360 Capital Retail Fund

strategy

The performance of the Fund is primarily determined by 360 Capital’s ability to proactively manage lease expiry and to reduce Fund debt by disposing of assets in an opportunistic and orderly manner so as to limit any undue impact on Unitholder value. This disposal strategy is affected by real estate investment market conditions which, in turn, reflect macroeconomic factors such as global financial stability, interest rates and the resultant demand for and supply of retail space.

360 Capital's core focus is to implement strategies to reduce the level of borrowings and provide a sustainable and stable platform to lift the capital value of Units and potentially recommence distributions.

In order to affect this, a number of initiatives will be required and the strategies currently being implemented are:

  1. Asset sales - 360 Capital has recently sold two assets being Thornton Supa Centre, Thornton, NSW (for $6.0m; settled on 31 October 2011) and East Mall, Armidale, NSW (sold for $12.0m; on 20 January 2012). Settlement of the sales reduced the Fund’s overall loan to value ratio (LVR) to circa 65% from 78% as at 30 June 2011 and resulted in the Fund’s portfolio comprising two assets with a total value of $54.2m. One further asset sale (Northppoint Homemaker Centre) is required to stabilise the Fund.
  2. Unitholders approve change of Responsible Entity - At a Unitholder meeting on 8 March 2012, Unitholders approved the change of the Fund's Responsible Entity, After taking over management of the Fund in December 2010, 360 Capital Property Group undertook an internal corporate restructure. As a result, it was determined that over time the management of all registered property Funds would be undertaken by 360 Capital’s designated Responsible Entity, 360 Capital Investment Management Limited. The restructure is being undertaken to improve the efficiency and effectiveness of 360 Capital Property Group’s compliance, corporate governance and administration processes and thereby provide direct cost savings to the Funds. The replacement of the Fund's Responsible Entity is believed to be in Unitholders’ best interests as no material impact is expected in relation to how Fund is managed or administered. The appointment of the new Responsible Entity took affect on 14 March 2012 following registration of the new Responsible Entity on ASIC's register.
  3. Refinancing – the new Responsible Entity will enter into an approved new two-year finance facility with Bankwest. This new facility contains improved terms and conditions, resolves covenant non-compliance under the Fund's Westpac facility, removes uncertainty concerning the Fund's future sustainability and removes the potential requirement to wind up the Fund in a forced sale situation which would have detrimentally impacted the Fund's NTA per Unit. Post refinancing, the Fund’s remaining portfolio is expected to have an LVR of circa 65%.
  4. Potential recommencement of distributions – One of 360 Capital's main objectives is to reinstate distributions to Unitholders. Following the refinancing and sale of one further asset (Northpoint Homemaker Centre) the Fund is expected to be in a position to consider recommencing distributions as excess cashflows will no longer be required to reduce debt.
  5. Exit Strategy - Following the refinancing and the sale of Northpoint the Fund will have greater scope to consider an appropriate Unitholder exit strategy ahead of its expiry in February 2014.
  6. Portfolio performance – leasing strategies will continue to target vacancy and “at risk” income via a proactive approach to lease negotiations with a view to securing the income stream and improving pedestrian flow, retail sales and the quality of the properties. As at 31 December 2011, portfolio occupancy was 99.6% of gross lettable area.


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