No to 'Bargain Basement' sales, says Record Realty

RECORD Realty will not turn its $1 billion property portfolio into a bargain basement saleyard for opportunistic buyers.

The trust has withdrawn the sale of the Australian Stock Exchange Building at 20 Bridge Street, Sydney last valued at $250 million; the $109 million Centrelink Building at Block 4 Section 13 in Tuggeranong, ACT; the $29.5 million QUT Administration Building at 126 Margaret Street, Brisbane.

The trust has also plugged the sale of its United States portfolio worth $US605.12 million.

Record Realty’s fund manager and chief executive Tim McEnallay said these properties were viewed as the most saleable in the current market, providing a long term income stream to potential investors.

But he added the sale process has been slow and many of the properties have been withdrawn from the market due to unsatisfactory and opportunistic offers from potential buyers.

“A stalemate of sorts has emerged between vendors and purchasers of commercial property currently being marketed in Australia, with estimates of property for sale in the order of $15 billion,”

McEnallay indicated that the offers made were not “the best potential outcome for unitholders,”

Meanwhile other assets in the portfolio are currently being assessed for sale as part of the asset realisation program.

He said negotiations on the sale of its €305 million euro German portfolio and its 50% stake worth $90 million in Shell House at 1 Spring Street, Melbourne is well advanced.

“While the asset realisation program to date has been slow in the face of difficult market conditions, management of Record Realty will continue to evaluate various approaches to the asset realisation program in order to generate the best possible outcome for unitholders,” he continued.

Earlier this month it was reported that Record Realty had breached its bank covenants due to falling property values at 20 Bridge St; 1 King William St, Adelaide; and the Workcover building in Gosford.

McEnallay said RRT has started early commercial discussions with its major financiers to work through potential financial covenant issues.

Meanwhile RRT yesterday revealed the full extent of its revaluations. The value of the Australian portfolio declined by $A102.09 million or 12.8% from $797.90 million to $695.80 million.

The US portfolio declined in value by $US58.17 million or 8.8% from $663.28 million to $605.12 million and the German portfolio declined in value by €55 million or

15.3% from $360 million to $305 million.

“While this is a disappointing result for Record Realty and its investors, falls in property values are being felt across the market and by the majority of listed and unlisted property investment vehicles,” he added.

RRT said there will be no distribution for the year ending June 30 2008.

“As the portfolio of properties are sold down over the next three years as part of the asset realisation program, all available net cash flows from the properties will be used to meet obligations under the financing structures. Once all debt obligations have been satisfied any residual value will be distributed to unitholders,” McEnallay said.

Australian Property Journal