4 November 2008 Macquarie Office Trust (ASX:MOF) today announced...

4 November 2008
Macquarie Office Trust (ASX:MOF) today announced an update of its current balance sheet position and performance of its property portfolio for the quarter ending 30 September 2008.
Balance Sheet
The Trust’s balance sheet gearing ratio is 41.3% and on a look-through debt to total asset basis, is 48.4% for the Trust and its subsidiaries. This calculation is based on the unaudited September 2008 balance sheet and restated using today’s exchange rates of 0.67 A$:US$, 0.52 A$:EUR and 65.8 A$:JPN¥.
The Trust confirms it is in compliance with all debt covenants and reconfirms it has no market capitalisation covenants. Continuing on from Australian asset sales of A$118.3 million and US asset sales of US$182.3 million for the past year, we maintain our commitment to strengthening the balance sheet with further asset disposals under active purchaser consideration.
Capital hedging changes
The Trust recently announced it has changed its capital hedging policy by reducing the hedging of offshore assets to between 70-100% of the gross value of assets. Since balance date, the Trust has sold the foreign exchange forward book for a A$51 million gain and reset the forward
book. The Trust also entered into forward foreign exchange hedging contracts on US$760.3 million of equity cross currency swaps, effectively offsetting a significant portion of the Trust’s Macquarie Office Management Limited hedge book when the average spot exchange rates were between 86 cents to 87 cents and helping to mitigate the foreign exchange impact on the capital hedge book. This transaction will maintain the positive cash flow of the interest rate differential of the equity cross currency swaps until maturity or realisation.
Currently, the Trust’s offshore assets are 86% capital hedged (84% against the US$) and the devaluation of the A$ has meant the underlying asset backing of the Trust’s units has increased from $1.52 at 30 June 2008 to approximately $1.55.
The Trust’s only remaining debt exposure for the current financial year is the asset level (non recourse) US$60 million facility over One and Three Christina Center, Wilmington, Delaware which matures on 1 January 2009. In respect of longer term debt, the Trust is working with
financiers on a renewal and extension of the Trust’s multi-currency bank syndicate and is working on the refinancing of its CMBS programme.
Leasing activity illustrates portfolio resilience and quality Despite continued market volatility, the Trust’s asset management team has focused on maximising property incomes and occupancy. Approximately 27,729 sqm of leases were agreed during the quarter including 10,777 sqm executed taking the global portfolio occupancy rate to 95%.
Australian portfolio
As at 30 September 2008, the Australian portfolio’s occupancy rate remained strong at 99%. The asset management team has continued to focus on retaining and attracting high quality tenants, with commitments including letters of intent for 12,174 sqm over the period, including leases executed across 4,701 sqm.
Transactions of note during the period included IT company, Oakton, signing a new lease at The Denison, North Sydney for 1,084 sqm for five years. Further, agreements to lease 3,442 sqm of space at NCR House in North Sydney were reached with The Australian Catholic University, and IDG Communications and Ifra Corporation who each committed to two floors within the property.
United States portfolio
During the quarter, US portfolio occupancy has declined from 94% to 92%, following the previously announced hand-back of space by SunTrust Bank in Orlando. Continued uncertainty within the US housing and financial sectors has impacted business confidence. Tenants remain cautious, with many electing to postpone leasing decisions until
global economic conditions improve.
Despite these challenging market conditions, commitments including letters of intent were received in relation to over 138,228 sqft of space including leases executed across 48,926 sqft in the US portfolio during the quarter. Demand for high quality office space continued to see leasing transactions, with many tenants within the Trust’s portfolio electing to renew or in some cases expand their commitments at their existing premises.
At Wells Fargo Center, Denver, leases over 23,148 sqft of space were executed, including 12,491 sqft of expansion and extension space leased to goldmining management services company, Electrum USA Ltd. Law firm, Fairfield and Woods, have also expanded their occupancy over a further 5,806 sqft, taking their total occupancy to 23,707 sqft.
At the SunTrust Financial Centre in Tampa, national law firm Fisher Phillips leased an additional 2,135 sqft to meet their expansion needs, taking their total occupancy to 7,371 sqft.
European & Japanese portfolio
At City Central, Milan, the Trust continued to have success, with commitments secured over a further 2,007 sqm of the property for six year terms, including a lease signed to the Hay Group over 1,056 sqm, taking the property to an occupancy rate of 85% upon signing of the relevant documents.
In Japan, leasing commitments on the Tokyo properties totalled 214 tsubo (707 sqm). As at 30 September, two thirds of these have been executed, improving occupancy from 86% to 96%.
A schedule of executed leases is attached in Appendix 1.
Continued volatility in global markets is expected to remain challenging for some time. However, the Trust’s high quality portfolio is geographically diversified with long-term lease maturities and maintains high occupancy levels. During this difficult time, maximising property
incomes and occupancy across the portfolio remains a key priority for the Trust, together with a focus on capital management initiatives.