360 Capital Office Fund

strategy

The Fund has an unaudited negative net asset position of $(0.19) per Unit as at 31 December 2011, meaning that the total debt in the Fund and unsecured creditors is greater than the asset value. As Unitholders rank behind secured and unsecured creditors, and given the outlook for commercial property markets, under these circumstances it is unlikely Unitholders will receive any capital return. 

Based on the Fund’s poor financial position, Fund performance is primarily determined by 360 Capital’s ability to proactively manage lease expiry and to reduce Fund debt via the disposal of one more asset in an orderly manner so as to limit any undue impact on stakeholder value. This strategy is affected by office property investment market conditions which, in turn, reflect macroeconomic factors such as global financial stability, interest rates and the resultant demand for and supply of office space. Various capital and fund management initiatives are also utilised to reduce costs.

In reducing the level of borrowings owing to creditors, 360 Capital has a fiduciary duty to ensure that the repayment to creditors is satisfied to the absolute maximum capacity. As part of this fiduciary duty, 360 Capital is the Responsible Entity to 360 Capital Developments Income Fund which has two loans in favour of the Office Fund.

In order to achieve this objective, the following strategies are currently being implemented:

  1. Asset sales – since 360 Capital took over management of the Fund in December 2010 a number of the Fund’s assets have been sold in order to retire a portion of the Fund’s debt and reduce gearing levels. In total $155.0 million of property investments were sold in FY2011 with proceeds used to retire a portion of the Westpac debt facility. The six asset sales during the year were 2 Elizabeth Plaza, North Sydney, NSW, 422 Little Collins Street, Melbourne, Vic, 619 Murray Street, West Perth – AFP Building, WA, 45 William Street, Melbourne, Vic, 80 George Street, Parramatta, NSW,  and Units in 360 Capital 111 St George’s Terrace Property Trust. Sales since 30 June 2011 are shown in the table below.
  2. Refinancing – Following the successful execution of its asset disposal and capital stabilisation strategy over the last year, on 20 December 2011 the  Fund completed the refinance of all its senior debt facilities on a longer term basis. These senior debt facilities included the remaining Westpac debt facility and the $62.0 million Commercial Mortgage Backed Securities Program (CMBS). Of the approximately $63.5 million in senior Fund debt, $52.0 million has been refinanced with NAB for two years, while the residual $11.5 million has been refinanced on a short term basis pending the sale of one further asset (where interested parties are now in due diligence to purchase the asset). The previous interest rate hedging arrangements have been broken as required as part of the refinancing. A new two year interest rate hedge will be entered into with NAB over $35.0 million of borrowings, with the remaining debt remaining unhedged pending the further asset sale and debt amortisation. This refinancing will allow the Fund to make the remaining asset sale in a more normalised manner and places the Fund in a more stable position.
  3. Further divestment of the Portfolio – In order to complete the stabilisation of the Fund, the sale of 96 Mt Gravatt-Capalaba Road is necessary to repay the short-term debt facility. Once sold, the Fund will review its facility with the 360 Capital Developments Income Fund and consider how the Fund may be restructured. Reflecting the Fund’s debt position, no distributions are forecast for FY2012.


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