Fund update

During the June and September quarters the fund continued to market properties for sale in order to use proceeds to repay debt. The Expressions of Interest (“EOI”) campaign for 2 Elizabeth Plaza closed on 7 July, for 96 Mt Gravatt – Capalaba Road the EOI campaign closed on 16 June, 422 Lt Collins St concluded on 18 June and 32-34 Mahuhu Cres on 3 June 2010.

Mt Gravatt-Capalaba Road attracted two bids – neither of which was acceptable. 422 Little Collins Street also attracted two bids. There were no bids for Mahuhu Crescent. A post campaign offer for 422 Little Collins Street was accepted on 26 July 2010 and the sale for $16.25 million settled on 22 October 2010.

The fund strategy continues to be one of active management of leasing, asset sales to reduce debt, extension of loans and stabilisation of the fund.

Distributions and redemptions

Distributions remain suspended and the fund is closed to redemptions.

Debt

The Scheduled Maturity Date for the Commercial Mortgage Backed Security (“CMBS”) debt has now lapsed and the fund is required to repay or refinance the outstanding Deferred Purchase Amount of $124.76 million by the Final Maturity Date of 18 January 2012.

The fund also has a debt facility with Westpac Banking Corporation (“Westpac”) which has been extended until November. The sale of 422 Little Collins Street has reduced the Westpac debt to $97.4 million.

The term of the fund’s debt facility with the Becton Developments Income Fund (“BDIF”) has been extended to 30 November 2010.

Leasing

The weighted average lease expiry of the fund has increased from 2.99 to 3.20 years since the end of the June quarter due to lease extensions with Coles and Bunnings at Mt Gravatt and Waterman Receivables at 45 William St as well as new leases to Toll Transport and Bucyrus at Ann Street. The fund completed a total of 29 lease deals over 16,741 square metres of space over the June and September quarters. The leases account for $7.3 million in gross annual rent.

Capital expenditure

Telstra has now completed work on the lifts at Burwood Towers, which completes the lessor works required under its lease.

Asset values

The portfolio was revalued as at 30 August 2010. Most assets held their value but there were reductions in value at Burwood Towers and 33 Allara Street due to the impending Telstra expiry at Burwood and the further deterioration in leasing conditions in the Canberra office market causing declines in the NTA. The August 2010 values have been taken into account in the final audited accounts of the fund as at 30 June 2010 and are included in the NTA in the table above.

Acquisitions and divestments

The sale of 108 Church Street Parramatta settled on 14 May 2010. The sale of 422 Little Collins Street settled on 22 October 2010. The bulk of sale proceeds were applied to debt reduction.