. Under this basis ANZO is recognising all taxable temporary differences. Significant differences are noted below. 2.1 Depreciation Under the previous accounting standards ANZO did not recognise deferred tax in respect of tax depreciation claimed on investment properties as it is not intended that the investment properties will be sold. Under NZ IFRS, depreciation claimed for tax purposes is considered a temporary difference resulting in a deferred tax liability. On initial adoption of NZ IFRS, a deferred tax liability was established representing the tax effect (33%) of the accumulated tax depreciation claimed on existing properties in prior years. Opening Retained Earnings was adjusted to recognise this liability at transition date (1 July 2005). Each subsequent year, a deferred tax expense, and a corresponding liability, will be recognised in respect of tax depreciation claimed each year. The deferred tax expense in the income statement will not affect the distributable profit as it is a non cash item. 3

4 3.2 Investment Property Revaluations Under the previous accounting standards ANZO did not recognise a deferred tax liability in respect of investment property revaluations (excluding the land component) in excess of cost, as gains on investment properties are not subject to tax for income tax purposes. Under NZ IFRS ANZO is required to recognise a deferred tax liability on such gains. On initial adoption of NZ IFRS, a deferred tax liability was established representing the value of deferred tax on past revaluations. Opening retained earnings was adjusted to recognise this liability at transition date (1 July 2005). Each subsequent year, a deferred tax expense, and a corresponding liability, will be recognised in the year of revaluation. The deferred tax liability will not crystallise in the ordinary course of business. On disposal of a property, the deferred tax liability will be reversed back to the Balance Sheet. The deferred tax expense in the income statement will not affect the distributable profit as it is a non cash item. 3.3 Tax Losses Under the previous accounting standards ANZO did not recognise a deferred tax asset in relation to tax losses available to carry forward to future years as there was no virtual certainty of realisation as defined under these standards. Under NZ IFRS ANZO is recognising such losses as it is probable that future taxable profit will be available against which losses can be utilised. On initial adoption of NZ IFRS, a deferred tax asset was established representing the value of deferred tax on tax losses carried forward. Opening retained earnings was adjusted to recognise this asset at transition date (1 July 2005). Each subsequent year, a deferred tax expense/income, and a corresponding liability/asset, will be recognised in the year. The deferred tax expense/income in the income statement will not affect the distributable profit as it is a non cash item. 4. Financial Instruments Under the previous accounting standards, any gains and losses on derivative instruments (such as interest rate swaps) that are designated as hedges of specific items were accounted for on the same basis as the underlying hedged item. The net differential paid or received, in respect of that derivative, was recognised as a component of Interest in the Income Statement. The fair value of derivative instruments was disclosed in the Notes to the Financial Statements. Under NZ IFRS there is a requirement to recognise the fair value of all derivative instruments in the Balance Sheet. ANZO has elected to not adopt hedge accounting under NZ IFRS resulting in any mark to market movements recognised in the Income Statement. On initial adoption of NZ IFRS, a financial liability was established representing the fair value. Opening retained earnings was adjusted to recognise this financial liability at transition date (1 July 2005). Each subsequent year, an unrealised gain/loss, and a corresponding asset/liability, will be recognised in the year. Under NZ IFRS a deferred tax will also be recognised on the mark to market movements. The unrealised gain/loss and associated deferred tax expense/income in the income statement will not affect the distributable profit as it is a non cash item. 4

5 5. Distributable Net Profit In July 2006, ANZO s definition of net profit for distribution purposes was amended to ensure that the calculation of distributions to unit-holders is consistent with the past following the adoption of NZ IFRS. The new definition of net profit for distribution purposes is: Net profit after tax before revaluations on investment properties, revaluations of derivative financial instruments, amortisation of landlord-owned incentives, fixed rental smoothing, deferred tax and other non-cash NZ IFRS adjustments This definition excludes the introduction of non-cash items arising from NZ IFRS in the Income Statement, so that the calculation of the distributable profit for ANZO remains consistent with its pre- NZ IFRS levels. 6. Net Tangible Assets (NTA) The requirement under NZ IFRS to recognise the new assets and liabilities identified above impacts the calculation of ANZO s stated Net Tangible Assets (NTA) per unit. The table below details the changes to ANZO s balance sheet due to the transistion from previous NZ Generally Accepted Accounting Practice (NZ GAAP) to the new NZ IFRS as at 30 June AMP NZ Office Trust - NZ IFRS Balance Sheet 30 June 2006 (000's) Total Assets Previous NZ GAAP 1,017,805 Adjustments to Assets Recognition of Tax Losses 4,696 Disposal Provision 8,656 Interest SWAP Fair Value 1,857 NZ IFRS Total Assets 1,033,014 Total Liabilities Previous NZ GAAP 398,930 Adjustments to Liabilities Deferred Tax Liability on Depreciation Clawback 61,065 Deferred Tax on Revaluations 26,813 Deferred Tax on Interest SWAP Fair Value 613 NZ IFRS Total Liabilities 487,421 Total Equity Previous NZ GAAP 618,875 Adjustments to Equity IFRS Adjustments to Retained Earnings -73,282 NZ IFRS Total Equity 545,593 Mandatory Convertible Note 95,236 Fully Diluted Units on Issue 584,296 Final Q4 Dividend 9,058 NTA Previous NZ GAAP 1.21 NTA NZ IFRS 1.08 NTA NZ IFRS Excluding Deferred Tax Revaluations

6 As noted in the table above the NZ IFRS NTA as at 30 June 2006 is $1.08 per unit which includes the deferred tax liability on property revaluations. Under current New Zealand income tax rules, the deferred tax liability on property revaluations will reverse on disposal. ANZO s assessment of the fair value of the NZ IFRS NTA excludes the deferred tax liability on property revaluations on the basis it will never crystallise under the current tax rules. Therefore, the adjusted NZ IFRS NTA as at 30 June 2006 is $