ORCHARD Industrial Property Fund has successfully restructured 99% of its debt in interest rate swaps but the fund's latest revaluations saw property values go backwards.
In addition, the fund also negotiated a deal with Woolworths to expand its facility at
OIF has restructured its interest rate swap book with the National Australia Bank, whereby NAB will pay the fund $10.615 million.
The interest rate hedges total $512.7 million – equivalent to 99% of the fund’s debt and the new weighted average interest rate swap duration as at June 30 2008 will be 4.6 years.
The new hedging was restructured at an average fixed interest rate of 6.22% per annum, before bank margin.
But the fund delivered slightly negative news last week, an independent valuation by Jones Lang LaSalle of 10 properties out of 27, resulted in a $3 million or 0.8% fall in portfolio value.
The 10 properties represent 43.0% or $353.8 million of the total portfolio value as at December 31 2007.
The weighted average capitalisation rate for the properties valued has eased from 6.76% to 7.03%.
Following the revaluations, the value of the portfolio is $825.5 million and the loan-to-value ratio under the fund’s debt facility has not moved significantly at 62.7%.
Orchard’s head of listed property Tim Collyer said this revaluation program reaffirms the fund’s move to sell two properties in 2008 and highlights capitalisation rates for prime, well leased assets which have not significantly increased.
“A compensating factor to a rise in the average capitalisation rate, has been strong market rental growth across the country in the last 12 months, as well as fixed rental adjustments under OIF property leases (ranging from 2.5% to 4% per annum), enabling valuations to remain relatively firm,” he added.
Meanwhile, construction works to expand the Woolworths Distribution Centre at
Under the lease arrangements with Woolworths, the fund will receive an increased rental from the date of completion of the works of approximately $2.235 million per annum. In addition, the lease term is to be increased by three years, with the lease to expire on October 2025.
CB Richard Ellis has valued the property assuming completion of the expansion works at $123 million.
OIF’s shares traded unchanged last Friday at 37.5 cents.
Australian Property Journal
