This article is from the Australian Property Journal archive
WESTPAC Office Trust has joined the raft of A-REITs by revamping its distribution policy as the value of the trust's blue chip tenant portfolio fell since December 31 2007.
This new policy results in a reduction of 41 bps in fiscal 2009 compared with the distribution that would have been made under the previous policy. In addition, the trust’s renegotiated debt facility at a higher margin will result in a further 31 bps reduction.
As at June 30 2008, the trust’s portfolio was independently revalued at $1.28 billion, down 2.37% over December 31 2007. As a result, net asset value fell 9 cents, reflecting the $31.3 million fall in the carrying value of the portfolio; refinance costs and capital expenditure on Pennant Hills.
The changes result in the weighted average capitalisation rate for the portfolio increasing by 0.34% from 5.88% to 6.22% at June 2008. The weighted average ten year internal rate of return for the portfolio increased by 0.30% from 8.44% to 8.74% over the corresponding period.
WOT’s fund manager Keith Grayson said uncertainty about property values is clearly a significant issue at present.
“We took the view that, regardless of the absence of transactional evidence, we should provide unitholders with a fresh and detailed independent opinion of the value of the trust’s portfolio due to fluctuating market and investor sentiment.
“We have moved early to institute changes that provide clarity and greater certainty to unitholders on future performance. These changes place Westpac Office Trust in a sound and sustainable position as the listed property sector works its way through a period of significant change and volatility,” he continued.
But Grayson said the relatively modest reduction in the trust’s carrying values reflects the resilience of a high quality portfolio which has very little risk to projected net income in the next few years.
Meanwhile the trust has confirmed a gross distribution for the quarter ending of 1.81 cents per unit or a 1.00 cent per instalment receipt net distribution after payment of the instalment receipt debt interest.
Grayson said starting with fiscal 2009 distributions, the policy of the trust will be to pay distributions that do not exceed operating cash income after provision for operating capital expenditure.
“We have been moving toward aligning distributions and operating income for the last three years and have had to provide minimal operating capital expenditure to date because of the nature of the properties and lease structures.
“Bringing forward these adjustments does have an impact on fiscal 2009 distribution but will improve the capital position of the Trust and contribute to stronger future earnings and distributions growth,” he added.
Reflecting these changes WFML provides preliminary guidance that it expects the trust to pay a gross distribution of 6.65 cents per unit for the full year to June 2009. This compares with a gross distribution of 7.25 cents per unit for the year ending June 2008.
The net distribution, after payment of the instalment receipt debt interest of 3.25 cents per unit, is expected to be 3.40 cents per instalment receipt.
The trust’s debt facilities comprise a $505 million Commercial Mortgaged Backed Security issue maturing in November 2011 and a $251 million debt facility from Westpac Banking Corporation previously maturing in April 2009.
The trust will enter into a new three year $251 million debt facility with Westpac commencing July 2008. The early renegotiation of this facility provides certainty on the impact of future financing costs on Trust distributions. The interest margin will be 1.10% pa, an increase of 0.55% pa over the previous facility reflecting the continuing volatility in wholesale debt markets. The trust will pay an establishment fee of 0.30% pa on the facility amount.
Westpac Office Trust shares traded unchanged at 36 cents yesterday.
Australian Property Journal
