MACQUARIE DDR Trust has is in negotiations to sell $US140 million of assets and at the same time, the trust has agreed terms with its lender to increase gearing covenant from 60% to 65% of total assets.
In addition, the trust has also agreed to terms of its $US340.5 million ($US291.1 million, MDT share) debt facility, originally due to expire in December 2008. The loan will continue to be secured against a seven property portfolio. The facility, which represents approximately 23% of the trust’s debt, will be increased by $US30.0 million ($US25.6 million, MDT share) to $US370.5 million ($US316.7 million, MDT share), with the majority of any additional proceeds to be used to reduce the Head Trust loan.
The deal will improve the Macquarie DDR’s weighted average maturity profile from 1.9 years to 3.3 years with no further borrowings maturing until June 2009.
Macquarie DDR’s acting chief executive Simon Jones said the trust is negotiating terms to dispose of over $US140 million in selected property assets to improve its liquidity.
Macquarie DDR has agreed terms and received credit approval for its Head Trust loan facility, resulting in the gearing covenant increasing to 65% on the basis that the facility currently drawn to approximately $US72 million will be reduced to $US60 million. The new terms resulted in a marginal increase in the facilities interest rate margin to 1.5%.
Jones said repayment will be funded with the proceeds of the June Distribution Reinvestment Plan, operating cash flow and the utilisation of the $US25.6 million increase in the restructured debt facility.
“The renegotiation of the debt covenant provides greater flexibility for the trust to manage its balance sheet and increase the capacity to meet potential further falls in property valuations,” he added.
Meanwhile, the trust has revalued 82 properties for the six months to June 30 2008. Independent revaluations were undertaken on 22 properties and the other 60 properties were revalued by directors.
The revaluations have resulted in a $US122.9 million ($US100.8 million, MDT share), or 4.4% (4.5%, MDT share) decrease compared to the overall book value at December 31 2007. Of this, independent valuations representing approximately 32% of the trust’s total portfolio decreased by $US44.9 million or 5% from December 31 book valuations.
The movement in the total portfolio value is the result of approximately 1.1% increase attributable to income growth and a decrease of 5.7% attributable to softer capitalisation rates from 6.37% to 6.73% reflecting a generally weaker economic environment.
Meanwhile, the trust has signed 314,055 sq ft of leases representing 1.9% of the total portfolio. There were 13 new leases for 105,691 sq ft and 32 renewals covering 208,364 sq ft, however, the trust’s overall leased rate fell from 96.8% as at March 31 2008 to 96.7%.
In response to recent reports speculating on Mervyns financial position, Jones said Mervyns is up to date with its rental payments to the trust.
Developers Diversified Realty and Macquarie DDR formed a 50:50 joint venture for the $US407.2 million selective purchase of 37 well located Mervyns assets in 2005. After the purchase, the venture leased the assets back to Mervyns for 15 years at an annual rent of approximately $US30 million (MDT share, $US15 million) which makes up 10.6% of Macquarie DDR’s annual base rental income.
As part of the acquisition, a $US25 million ($US12.5 million, MDT share) letter of credit was established to minimise the impact of a Mervyns bankruptcy or the termination of all the leases. This letter of credit will under certain circumstances, subject to the joint venture also setting aside an amount for this purpose, provide funds to cover debt service and re-tenanting costs, including fit-outs.
Macquarie DDR shares traded unchanged at 27 cents last Friday.
Australian Property Journal
