Macquarie Office Trust to improve liquidity

The Macquarie Office Trust (MOF) is pursuing a range of capital management initiatives in an attempt to improve liquidity.

The initiatives should allow the MOF to refinance and/or repay $1.4 billion of debt due in September 2009.

The managers of the MOF indicated there would be future sales of assets within the security pool to reduce the debt facility, while funds from asset sales, including MOF’s interest in the Wachovia Financial Centre, would also be used to repay debt and enhance liquidity.

The de-leveraging of the MOF’s balance sheet through asset sales should result in a gearing level of 35 per cent.

The group said there would be a focus on the divestment of offshore assets to re-weight the portfolio to Australian assets, while drawings would also be denominated in Australian dollars, with the aim of reducing the impact of exchange rates fluctuations on gearing.

But there are likely to be risks in this strategy, with MOF managers admitting property valuations have declined and the time taken to sell properties is increasing. While the MOF will target further asset sales over the next 12 months as part of its asset sales program, there is the risk asset realisation may not be completed in a timely manner.

The managers of the MOF believe property valuations have declined by between 5 per cent and 10 per cent as at December 31, 2008; however, no independent valuations have been received to date. The managers said there is currently some difficulty in reaching an assessment of fair value of real estate due to the limited number of properties transacting due to current market conditions. As such, it is likely the “fair value” of MOF properties may have decreased. The MOF last had its assets independently valued for the June 30, 2008, accounts.

One of the risks the fund faces is asset devaluation that results in higher gearing metrics, potentially increasing the risk of MOF breaching gearing covenants.

The MOF holds 42 office properties across four continents and 31 markets. The Australian Government represents almost 10 per cent of gross portfolio income.