Denison weighs up $250m portfolio sale

Sydney is set for a slate of new office projects.

Sydney-based property house Denison is restructuring its main fund in a move that could see it bring a $250 million portfolio of office and industrial buildings to market.

Rival groups, including Charter Hall, Altis Property Partners and JPMorgan Asset Management are also selling portfolios, but Denison is yet to set a course as it looks to repay a loan from US group Forum Partners.

The group’s unlisted Denison Diversified Property Fund, that owns 14 suburban properties along the eastern seaboard, is weighing up whether to offer the assets or recapitalise.

The boutique manager, which specialises in adding value to properties, has dramatically boosted the quality of the portfolio over the past several years, and successfully trimmed back its gearing, while also lifting value for its unit holders. The fund has reduced its debt position with the National Australia Bank, which stood at about $127 million last December, but it also has about $46 million of mezzanine debt due to Forum Partners.

Forum Partners acted as a white knight to Denison in 2012 after a series of deals that saw it also secure the former Viento property platform with support from the Forum Asian Realty Income III fund.

Denison has written to investors saying that due to constrained capital markets, it has been unable to complete the refinance of DDPF’s senior debt

Denison has lifted the size of the fund by acquiring a $76.5 million portfolio from Aspen Group in 2013. It also struck a $45.8 million deal to buy five buildings from a Centuria Capital fund that year.

Investors have been rewarded by Denison’s active style as the fund’s net asset value jumped from about $48.8 million to $62.8 million last year. But it was highly leveraged.

The DDPF’s gearing was pegged back to 67.3% by the end of last September and more properties have since been sold, including a Blacktown complex for $20.6 million and a Devonport building for $4.7 million.

Denison has written to investors saying that due to constrained capital markets, it has been unable to complete the refinance of DDPF’s senior debt. It says this “would affect repayment of the FARI III Bond”.

The fund’s net asset value jumped from about $48.8 million to $62.8 million last year. But it was highly leveraged

“The Board of Directors have decided to conduct a portfolio review with intention to undertake an asset-sale process, with the co-operation of secured lenders to provide Fund liquidity,” the company says.

The DDPF consists of 14 secondary commercial office, industrial and retail assets in NSW, Queensland, Victoria and WA. Denison and the adviser linked to the portfolio, Colliers International, declined to comment but it is understood that options include introducing new debt or equity, as well as a property sale.

The NSW portfolio included two complexes in Apollo Place, Lane Cove and buildings in Liverpool, Artarmon, Campbelltown, North Sydney and Shellharbour. In Queensland, the assets included buildings in Wacol, Parkinson, and Eight Mile Plains.

This article originally appeared on www.theaustralian.com.au/property.