ASX ANNOUNCEMENT23 January, 2009MARKET UPDATE•Implements cost...

ASX ANNOUNCEMENT
23 January, 2009
MARKET UPDATE
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Implements cost management measures
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Secures EIP Fund extension
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Updates on asset impairment review process
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Initiates discussions with key banks
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Considers restructure of deferred Scarborough vendor payment
SYDNEY: Valad Property Group (ASX:VPG) today announced progress in its cost management initiatives as well as the extension of the term of one of its European managed funds.
Valad also announced an update on capital management issues including its asset impairment review process, the initiation of discussions with its corporate lenders, and a proposal to restructure the deferred Scarborough vendor payment.
Cost Management
In light of the difficult operating environment, Valad has commenced a series of cost management initiatives across Europe and Asia Pacific. The initiatives have included a reduction in headcount, tighter expense management and senior staff have volunteered to take pay cuts.
Valad’s c.25% headcount reduction is focused primarily on its asset sourcing and development teams and non-core business lines. In addition, a management restructure has been undertaken. Members of Valad’s Group Executive Team, Asia Pacific Chief Executive Officer, Jeff Locke, and Group Head of Corporate Affairs, Rebecca Thompson, will be leaving the Group. Mr Locke has agreed to remain with the Group over the coming months.
In addition to the voluntary remuneration reductions announced at Valad’s AGM in October 2008, a number of senior executives have volunteered base salary reductions of up to 20%.
Cost savings from all these initiatives are expected to exceed A$30 million on an annualised basis once fully implemented, representing more than 20% savings on total Group overheads, the benefit of which will be fully realised in the 2010 financial year.
Valad remains committed to its asset and funds management platform and continues to provide intensive asset management to its customers.
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ASX ANNOUNCEMENT
European Industrial Property (EIP) fund extension
All investors in the European Industrial Property fund (EIP) have voted in favour of extending the effective fund life to 2013. The current gross value of the fund is €470 million (as at Dec 2008) and the IRR since inception is in line with the target return of 12%. Existing debt is in place with the term aligned with ultimate fund expiry by 2013.
Asset impairment review process
Valad is in the process of preparing its half year accounts and is undertaking its six monthly asset impairment review. This review is ongoing, but Valad advises that it expects there will be significant reductions to carrying values, particularly with respect to its VCS and Crownstone investments.
VCS and Crownstone represent the Group’s preferred equity and mezzanine lending activities, and at 30 June 2008 had a book value of $610 million. An investment with a book value of $82.4 million has been realised for $65 million since that date.
Having regard to the continuing rapid deterioration in credit and property market conditions over the last six months, Valad believes that the recovery of its VCS and Crownstone book values are at significant risk.
Valad will continue to support existing positions only where appropriate.
Bank Discussions
As a result of the asset impairment review and accounts preparation process referred to above, Valad has initiated discussions with its key banks regarding a restructure of its facilities and covenants. In this regard, Valad expects to provide an update at its results announcement on 25 February, 2009.
Restructuring of final payment due to Scarborough vendors
Valad has an obligation to pay the vendors of Scarborough (including Kevin McCabe, a director of Valad) approximately £37million (circa A$78 million) in September 2009. In order to demonstrate their support of Valad, the vendors have submitted a proposal to Valad to restructure these arrangements thereby and reducing the cash commitment payable this year by some £30 million (circa A$67 million).
The proposal involves the issuance of equity at a price to be agreed, such that the vendors will increase their holding in Valad to 19.9%. The remainder of the payment will be deferred by three years to September 2012 and will bear interest at a rate to be agreed. The effect of the proposal will be to improve
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ASX ANNOUNCEMENT
Valad’s liquidity, and as a consequence Valad’s Board is favourably disposed towards the proposal.
Contacts
Peter Hurley
Managing Director
Valad Property Group
Tel: 61 8257 6683
About Valad
Valad Property Group is an active fund manager, investor and developer with an international network of local offices managing A$18 billion of assets as at 30 June 2008.
• Our core business is providing enhanced property returns to investors through value-adding activities.
• Our network of 29 local offices in 17 countries enables us to match global investment capital with real estate opportunities.
• Valad‘s aim is to continue to build a sustainable property business by providing stakeholders with the “value-add” that underpins the Group’s name and philosophy.
www.valad.com.au 3