Outside Back Cover 7mm Outside Front Cover
Tishman Speyer
OFFICE FUND ANNUAL Report 2009 TISHMAN SPEYER Off SPEYER TISHMAN
see it first.sm i c e F u n d 2009 A 2009 nn u a l REPORT l TSO
Tishman Speyer Australia Limited as Responsible Entity of Tishman Speyer Office Fund ARSN 108 809 534 Level 12 The Chifley Tower 2 Chifley Square Sydney NSW 2000 P 02.9921.3900 F 02.9921.3999 AFSL 246917 Inside Front Cover 7mm Inside Back Cover
contents
Corporate Directory
letter from the ceo 1 portfolio summary 4 manager’s report 5 property summaries 13 Responsible Entity of the Trust Auditor of the Trust board of directors 32 Tishman Speyer Australia Limited (“TSAL”) Ernst & Young corporate governance Statement 35 ABN 43 106 909 871 Ernst & Young Centre financial report 45 AFSL 246917 680 George Street Sydney NSW 2000 supplementary unitholder information 101 Registered Office Telephone: (02) 9248 5555 corporate directory IBC Level 12 Fax: (02) 9248 5959 The Chifley Tower Registry 2 Chifley Square Sydney NSW 2000 Link Market Services Limited Telephone: (02) 9921 3900 Level 12 Fax: (02) 9921 3999 680 George Street Website: www.tsof.com.au Sydney NSW 2000 Telephone: (02) 8280 7111 Directors of TSAL Fax: (02) 9287 0303 Mr Graham J Kelly Investor Enquiries Chairman and Non-executive Independent Director Mr Richard M Haddock TSO Investor Information Line Non-executive Independent Director 1300 304 109 (Australia) or Mr Jerry I Speyer +61 2 8280 7216 (overseas callers) Non-executive Director Tishman Speyer Australia Limited (“TSAL”) (ABN 43 106 909 871) is an indirect subsidiary of Tishman Speyer Properties, L.P. and is the Responsible Entity of Mr Robert J Speyer the Tishman Speyer Office Fund (“TSO”, the “Trust”). None of Tishman Speyer Properties, L.P., TSAL or any other affiliate of Tishman Speyer Properties, L.P. guarantees the performance of TSO, the repayment of capital from TSO or any particular rate of return. Non-executive Director Mr David N Augarten Past performance is not a reliable indicator of future performance. An investment in TSO may result in a loss to an investor. The statements contained in this report that are not historical facts are forward-looking statements. These forward-looking statements are based on current expectations, estimates and projections about the industry Chief Executive Officer and Executive Director and markets in which the Trust operates, and management’s beliefs and assumptions. Words such as “expects”, “targeted”, “should”, “intends”, “plans”, “believes”, “estimates”, “forecasts”, “projects” and variations of such words and similar expressions are intended to identify such forward-looking statements. Company Secretary This report is not an offer to invest in units of TSO. This report has been prepared without taking into account the personal objectives, financial situation or needs of particular individuals. Before making any financial or investment decisions based on this report, we recommend that potential investors consider obtaining Ms Janine L Rolfe independent advice from a financial or other professional adviser and consider whether such an investment is appropriate, having regard to their objectives, financial situation and needs.
TSAL does not receive fees in respect of the general financial product advice it may provide; however, it will receive fees for operating the Trust in accordance with the Trust’s Constitution. Entities associated with TSAL may also receive fees for managing the assets of, and providing resources to, the Trust.
IMPORTANT NOTICE TO UNITHOLDERS THAT ARE IN THE UNITED STATES OR U.S. PERSONS
Unitholders should note that TSO has not been, and will not be, registered under the U.S. Investment Company Act of 1940, as amended (the “Investment Company Act”), in reliance on the exception from the definition of “investment company” provided by Section 3(c)(7) thereof. Accordingly, if you are a unitholder and are resident in the United States or a “U.S. Person” (as defined in Regulation S under the U.S. Securities Act of 1933, as amended) (a “U.S. Person”), subject to certain exceptions, you must be a “qualified purchaser” as defined in Section 2(a)(51) of the Investment Company Act (a “Qualified Purchaser”), and if you are acting for the account or benefit of a U.S. Person, that U.S. Person must be a Qualified Purchaser. Unitholders should also note that, to the maximum extent permitted under its constituent documents and by law, TSO reserves the right to refuse to record any sale or transfer of units to a person in the United States or a U.S. Person that is not a Qualified Purchaser, or that are otherwise sold or transferred in a manner that would not allow TSO to maintain the exception from registration under Section 3(c)(7) of the Investment Company Act.
In addition, you should be aware that TSO believes that it should be treated as a passive foreign investment company (or “PFIC”) for United States federal income tax
purposes. As this may have adverse tax consequences for you, we recommend that you seek your own independent tax advice. precinct.com.au TSO
TISHMAN SPEYER Office Fund 2009 Annual REPORT
letter from the ceo
TSO | ANNUAL REPORT | 1 Letter from the ceo
From an operational perspective TSO has continued to make good progress with its leasing program, despite the difficult economic environment in the US. For the 12 months to 30 June 2009, 112 leases were signed covering 1,038,500 square feet and at 30 June 2009 the portfolio occupancy was 91.3% with an average lease term to expiry of 6.2 years. TSO’s high quality, well-located portfolio, leased and managed by Tishman Speyer’s team of dedicated professionals has contributed to this robust performance in the face of recessionary conditions. TSAL will continue to focus on leasing and asset management of the properties in the TSO portfolio as it endeavours to enhance asset values and maximise returns.
Financial Year 2009 proved to be another very challenging year for both the professional managers of listed property funds and their unitholders. The onset of a more restrictive and expensive capital markets environment and a decline in economic activity in the US over the past 12-24 months (the so-called “Global Financial Crisis”) have resulted in a significant reduction in US property values and rents. This has placed pressure on TSO’s liquidity and balance sheet.
TSAL has been intensely focused on these challenges and has made substantial progress in implementing a strategy designed to strengthen TSO’s financial position in the near term and return capital to TSO unitholders in the medium term, as set out in recent market announcements.1 In particular TSAL has:
• Announced, as part of a change in strategy, its intention to sell all of the Trust’s investments between now and 2015, returning net proceeds to unitholders; • Made significant progress in restructuring the Trust’s corporate debt facilities, which, once finalised, will provide TSO with significant covenant relief and access to additional liquidity; • Initiated a number of capital management initiatives to raise additional liquidity, including the potential sale of 3 MacArthur Place and 550 Terry Francois Boulevard; and the potential financing of 400 Castro Street; and • Agreed a restructure of performance fees payable to affiliates of TSP, including waiver of the payment of any fee payable in December 2009.2 The debt restructuring and other initiatives described above should strengthen TSO’s debt and liquidity position and stabilise the Trust’s capital position, which should allow TSO to realise its investments in an orderly manner over the medium term. This shift in strategy, combined with the efforts of Tishman Speyer’s leasing and asset management teams, is intended to maximise returns for TSO unitholders.
As at the date of this letter, TSO remains the subject of a takeover bid by MIRELF III Australia AIV, LP (Madison) at a price of $0.30 per TSO unit. TSAL’s response to this bid and the independent directors’ recommendation is contained in recent market announcements.1
Sincerely,
David N Augarten Chief Executive Officer Tishman Speyer Australia Limited
1 Refer to the Target’s Statement dated 21 August 2009, the Supplementary Target’s Statement dated 3 September 2009 and the Second Supplementary Target’s Statement dated 17 September 2009. 2 This agreement is contingent on the occurrence of certain events (refer Note 2 of the accounts).
Letter from the CEO
21 investment offices
United States New York CITY Boston Seattle San Francisco Los Angeles Chicago AtlanTA wAShington, d.C. Luxembourg Italy Milan United Kingdom London France Paris Germany Frankfurt Munich Berlin Hamburg Australia Sydney Brazil Sao Paulo RIO dE Janeiro China Shanghai Beijing Tianjin Chengdu india Bangalore Hyderabad • Investment Offices ° Support Offices
TSO | ANNUAL REPORT | 3 Portfolio summary
Financial Year 2009 Operational Highlights
• Made significant progress • Signed leases covering • Portfolio is 91.3% leased • FFO of 20.31 cents per in the restructure of Trust’s over 1 million square feet with a weighted average unit, a 61% increase over corporate debt facilities during the year ended lease term to expiry of the prior fiscal year which will provide June 2009 6.2 years significant covenant relief
Properties Geographic Overview
520 Pike Tower Plaza East Greenwich 520 Pike Street 330 E. Kilbourne Avenue Seattle, WA American Centre Milwaukee, WI 1 American Lane Greenwich, CT 300 Park Avenue New York, NY
550 Terry Francois Boulevard One Bush Street San Francisco, CA San Francisco, CA CitySpire 156 West 56th Street New York, NY Bayside Towers 4000 and 4100 East Third Avenue 595 Market Street Foster City, CA San Francisco, CA Franklin Center Bala Plaza 227 West Monroe Street, Bala Cynwyd, PA 222 West Adams Street Chicago, IL Beverly Hills Portfolio 400 Castro Street 407 N Maple Drive Lakeside at Loudoun Te ch Mountain View, CA Beverly Mercedes Place Ridgetop Circle, Loudoun County, VA Maple Plaza, Beverly Hills, CA
3 MacArthur Place Orange County, CA TSO
TISHMAN SPEYER Office Fund 2009 Annual REPORT
Manager’s report
TSO | ANNUAL REPORT | 5 Manager’s Report
Tishman Speyer Office Fund delivered Funds From Operations (“FFO”)1 for the year to 30 June 2009 of 20.31 Australian cents per unit, an increase from the prior year’s result of 12.58 Australian cents per unit. The Trust reported an actual accounting loss after tax of A$628.6 million for the year ended 30 June 2009, due primarily to the decline in the value of the property portfolio.
Independent valuations were obtained for all 18 assets as at 30 June 2009, resulting in a decrease in gross property value to US$1.47 billion (TSO’s share of property values). This represents a 33.5% decline since 30 June 2008 and a 26.1% decline from the independent valuation presented in the half year accounts to 31 December 2008.
At 30 June 2009, the Net Asset Value (“NAV”)2 per unit was A$1.17, a decrease of 58.3% from 30 June 2008, and the Trust’s gearing3 was 75.4%.
After several months of constructive negotiations with TSO’s lenders, the Trust has obtained the requisite approval from the lender group (including Deutsche Bank Trust Company Americas, as Administrative Agent) for the restructuring of TSO’s corporate debt facilities, subject to the execution and delivery of definitive documentation. In order to facilitate TSO’s proposed restructuring, Tishman Speyer Properties (“TSP”) and Tishman Speyer/Citigroup Alternative Investments US Real Estate Venture V L.P. (“Fund V”) have agreed that, in connection with and subject to concluding this restructuring and repayment of one of the Trust’s corporate debt facilities in full, they will waive the payment of any performance fees that could become payable to TSP and Fund V in December 2009.
TSAL has also been reviewing the capital management strategy for the Trust; the results of this review and information on the debt restructuring are described briefly below and in further detail in the Target’s Statement which was released to the market on 21 August 2009, the First Supplementary Target’s Statement which was released to the market on 3 September 2009, and the Second Supplementary Target’s Statement which was released to the market on 17 September 2009.
Strategy and Debt Negotiations
In brief, TSAL intends to pursue strategic initiatives aimed at strengthening TSO’s debt and liquidity position and allowing the orderly realisation of investments over the medium term and return of capital to TSO unitholders.
TSAL believes that it is in the best interests of all unitholders to revise TSO’s strategy and, subject to market conditions and applicable loan covenants, TSAL intends to pursue a strategy of realising all of its investments by 2015 and returning the net proceeds of that realisation to TSO unitholders.
1 FFO is calculated after adding back fair value movements on investment properties and derivatives, foreign exchange gains/losses, movements in the provisions for performance fee and deferred tax expense, leasing costs and transaction costs. 2 NAV is calculated after adding back the deferred tax liability and excludes the fair value of derivatives. 3 Gearing is calculated as (interest bearing liabilities – cash)/(total assets – cash). Manager’s Report
In order to implement this realisation strategy, TSAL has made the following progress:
• Lender approval: Received the approval of the requisite number of lenders under the US REIT Facility to a final term sheet setting out the terms of a restructure of the facility (see section 5.1 of the Target’s Statement and section 3.3 of the First Supplementary Target’s Statement).
US REIT has also agreed final form documentation for the restructure of the US REIT Facility (including certain ancillary documentation) with Deutsche Bank Trust Company Americas, as administrative agent and lender under the US REIT Facility. The amendments to the US REIT Facility will become effective once lenders collectively holding at least 51% of the US REIT Facility enter into this documentation. At that time, US REIT will obtain immediate financial covenant relief and cross-default covenant relief (see section 5.1 of the Target’s Statement, section 3.6 of the First Supplementary Target’s Statement and section 2 of the Second Supplementary Target’s Statement).
Thereafter, following the satisfaction of certain conditions, including raising an additional US$55 million in liquidity, US REIT will be able to draw upon the facility’s remaining US$112 million capacity (the US REIT Facility Final Funding) (see section 5.1 of the Target’s Statement and section 3.4 of the First Supplementary Target’s Statement). The amount drawn down under the restructured US REIT Facility, coupled with the additional liquidity raised, will be used to repay US REIT’s share of the amount outstanding under the Empire Hawkeye Facility (US$148.1 million as at 30 June 2009).
• Capital management initiatives: Made progress in sourcing the required new liquidity of US$55 million from one or more of the capital management initiatives set out in section 5.2 of the Target’s Statement (see sections 3.2 and 3.4 of the First Supplementary Target’s Statement). Those initiatives, if successfully implemented, have the potential to raise approximately US$145 million of new liquidity for TSO which is substantially in excess of the required minimum US$55 million.
• Performance fee restructure: Obtained the agreement of Fund V and TSP, conditional on the closing of the US REIT Facility Final Funding, to the waiver and restructure of the performance fees payable to those parties in the manner set out in section 5.3 of the Target’s Statement.
• Consents: Made progress in obtaining the required third party consents for the implementation of the debt restructure, US REIT Facility Final Funding and some of the capital management initiatives (see section 3.4 of the First Supplementary Target’s Statement).
TSAL will keep TSO Unitholders informed in relation to any material developments relating to the implementation of TSAL’s debt restructure and capital management initiatives.
Market Commentary and Leasing Highlights
The 12 months to 30 June 2009 have seen extreme volatility in financial markets and recessionary conditions across most of the developed world. Negative economic growth and the associated decline in confidence and employment have had a significant impact on leasing activity across TSO’s major markets in the US, and this has resulted in increasing vacancy levels, falling rents and increasing concession packages.
TSO | ANNUAL REPORT | 7 Manager’s Report
Despite this, TSO has continued to make good progress with its leasing program, signing 112 leases over the 12 months to 30 June 2009 covering 1,038,500 square feet. Notwithstanding this leasing success, the portfolio recorded 202,500 square feet of negative absorption, resulting in the portfolio being 91.3% leased, 2.6% lower than the position at 30 June 2008.
The expiry of the AT&T lease at 227 West Monroe, Chicago in March 2009 was the largest contributor to the increase in the portfolio’s vacancy rate. This lease expiry added 410,000 square feet of available space at 31 March 2009, of which 57,000 square feet has subsequently been absorbed by FTI Consulting as part of the 15 year lease which also included leasing 34,000 square feet in the adjoining property at 222 West Adams. The other noteworthy leases signed during the period include: one at 300 Park Avenue, New York where Greenhill & Co. Inc. signed a 104,900 square foot renewal and expansion lease; and another in which Marchex Corporation leased 60,300 square feet at 520 Pike Tower, Seattle.
New York Market
TSO owns an interest in two properties in the New York metropolitan area: 300 Park Avenue and CitySpire, both in Midtown Manhattan.
The quarter ended 30 June 2009 saw the Midtown Manhattan office market record its sixth consecutive quarter of increasing availability. The availability rate was 15.4% at the end of the period, its highest level since September 1993. By comparison, the availability rate was 8.7% at the same point last year. Net absorption through the first half of 2009 was negative 7.38 million square feet compared to the first half of 2008’s negative 2.34 million square feet. On a positive note, net absorption in June 2009, while still negative (down 360,000 square feet), represented a significant improvement over monthly absorption totals since October 2008. Additionally, leasing velocity topped one million square feet for the first time since July 2008.
During the 12 months to 30 June 2009, three leases were signed at 300 Park Avenue totalling 111,800 square feet. Of significant note was the 10 year lease to Greenhill & Co. Inc. for 104,900 square feet, including 72,500 square foot renewal and 32,400 square foot expansion. Following this leasing success, 300 Park Avenue was 96.0% leased at 30 June 2009, a 0.6% increase from 30 June 2008.
Four leases were signed at CitySpire over the year ended 30 June 2009 covering 20,000 square feet, resulting in the building finishing the year 94.5% leased compared to 98.8% at 30 June 2008.
Greenwich, Fairfield County Market
TSO owns an interest in the Greenwich American Centre in Fairfield County, Connecticut.
The Fairfield County market has seen leasing activity decrease to 500,000 square feet in the second quarter of 2009, which is approximately half of the five year quarterly average of 1 million square feet. Additionally, the majority of leasing activity in the Fairfield market has been renewals. As market conditions have deteriorated, landlords have responded by lowering asking rents by approximately 10.1%, from the second quarter of 2008.
The Greenwich submarket, where Greenwich American Centre is located, experienced the largest decline in rental rates, or 12% since this time last year. Additionally, leasing activity in Greenwich was the second lowest of all Fairfield County submarkets at less than 100,000 square feet in the second quarter (the lowest was North Fairfield County).
At Greenwich American Centre, the signing of one 1,500 square foot expansion space resulted in the building’s occupancy finishing the year unchanged at 100.0% leased, as it was in 30 June 2008. Manager’s Report
Philadelphia Market
TSO owns an interest in Bala Plaza, a three-building office complex together with a Saks Fifth Avenue retail store, located in the Bala Cynwyd submarket of Suburban Philadelphia.
The Greater Philadelphia area has experienced its fourth straight quarter of negative net absorption, but the net absorption for the second quarter of 2009 showed significant improvement compared to the year’s first quarter. In the Bala Cynwyd submarket, availability has increased by 1.1% to 16.2%, while average asking rents in the Greater Philadelphia market have decreased by 0.4%.
At Bala Plaza, 30 leases were signed during the period covering 157,800 square feet, consisting of 19,000 square feet of new and expansion leases and 138,800 square feet of renewals. Coupled with lease expiries of 164,000 square feet, Bala Plaza was 94.8% leased at 30 June 2009 compared to 95.4% at 30 June 2008.
Northern Virginia Market
TSO owns an interest in Lakeside at Loudoun Tech, situated in the Loudoun County submarket within Northern Virginia.
Vacant office space in the Northern Virginia office market increased during the half year by 1.0% to 13.9% while average asking rents decreased by 2.0% over the quarter. Rents have declined every quarter since the peak in the fourth quarter of 2007. In the Loudoun County submarket, vacant space has decreased since the first quarter of 2009. With an additional 2.6% of the market currently under construction, Loudoun County could see further pressure on vacancy rates, average asking rents and concession packages.
During the six months ended 30 June 2009, two leases expired at Lakeside for 17,000 square feet, one of which was renewed (9,800 square feet). Additionally, Verisign signed a 7,092 square foot expansion increasing its occupancy to 58.8% of the building. The building was 92.3% leased as at 30 June 2009, a 6.9% decline from the same time last year.
Chicago Market
TSO owns an interest in Franklin Center in Downtown Chicago, a two-building complex comprising 227 West Monroe Street and 222 West Adams Street, which share a block-long lobby. Both of these assets are high quality Class A buildings located in the West Loop submarket, the premier office submarket in Chicago.
From the first quarter of 2009 to the second quarter, the direct vacancy rate in the Chicago market increased by 0.4% to 11.9%. This, coupled with an additional 2.6% of new Class A supply under construction, will continue to put pressure on average asking rents, concession packages and market availability.
With the signing of 10 leases, 227 west Monroe Street recorded 280,600 square feet of leasing activity during the year to 30 June 2009, comprising of 250,500 square feet of new leases and 30,100 square feet of expansions. 227 West Monroe is 86.6% leased on 30 June 2009 compared to 97.6% leased on 30 June 2008. During the 12 months to 30 June 2009, 52,800 square feet of leasing activity was recorded at 222 West Adams Street which was comprised of four new leases and one renewal lease. This activity contributed towards 222 West Adams Street being 81.0% leased at 30 June 2009, a 3.9% increase from 30 June 2008.
TSO | ANNUAL REPORT | 9 Manager’s Report
Milwaukee Market
TSO owns an interest in one Downtown Milwaukee asset, Plaza East. The vacancy rate for Milwaukee’s Central Business District is at 18.7% as of 30 June 2009 and the average asking gross rent has declined by 0.2% compared to the first quarter of 2009.
Nine leases, covering 26,300 square feet, were signed at Plaza East during the year to 30 June 2009. This leasing activity, combined with 40,600 square feet of lease expiries, resulted in Plaza East being 88.9% leased on 30 June 2009, a 3.1% decline from a year earlier.
Seattle Market
TSO owns an interest in one Seattle asset, 520 Pike Tower, situated in the Downtown Seattle submarket.
From the first quarter of 2009, the vacancy rate in the Puget Sound office market continued to climb, rising to 15.4% from 13.8% last quarter. With over 4 million square feet of space under construction, the Puget Sound market will be challenging for at least the rest of 2009. Downtown Seattle will continue to experience pressure on average market rents and tenant concession packages.
Leasing momentum was maintained at 520 Pike Tower through the signing of 15 leases covering 102,000 square feet, consisting of 61,200 square feet of new and expansion leases and 40,800 square feet of renewals. A major lease of note during the period was the signing of a 60,300 square foot lease with Marchex Corporation. Under the terms of the lease, Marchex will renew approximately 43,000 square feet and expand into an additional 17,300 square feet through 2020. 520 Pike was 88.7% leased as of 30 June 2009, while the property was 90.3% leased on 30 June 2008.
San Francisco Market
TSO owns an interest in three Class A office buildings in San Francisco: 595 Market Street, One Bush Street and 550 Terry Francois Boulevard.
The San Francisco office market and its Financial District submarket have both experienced increases in vacancy rates to 14.7% and 15.4% respectively. The availability rate increased 0.4% to 20.2%, which is the first time this rate has crossed the 20.0% mark since 2003. It is expected that both vacancy and availability rates will increase through the rest of the year. Meanwhile, reported average asking rents for Class A office space in the Central Business District have decreased 5.6% over the past quarter.
Tishman Speyer’s San Francisco leasing team made considerable progress during the year to 30 June 2009 with the execution of three significant leases. At 595 Market Street, Visa USA signed a 43,800 square foot lease making the top three floors their global headquarters while the California Department of Transportation signed a 20,193 square foot renewal for eight years. Meanwhile, at One Bush Street, Grubb and Ellis signed a 17,200 square foot lease, occupying the last remaining vacancy in the building.
Leasing activity at 595 Market Street for the year ended 30 June 2009 totalled 126,200 square feet, including the California Department of Transportation renewal. 595 Market Street was 93.5% leased as of 30 June 2009, a 7.0% increase from 86.5% leased on 30 June 2008. At One Bush Street the signing of five leases covering 49,400 square feet resulted in the building being 100.0% leased on 30 June 2009, a 5.8% increase from 30 June 2008. 550 Terry Francois Boulevard remains 100.0% leased to The Gap, Inc. through October 2017. Manager’s Report
San Francisco Peninsula Market
TSO owns an interest in Bayside Towers (Foster City) and 400 Castro Street (Mountain View), both located on the San Francisco Peninsula.
Although the first quarter of 2009 saw an unexpected increase in occupancy, through the second quarter the San Francisco Peninsula market resumed a negative trend. The vacancy rate increased to 16.7%, while asking rents decreased by 5.6%. In Foster City, the availability rate increased from 8.5% as of 31 December 2008 up to 10.5% as of 30 June 2009. The Mountain View submarket of Silicon Valley experienced a greater increase in availability compared to Foster City, recording a 2.3% increase in available space over the half year (9.9% on 30 June 2009).
Two leases were signed at Bayside Towers over the year ended 30 June 2009 totalling 37,700 square feet, comprising a 24,100 square foot new lease and a 13,600 square foot expansion. Bayside Towers finished the year 94.4% leased, down 0.4% from 30 June 2008. 400 Castro Street remains 100.0% leased with no rollover through August 2017. Beverly Hills Market
TSO owns an interest in Maple Plaza, 407 North Maple Drive and Beverly Mercedes Place, all of which are located in the West Los Angeles (Beverly Hills) submarket of Los Angeles, California.
The Greater Los Angeles office market recorded 1.3 million square feet of negative absorption in the second quarter of 2009. Subsequently, vacancy increased 0.9% since the first quarter and now stands at 15.7% at 30 June 2009. In the West Los Angeles submarket, where TSO owns assets, vacancy has increased to 13.5% as of 30 June 2009 from 9.8% at 31 March 2009. Average asking rents in the Greater Los Angeles area have decreased 4.3% from the first quarter, but average asking rents continue to be the highest in West Los Angeles.
During the year ended 30 June 2009, six leases were signed at Maple Plaza covering 17,900 square feet, comprising 2,200 square feet of new leases and 15,700 square feet of renewals. This leasing, when coupled with the 53,300 square feet of lease expiries, resulted in Maple Plaza finishing the year 83.2% leased, a 12.3% decrease from 30 June 2008. Beverly Mercedes Place and 407 North Maple Drive remain 100.0% leased as they were on 30 June 2008.
Orange County Market
TSO owns an interest at 3 MacArthur Place, formerly known as 3 Imperial Promenade, located in the Airport submarket of Orange County.
Due to its large concentration of mortgage-related employment, Orange County has been significantly affected by the ongoing credit crisis. Availability for the Greater Orange County market has increased to 23.0%, which is a 7.5% increase from 31 December 2008, also reflecting the effect of reduced demand.
During the year ended 30 June 2009, five leases were signed at 3 MacArthur covering 26,000 square feet, comprising 12,900 square feet of new and expansion leases and 13,100 square feet of renewals. This leasing activity, coupled with the 32,500 square feet of lease expirations, resulted in 3 MacArthur finishing the year 77.5% leased, a 2.6% decline from 30 June 2008.
TSO | ANNUAL REPORT | 11 Manager’s Report
Leasing Activity from 1 July 2008 to 30 June 2009
The table below summarises the net leasing activity for the 12 month period:
Leased Leased Percentage Status Expiries/ New/ Net Status Asset Name Ownership 30 Jun 08 Contractions Expansion Renewal Change 30 Jun 09
300 Park 45.9% 95.4% (107,259) 32,364 79,411 4,516 96.0%
CitySpire 45.9% 98.8% (35,487) 17,235 2,775 (15,477) 94.5%
GAC1 45.9% 100.0% (1,750) 1,500 – (250) 100.0%
Bala Plaza 45.9% 95.4% (163,979) 18,971 138,820 (6,188) 94.8%
227 West Monroe 45.9% 97.6% (454,189) 250,520 30,057 (173,612) 86.6%
222 West Adams 45.9% 77.1% (16,706) 42,478 10,276 36,048 81.0%
Plaza East 45.9% 92.0% (40,634) 13,515 12,804 (14,315) 88.9%
520 Pike 45.9% 90.3% (108,105) 61,167 40,793 (6,145) 88.7%
One Bush 45.9% 94.2% (32,193) 17,190 32,247 17,244 100.0%
595 Market 45.9% 86.5% (97,051) 69,431 56,741 29,121 93.5%
Bayside 45.9% 98.4% (48,178) 24,070 13,641 (10,467) 94.4%
400 Castro 45.9% 100.0% – – – – 100.0%
3 MacArthur 99.9% 80.1% (32,470) 12,919 13,079 (6,472) 77.5%
Lakeside 99.9% 99.2% (38,066) 7,092 9,837 (21,137) 92.3%
550 TFB2 99.9% 100.0% – – – – 100.0%
Maple Plaza 99.9% 95.5% (53,304) 2,161 15,750 (35,393) 83.2%
407 North Maple 99.9% 100.0% – – – – 100.0%
Beverly Mercedes 99.9% 100.0% (11,661) 11,661 – – 100.0%
Total 93.9% (1,241,032) 582,274 456,231 (202,527) 91.3%
1 Greenwich American Centre, CT. 2 550 Terry Francois Boulevard, CA. TSO
TISHMAN SPEYER Office Fund 2009 Annual REPORT
Property summaries
TSO | ANNUAL REPORT | 13 Property summaries
300 PARK AVENUE NEW YORK, NY
Property Location: New York, NY Year Built/Renovated: 1955/1998/2000 Ownership %: 45.9% Building Size: 772,002 square feet Leased %: 96.0% Carrying Value: US$650.0 million
Property Description 300 Park Avenue is a 26-storey, Class A commercial office building located on prestigious Park Avenue in the heart of Midtown, the business centre of New York. Acquired in 2004 for US$387 million, now valued at US$650 million, the property has been considerably de-risked by the early renewal of both Colgate‑Palmolive and Greenhill and Co. Inc.
Note: Property information shown is at 30 June 2009.
Major Tenants Square Feet % of Total Lease Expiry Colgate-Palmolive* 497,115 64.2 Jun 2023 Colgate-Palmolive* 40,400 5.2 Jun 2010 Greenhill and Co. Inc. 104,911 13.6 Oct 2020 GoldenTree Asset Management** 46,654 6.0 Aug 2013 Chilton Investment Co 20,616 2.6 Sep 2010
* Colgate-Palmolive will lease 497,115 sft with no termination option through to 30 June 2023. ** Includes 20,613 sft under sublease from Wilmer Cutler Pickering Hale & Dorr until Aug 2010. PROPERTY SUMMARIES
CITYSPIRE NEW YORK, NY
Property Location: New York, NY Year Built: 1987 Ownership %: 45.9% Building Size: 369,617 square feet Leased %: 94.5% Carrying Value: US$155.0 million
Property Description CitySpire, a 72-storey office and residential building designed by the architectural firm of Murphy/Jahn Associates, is well located in the heart of midtown Manhattan, four blocks from Central Park and with easy access to major transportation hubs.
Note: Property information shown is at 30 June 2009.
Major Tenants Square Feet % of Total Lease Expiry Windels Marx 52,770 14.3 Sep 2017 GlobeOp 32,084 8.7 Apr 2017 Japanese Tourism Board 27,440 7.4 Dec 2018 Bennett Footwear 27,366 7.4 May 2013
TSO | ANNUAL REPORT | 15 Property summaries
GREENWICH AMERICAN CENTRE GREENWICH, CT
Property Location: Greenwich, CT Year Built/Renovated: 1970/1987 Ownership %: 45.9% Building Size: 650,413 square feet Leased %: 100% Carrying Value: US$170.0 million
Property Description Greenwich American Centre is a Class A corporate office park situated on 155 acres located in Greenwich, Connecticut, one of the most affluent communities in the U.S. The building was designed by Gordon Bunshaft of Skidmore, Owings & Merrill and was completed in 1970.
Note: Property information shown is at 30 June 2009.
Major Tenants Square Feet % of Total Lease Expiry Goldman Sachs 124,349 19.1 Dec 2015 Blue Sky Studios 109,707 16.9 May 2018 Tudor Investment Group 101,525 15.6 Oct 2017 Citation Shares 33,891 5.2 Nov 2012 Citation Shares 36,440 5.6 May 2015
16 PROPERTY SUMMARIES
BALA PLAZA BALA–CYNWYD, PA
Property Location: Bala-Cynwyd, PA Year Built: 1967, 1969, 1982 Ownership %: 45.9% Building Size: 1,124,333 square feet Leased %: 94.8% Carrying Value: US$152.6 million
Property Description Bala Plaza is a three-building office complex together with a connected Saks Fifth Avenue retail store. One Bala and Two Bala are Class B buildings and Three Bala, which has two wings, is a Class A building.
Note: Property information shown is at 30 June 2009.
Major Tenants Square Feet % of Total Lease Expiry Philadelphia Insurance 140,641 13.1 Feb 2014 Oracle USA, Inc. 88,565 8.2 Jul 2015 United National Insurance 73,108 6.8 Dec 2013 Promissor, Inc. 68,529 6.4 Apr 2011
TSO | ANNUAL REPORT | 17 Property summaries
LAKESIDE @ LOUDOUN TECH WASHINGTON DC, METRO
Property Location: Washington DC, Metro Year Built: 1999, 2000, 2001 Ownership %: 99.9% Building Size: 307,031 square feet Leased %: 92.3% Carrying Value: US$55.7 million
Center Oak Plz Property Description Lakeside @ Loudon Tech consists of three four-storey Class A office properties, scenically positioned symmetrically around an ornamental lake. Each building features a brick façade, brick vertical pilasters and accents, and the lobbies are clad with polished Stefan ie Dr Ridgetop Cir Italian granite, mahogany wall panels and base and indirect cove lighting. Lakeside Palace Te Wa r terview Plz @ Loudon Tech is also located less than 10 minutes away from Washington Dulles Edward s r Te Te r International Airport, and within a half mile of the intersection of Route 7 and Route Jaclyn Pl Forum 28, which are the county’s primary east/west and north/south corridors respectively.
Note: Property information shown is at 30 June 2009.
Countryside Blvd
Major Tenants Square Feet % of Total Lease Expiry Verisign* 180,476 56.8 Apr 2016 Cigital 9,837 3.2 Oct 2014 Cigital 14,703 4.8 Sep 2009 Alpha Construction & Engineering 20,956 7.7 Feb 2010 Washington Radiology Associates, P.C. 11,961 3.9 Apr 2012
* Tenant has two one-time termination options in November 2012 and November 2014 with 15 months notice and payment of a termination fee. Property summaries
FRANKLIN CENTER 227 WEST MONROE CHICAGO, IL
Property Location: Chicago, IL Year Built: 1989 Ownership %: 45.9% Building Size: 1,576,792 square feet Leased %: 86.6% Carrying Value: US$424.0 million
Property Description 227 West Monroe and 222 West Adams share a block-long lobby and are collectively known as the Franklin Center. 227 West Monroe Street is widely regarded as one of the most desirable and architecturally significant office properties in Chicago. This 60-storey trophy building, designed by the world-renowned Chicago-based architectural firm Skidmore, Owings & Merrill, is well-located one block east of Wacker Drive in the West Loop.
Note: Property information shown is at 30 June 2009.
Major Tenants Square Feet % of Total Lease Expiry McDermott, Will & Emery 272,359 17.3 Apr 2017 Citicorp* 228,382 14.5 Jun 2025 Credit Suisse 159,596 10.1 Sep 2013 Pepsico, Inc.** 122,141 7.7 Aug 2009
* Citicorp currently occupies 123,000 sft and is due to take occupancy of the remaining 105,000 sft in January 2010. ** 18,700 sft expires June 2014.
TSO | ANNUAL REPORT | 19 Property summaries
FRANKLIN CENTER 222 WEST ADAMS CHICAGO, IL
Property Location: Chicago, IL Year Built: 1992 Ownership %: 45.9% Building Size: 933,353 square feet Leased %: 81.0% Carrying Value: US$196.0 million
Property Description 222 West Adams is a 35-storey Class A property, designed by the world-renowned Chicago-based architectural firm Skidmore, Owings & Merrill. Completed in 1992, it is recognised as one of the premier office buildings in downtown Chicago, and was built to a higher than market standard. The lobby includes many distinct architectural features such as patterned marble floors and walls, stylised lighting fixtures, dark mahogany woods and ceiling murals.
Note: Property information shown is at 30 June 2009.
Major Tenants Square Feet % of Total Lease Expiry William Blair & Company 306,618 32.9 Jul 2011 GATX 124,633 13.4 Oct 2023 AT Kearney 102,454 11.0 Aug 2017 FTI Consulting, Inc.* 91,265 3.6 Jun 2025
* Represents the total square footage leased by FTI in both 222 West Adams and 227 West Monroe. Property summaries
PLAZA EAST I AND II MILWAUKEE, WI
Property Location: Milwaukee, WI Year Built: 1982, 1984 Ownership %: 45.9% Building Size: 473,887 square feet Leased %: 88.9% Carrying Value: US$48.9 million
Property Description Plaza East is well-located in the central business district of downtown Milwaukee within walking distance of Lake Michigan, close to regional transportation hubs, several high-end hotels, a performing arts centre and various other area attractions. The property consists of two 14-storey office towers spanning an entire city block, joined together by a barrel-vaulted four-storey glass atrium, a six-storey offsite parking facility, along with a large outdoor landscaped plaza.
Note: Property information shown is at 30 June 2009.
Major Tenants Square Feet % of Total Lease Expiry GSA (FBI)* 87,784 18.5 Nov 2012 Mortgage Guaranty Insurance Corporation 29,510 6.2 Mar 2013 Associated Bank 23,148 4.9 Jun 2014 Robertson Ryan & Associates 18,876 4.0 Sep 2010
* Tenant has a termination option beginning in December 2011.
TSO | ANNUAL REPORT | 21 Property summaries
520 PIKE TOWER SEATTLE, WA
Property Location: Seattle, WA Year Built/Renovated: 1983/2000 Ownership %: 45.9% Building Size: 383,730 square feet Leased %: 88.7% Carrying Value: US$95.0 million
Property Description 520 Pike Tower is a 29-storey Class A property located in the centre of downtown Seattle, surrounded by destination retail, exclusive hotels and premier office buildings with high quality tenants. The property is within walking distance of the waterfront and within blocks of the famous Pike Street Marketplace. In addition to its ideal location, the building offers exceptional water views on the upper floors.
Note: Property information shown is at 30 June 2009.
Major Tenants Square Feet % of Total Lease Expiry Marchex* 60,313 15.7 Mar 2018 National Union Fire Insurance/AIG 26,989 7.0 May 2012 Envision Telephony 26,230 6.8 Jul 2011 Grant Thornton 17,686 4.6 Apr 2016
* 8,373 sft of this leased space expires in March 2010. Property summaries
ONE BUSH STREET SAN FRANCISCO, CA
Property Location: San Francisco, CA Year Built/Renovated: 1959/1990 Ownership %: 45.9% Building Size: 329,711 square feet Leased %: 100% Carrying Value: US$105.0 million
Property Description One Bush is a 19-storey Class A office building, located in the heart of the financial district of downtown San Francisco. One Bush was built in 1959 as the corporate headquarters of Crown zellerback and was later renovated in 1990. designed by Skidmore, Owings & Merrill, One Bush’s simple, yet distinctive design remains one of the finest examples of the International School of Architecture.
Note: Property information shown is at 30 June 2009.
Major Tenants Square Feet % of Total Lease Expiry Hellmuth Obata Kassabaum 67,430 20.5 nov 2012 Pacific Growth Equities 51,132 15.5 nov 2013 Willis Insurance Services 34,088 10.3 Jun 2013 Grubb & Ellis 17,044 5.2 dec 2015
TSO | ANNUAL REPORT | 23 Property summaries
595 MARKET STREET SAN FRANCISCO, CA
Property Location: San Francisco, CA Year Built: 1979 Ownership %: 45.9% Building Size: 429,355 square feet Leased %: 93.5% Carrying Value: US$120.0 million
Property Description 595 Market is a 30-storey Class A office building prominently located in the centre of the financial district in downtown San Francisco. Completed in 1979, the building was designed by Skidmore, Owings & Merrill. The building features a striking precast exterior with a continuous window line of glass that provides abundant light and views of the San Francisco Bay from the upper floors.
Note: Property information shown is at 30 June 2009.
Major Tenants Square Feet % of Total Lease Expiry Visa U.S.A. 43,842 10.2 Aug 2019 SelectQuote Insurance Services 37,024 8.6 Mar 2011 CCCSF* 32,683 7.6 Apr 2013 Calypso Technology 29,356 6.8 Dec 2014
* Consumer Credit Counselling Services of San Francisco.
Property summaries
GAP Building – 550 TERRY FRANCOIS BOULEVARD SAN FRANCISCO, CA
Property Location: San Francisco, CA Year Built: 2002 Ownership %: 99.9% Building Size: 282,773 square feet Leased %: 100% Carrying Value: US$125.0 million
Property Description Constructed in 2002, 550 Terry Francois Boulevard is a state-of-the-art Class China Basin St A office property located in the emerging Mission Bay district of San Francisco. Complementing the property’s appealing long-term lease to GAP, Inc. is its superior workspace environment, which includes an underfloor hVAC system, floor-to- ceiling glass windows and 12 foot ceiling heights, efficient “J” shaped floor plates, 6th St
3r on-site amenities and an adjacent parking garage. In addition to on-site parking, d St T erry Francois St
Owens St Interstates 80, 280, Highway 101 and public transportation such as Caltrain and the
280 Muni Third Street light rail provide convenient access to the property. 16th St Illinois St Note: Property information shown is at 30 June 2009.
Mariposa St
Major Tenants Square Feet % of Total Lease Expiry GAP, Inc. 282,773 100 Oct 2017
TSO | ANNUAL REPORT | 25 Property summaries
BAYSIDE TOWERS FOSTER CITY, CA
Property Location: Foster City, CA Year Built: 1999 Ownership %: 45.9% Building Size: 262,790 square feet Leased %: 94.4% Carrying Value: US$47.5 million
Property Description Bayside Towers is a high quality, modern Class A office property developed in 1999 consisting of two mirror-image six-storey buildings. The property boasts unencumbered views of the San Francisco Bay and the 10 mile long San Mateo Bridge, with direct access to the shoreline via a footbridge. The site has the potential for the development of a third building, containing an additional 88,000 square feet of office space. Bayside Towers, situated in one of the most picturesque settings for an office environment, is distinguished by its modern mirror-image design and its curvilinear tinted glass facade.
Note: Property information shown is at 30 June 2009.
Major Tenants Square Feet % of Total Lease Expiry Applera 84,522 32.2 Jul 2010 Philips Electronics 64,352 24.5 Aug 2012 Legacy Partners 46,924 17.9 Dec 2011 E2Open 24,070 9.2 Feb 2013 Property summaries
400 CASTRO STREET SILICON VALLEY, CA
Property Location: Silicon Valley, CA Year Built: 2002 Ownership %: 45.9% Building Size: 138,681 square feet Leased %: 100% Carrying Value: US$85.3 million
Property Description 400 Castro Street is a state-of-the-art, Class A, six-storey office building completed in 2002. The building is well-located in the heart of downtown Mountain View, one of the Peninsula’s most prestigious office markets. The property is situated near the Mountain View Center for the Performing Arts and City Hall, and is in close proximity to numerous downtown restaurants.
Note: Property information shown is at 30 June 2009.
Major Tenants Square Feet % of Total Lease Expiry Fenwick & West 128,781 92.9 Aug 2017 Cantankerous Fish 5,521 4.0 Dec 2018 Don Durante 4,379 3.1 Dec 2018
TSO | ANNUAL REPORT | 27 Property summaries
MAPLE PLAZA BEVERLY HILLS, CA
Property Location: Beverly Hills, CA Year Built: 1987 Ownership %: 99.9% Building Size: 290,136 square feet Leased %: 83.2% Carrying Value: US$108.7 million
Property Description Maple Plaza is a three-storey Class A office property located in Beverly Hills, California. This excellent location affords it access to nearby first-class hotels, restaurants, and retailers located in the Golden Triangle and along Rodeo Drive. Maple Plaza boasts two dramatic three-storey atrium entrances and landscaped courtyards.
Note: Property information shown is at 30 June 2009.
Major Tenants Square Feet % of Total Lease Expiry Morgan Stanley 46,325 16.0 Apr 2017 Mobizzo* 20,044 6.9 Jun 2011 Netflix, Inc. 19,421 6.7 Aug 2010
* Entire space is currently subleased from Fox Interactive (News Corporation). Property summaries
407 NORTH MAPLE DRIVE BEVERLY HILLS, CA
Property Location: Beverly Hills, CA Year Built: 2003 Ownership %: 99.9% Building Size: 163,811 square feet Leased %: 100% Carrying Value: US$71.5 million
Property Description Designed by the renowned architectural firm gwathmey, Siegel & Associates, 407 north Maple drive is a four-storey trophy-quality Class A office building constructed in 2003. 407 north Maple is situated around a “U” shaped central courtyard with extensive landscaping. The exterior walls are stainless steel and granite slabs, broken up by tinted windows set in metal frames. Modern finishes such as polished steel, glass and granite adorn both of the double-storey entry lobbies.
Note: Property information shown is at 30 June 2009.
Major Tenants Square Feet % of Total Lease Expiry Fox Interactive Media* 163,811 100% May 2016
* Lease is guaranteed by News Corporation.
TSO | ANNUAL REPORT | 29 Property summaries
BEVERLY MERCEDES PLACE BEVERLY HILLS, CA
Property Location: Beverly Hills, CA Year Built: 1990 Ownership %: 99.9% Building Size: 132,221 square feet Leased %: 100% Carrying Value: US$49.6 million
Property Description Beverly Mercedes Place is a three-storey Class A office property located on the corner of Beverly Boulevard and North Maple Drive, one of the largest and most lucrative trade areas nationwide. The property’s exterior walls are clad in polished granite in combination with solar gray window systems; clear tempered glass is provided at the storefront areas on the ground floor. The second and third floors feature beautifully landscaped terraces that offer expansive views of Beverly Hills and the Hollywood Hills.
Note: Property information shown is at 30 June 2009.
Major Tenants Square Feet % of Total Lease Expiry Miller-DM, Inc. (Mercedes-Benz) 58,651 44.4 dec 2014 The Broder Webb Chervin Silvermann Agency L.L.C. 22,641 17.1 Jun 2011 Marvel Entertainment 18,418 13.9 Aug 2010 Property summaries
3 MACARTHUR PLACE ORANGE COUNTY, CA
Property Location: Orange County, CA Year Built: 1991 Ownership %: 99.9% Building Size: 246,817 square feet Leased %: 77.5% Carrying Value: US$31.7 million
Property Description 3 MacArthur Place is an 11-storey Class A high-rise property, situated in a 65 acre mixed-use development known as MacArthur Place (previously hutton Centre). Strategically located near Costa Mesa (SR-55), San diego (I-405) and Santa Ana (I-5) Freeways as well as John Wayne Airport, 3 MacArthur Place is easily accessible to Orange County’s highly educated labor force. Complementing the convenient physical location of 3 MacArthur Place are the visually appealing exterior walls of limestone, granite, and thermal windows in aluminum frames.
Note: Property information shown is at 30 June 2009.
Major Tenants Square Feet % of Total Lease Expiry Omnipoint Communications (T-Mobile) 42,138 17.1 Oct 2010 Tenet Healthsystems 41,001 16.6 Mar 2010 Archstone Communities, L.L.C. 21,068 8.5 Sep 2015 Quadramed 11,966 4.8 Sep 2009
TSO | ANNUAL REPORT | 31 TSO
TISHMAN SPEYER Office Fund 2009 Annual REPORT
Board of Directors Board of directors
Graham J Kelly, Chairman and Independent Non-executive Director
Mr Kelly is a professional non-executive director and consultant with nearly 40 years’ experience in academic life, government service, the diplomatic service, private legal practice and business management. He has chaired several listed entities, currently including the Tishman Speyer Office Fund, Infigen Energy Ltd and Centrebet International Limited. He is also the Governor of the Centenary Institute for Cancer Medicine and Cell Biology, as well as being a director of a number of unlisted companies.
He was previously the chairman of, among other listed companies, TAB Limited, Recruitment Solutions Limited and Colonial First State Private Capital Limited; a director of the State Bank of NSW (later Colonial State Bank); a Trustee of the Commonwealth and Public Sector Superannuation Schemes; and the Inspector of the NSW Independent Commission Against Corruption.
Mr Kelly was previously a partner of Freehills specialising in corporate and government law. He was managing partner of the Sydney office from 1991 to 1995, and also national chairman of the firm from 1993 to 1995. He remains a consultant to that firm though no longer engaged in active legal practice.
Richard M Haddock, Independent Non-executive Director
Mr Haddock is a well seasoned professional with significant board experience. He has over 35 years of professional experience, most recently as deputy general manager for BNP Paribas Australia, from which he retired in 2001. His current board appointments include chairman of Commonwealth Managed Investments Ltd and Centacare. Mr Haddock is also currently serving as a director of Retirement Villages Australia Ltd and Retirement Villages Group R.E. Limited. He is honorary treasurer and national director of Caritas Australia and director of the Catholic Superannuation and Retirement Fund. His prior board experience includes chairman of Cashcard Australia and director of SME Growth, BNP Paribas Investment Management (Australia), AXA Insurance, Insurance Exchange of Australia group, Auspace Colonial First State Private Capital and MacarthurCook Limited. Mr haddock holds Bachelor of Arts and Bachelor of Laws degrees from the University of Sydney.
Jerry I Speyer, Non-executive Director
Mr Speyer is Chairman and Co-Chief Executive Officer of Tishman Speyer. He is one of the two founding partners of the company which was formed in 1978.
Mr Speyer is chairman of the Museum of Modern Art. He is vice chair of New York Presbyterian Hospital. He is the former chairman of the Board of directors of the Federal Reserve Bank of new York; chairman emeritus of Columbia University; chairman emeritus of the Real Estate Board of New York; chairman emeritus of the Partnership for New York City; and past president of the Board of Trustees of the Dalton School. Mr Speyer’s other board affiliations include Yankee Global Enterprises and the Economic Club of New York. He is a member of the Council on Foreign Relations.
Mr Speyer graduated from Columbia College in 1962 and Columbia University Graduate School of Business in 1964.
TSO | ANNUAL REPORT | 33 Board of directors
Robert J Speyer, Non-executive Director
Mr Speyer was named Co-Chief Executive Officer of Tishman Speyer in June 2008 and continues to serve as president. Since joining the firm in 1995, he has worked in senior positions in each of its major spheres of activity, including acquisitions, development, capital markets and leasing. Most recently, he ran the company’s day-to-day business in New York, and he continues to serve as chair of its Management Committee, which oversees the company’s activities globally. Mr Speyer was appointed by Mayor Bloomberg as chair of the Mayor’s Fund to Advance New York City, the not-for-profit corporation for the City of New York. He is a member of the Board of Visitors of Columbia College (emeritus), the Board of Trustees of the New York City Police Foundation and the Executive Committee of the Board of Governors of the Real Estate Board of New York. He graduated magna cum laude from Columbia College in 1992, and was elected to the Phi Beta Kappa Society.
David N Augarten, CEO and Executive Director
Mr Augarten was appointed CEO and Executive Director of Tishman Speyer Australia Limited in February 2009. He joined Tishman Speyer as the Director of Taxes in 1984 and today directs the company’s global portfolio and asset management functions. While at Tishman Speyer, he has also worked in the acquisitions and development areas prior to serving as Treasurer from 1993 to 1996 and Chief Financial Officer from 1996 to 2000. Before joining Tishman Speyer, Mr Augarten was with Arthur Andersen & Co. where he specialised in that firm’s real estate tax practice. He graduated from Ohio University with a Bachelor of Business Administration in 1978 and received his Doctor of Jurisprudence degree from the Boston University School of Law in 1981. TSO
TISHMAN SPEYER Office Fund 2009 Annual REPORT
Corporate Governance Statement
TSO | ANNUAL REPORT | 35 Corporate Governance STATEMENT
Tishman Speyer Office Fund is a registered managed investment scheme which has been listed on the Australian Securities Exchange (“ASX”) since December 2004. Tishman Speyer Australia Limited (“TSAL”) is the Responsible Entity for TSO. Tishman Speyer Australia LTD, L.L.C., an indirect subsidiary of Tishman Speyer Properties, L.P. (“Tishman Speyer”), based in the United States, is the sole shareholder of TSAL.
The principal business of TSAL is to carry out its duties as the Responsible Entity for TSO.
To the extent practicable and on behalf of both TSAL and TSO, the TSAL Board endorses the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations (“ASX Principles”).
All governance materials (charters, policies and statements) as approved by the TSAL Board are reviewed annually. The annual review of governance materials ensures they continue to be appropriate to the operations of TSAL and TSO and evidences TSAL’s commitment to governance which is discussed in detail below. Copies of any governance materials are available on the corporate governance section of the TSAL website.
The Board Lays Solid Foundations for Management and Oversight
The Board of Directors
The Board has adopted a formal Charter which sets out responsibilities of the Board and Management (and in particular the Chief Executive Officer).
Overall, the Board is responsible for providing strategic direction and for monitoring the implementation of that strategy by Management, by:
• ensuring that TSAL and TSO have appropriate corporate governance structures; • overseeing the TSAL and TSO businesses, including their control and accountability systems; • approving the issuance of equity; • approving and monitoring financial and other reporting, including reporting to unitholders; • deciding on TSO’s capital structure and distribution policy; and • reviewing and evaluating the performance of the Chief Executive Officer and the Company Secretary.
The Board is assisted by two formally established Committees:
• Audit Committee; and • Compliance & Risk Management Committee.
For efficiency, the Board may also delegate matters to one or two directors either on a standing or distinct basis. Corporate Governance STATEMENT
The Chief Executive Officer
The Chief Executive Officer is responsible for the day-to-day management of TSAL with all powers, discretions and delegations authorised, from time to time, by the Board.
In particular, the Chief Executive Officer is responsible for:
• briefing directors in relation to issues as they arise; • briefing representatives from Tishman Speyer on any material developments concerning TSO, including the Australian listed property trust market; • making recommendations on TSO’s strategic direction, including any financial commitments (such as gearing or hedging policies); • approving the annual operating budgets; • appointing and removing any executive officers (as defined by the Corporations Act); • reviewing the performance and recommending the remuneration for the executive officers; and • communicating with investors (in accordance with the TSAL Continuous Disclosure Policy).
Other Individuals
The Board Charter also sets out the particular responsibilities of the Chairman, the Financial Controller and the Company Secretary.
The Board is Structured to Add Value
The Directors
TSAL currently has five directors.
Four directors are non-executive directors, while the Chief Executive Officer is an executive director.
Two non-executive directors, Jerry Speyer and Rob Speyer, represent the cornerstone interest of Tishman Speyer. Due to their interest in Tishman Speyer, Jerry Speyer and Rob Speyer are not considered “independent”.
There are two independent non-executive directors, graham kelly and Richard haddock. Both independent directors have significant experience leading and governing Australian businesses. Graham Kelly is the independent Chairman of TSAL.
The Chief Executive Officer, David Augarten, has an intimate understanding of the global Tishman Speyer business and effectively acts as the conduit between management and the Board. Due to his executive employment with TSAL, David Augarten is not considered “independent”.
TSAL does not have a majority of independent directors. Given the experience and background of each of the Directors, the Board considers that the two independent non-executive directors are aware of and capable of acting in an independent manner and in the best interests of unitholders.
TSO | ANNUAL REPORT | 37 Corporate Governance STATEMENT
All directors, regardless of whether or not they are deemed to be “independent”, are expected to express an objective opinion in relation to all TSAL and TSO matters.
Details of the directors, their qualifications, skills and experience are detailed on pages 33 and 34. Four directors have all held their positions on the board of TSAL since its inception in 2004. The current Chief Executive Officer was appointed in February 2009.
Independent professional advice is available to directors if necessary, at the expense of TSAL.
Selection and Appointment of Directors
Independent non-executive directors receive formal letters of appointment setting out the key terms, conditions and expectations of their appointment.
Given the size of TSAL, it is not considered necessary that a formal nominations committee be established. In appointing directors, the Board must ensure that the candidate has the appropriate range of skills, experience and expertise that will best complement Board effectiveness. The TSAL Board recognises that it must be able to consider current and emerging business issues and challenge the performance of management. In addition, any candidate must confirm that they have the necessary time to devote to their TSAL Board position.
Board and Management Access to Information
Independent non-executive directors will be given an induction program to ensure that they have a working knowledge of TSAL, TSO (including TSO’s investments) and the listed property trust market.
The directors have access to all relevant information and have access to the services of the Company Secretary for advice on Board policy and procedures and governance matters. Directors may meet with or independent of management at any time to discuss any areas of interest or concern.
Board and Management Performance
No formal Board assessment was conducted during Financial Year 2008/09, although it is the responsibility of the Chair to continually review the operation and performance of the Board.
As there are no employees of TSO, it is not applicable to provide a description of the senior executive performance reviews that have taken place during the 2008/09 year.
Independence
Independent directors are those who have the ability to exercise their duties unfettered by any business or other relationship.
It is the approach and attitude of each non-executive director which is critical to determining independence and this must be considered in relation to each director while taking into account all other relevant factors, which may include whether the non- executive director: i. is a substantial unitholder (within the definition of the Corporations Act) of TSO, or an officer of, or otherwise associated directly with, a substantial unitholder of TSO; ii. has, within the last three years, been employed in an executive capacity by TSAL; Corporate Governance STATEMENT
iii. has, within the last three years, been a principal of a material professional adviser or a material consultant to TSAL or TSO or an employee materially associated with the service provided. In this context, the relationship with the professional adviser or consultant shall be deemed to be material if payments from TSAL or TSO exceed 10% of TSAL’s or TSO’s annual expenditure to all professionals and consultants or exceed 10% of the recipient’s annual revenue for advisory or consultancy services; iv. is a material supplier or customer of TSAL or TSO, or an officer of or otherwise associated directly or indirectly with, a material supplier or customer. In this context, the relationship with the supplier or customer shall be deemed to be material if annual payments to or from that supplier or customer exceed 10% of the annual consolidated gross revenue of either TSAL or TSO or of that supplier or customer; v. has any material contractual relationship with TSAL or TSO other than as a director; vi. has served on the Board for a period of time, the extended duration of which could, in and of itself materially affect the director’s ability to act in the best interests of TSAL or TSO; or vii. is free from any interest and any business or other relationship which could, or could reasonably be perceived to, materially interfere with the director’s ability to act in the best interests of TSAL or TSO.
The Board Promotes Ethical and Responsible Decision-making
The TSAL Code of Conduct & Ethics applies to all people when they represent TSAL and/or TSO, and deals with:
• compliance with laws and regulations; • unacceptable payments and contributions; • giving or receiving gifts; • protection of assets; • proper accounting; • dealing with auditors; • unauthorised public statements; • conflicts of interest; and • use of inside information.
The Code recognises TSAL’s obligations to all legitimate stakeholders from time to time where and to the extent appropriate. The TSAL Employee Handbook also governs employees’ behaviour when representing TSAL.
The Code encourages employees to report on possible breaches and observances of possible breaches and sets out the process to be followed for reporting any possible breaches of the Code.
A copy of the Code is given to all employees, contractors and relevant personnel.
In addition to the TSAL Code of Conduct & Ethics, the TSAL directors’ Code of Conduct & Ethics governs the way in which TSAL directors should conduct themselves in the discharge of their duties as Board and Committee members.
A copy of both Codes are given to all directors.
TSO | ANNUAL REPORT | 39 Corporate Governance STATEMENT
Security Trading
The TSO Securities Trading Policy sets guidelines designed to protect TSO, TSAL and TSAL employees (including directors) from intentionally or unintentionally breaching the law. TSAL employees must not purchase or dispose of TSO units while in possession of “material non-public information”.
As there is no equity-based remuneration within TSO, there is no current need for any policy on prohibiting the entry into transactions in associated products which limits the economic risk of participating in unvested entitlements under any equity-based remuneration scheme (i.e. an anti-hedging policy).
Conflicts Management
As required by section 912A(1)(aa) of the Corporations Act, TSAL has a Conflicts Management Policy which adopts the following principles in relation to the management of conflicts of interest with regard to both retail and wholesale investors:
• to act fairly and honestly towards investors; • to endeavour to identify conflicts of interest; • to avoid conflicts of interest that may have materially detrimental consequences for TSAL, TSO or investors; • where a conflict of interest cannot be avoided and TSAL forms the view that the situation can be managed to prevent adverse consequences to investors, make appropriate disclosure to the investor of that conflict; • to adopt and promote a culture within TSAL of conflict of interest awareness; and • to effectively manage conflicts of interest that arise within TSAL.
The Board Safeguards the Integrity of Financial Reporting
Audit Committee
The Board has an Audit Committee which:
• has three members who are all non-executive directors (two of whom are independent directors) (Richard Haddock (independent Chair who is not Chair of the Board), Rob Speyer and Graham Kelly); • has met twice during the 2008/2009 Financial Year and all Committee members attended; • includes members who are all financially literate; • has a written Charter; • is responsible for: i. the reliability and integrity of financial information for inclusion in the TSAL and TSO financial statements; ii. audit, accounting and financial reporting obligations of TSAL and TSO; iii. safeguarding the independence of the external auditor; and iv. financial risk management. Corporate Governance STATEMENT
External Auditor
The Audit Committee has direct, unlimited access to the external auditor and has the ability to seek independent advice at the expense of TSAL. The Board and Audit Committee monitor the independence of the external auditor. The Audit Committee observes the policies and procedures for the selection, appointment and re-appointment of the external auditor and the rotation of external audit engagement partners. The Committee will: i. recommend to the TSAL Board the appointment and removal of the external auditor; ii. ratify, upon delegated approval by the Chief Executive Officer, and recommend to the TSAL Board: a. the terms of appointment or re-appointment of the external auditor; and b. the level of fees payable to the external auditors; and iii. at least annually, assess the performance and independence of the external auditor and whether the independence of this function is maintained having regard to the provision of non-audit related services.
Although not applying to registered schemes (such as TSO), the TSAL Board has adopted the spirit of section 300(11B) of the Corporations Act. The Board has therefore resolved that:
“The directors are satisfied that:
(a) the non-audit services provided during the 2008/09 financial year by Ernst & Young as the external auditor were compatible with the general standard of independence for auditors imposed by the Corporations Act; and (b) any non-audit services provided during the 2008/09 financial year by Ernst & Young as the external auditor did not compromise the auditor independence requirements of the Corporations Act for the following reasons: i. Ernst & Young’s services have not involved partners or staff acting in a managerial or decision-making capacity within TSAL or been involved in the processing or originating of transactions; ii. Ernst & Young partners and staff involved in the provision of non-audit services have not participated in associated approval or authorisation processes related to the audit (there being a complete separation between the two functions); iii. a description of all non-audit services undertaken by Ernst & Young and the related fees have been reported to the Audit Committee to ensure complete transparency in relation to services provided; and iv. the declaration required by section 307C of the Corporations Act confirming independence has been received from Ernst & Young.”
This resolution was made by the TSAL Board upon the written advice of the TSAL Audit Committee (as per section 300(11D)(a)).
The Board Makes Timely and Balanced Disclosure
TSAL has an established process to ensure that it is in compliance with the ASX Listing Rules disclosure requirements applicable to TSO and this process is reflected in the TSO Continuous Disclosure Policy. This process includes a periodic confirmation by all management that the area for which they are responsible has complied with the Policy.
TSO | ANNUAL REPORT | 41 Corporate Governance STATEMENT
The Board Respects the Rights of Unitholders
TSO has an effective Unitholder Communications Policy which promotes effective communication with unitholders, including beneficial holders.
TSAL places all market announcements on the TSO website and all registered parties receive an email notification when an announcement is made. All unitholders and members of the public are encouraged to register for this notification service.
As a Trust, TSO is not required to hold an Annual General Meeting (“AGM”). In the event that an Extraordinary General Meeting (“EGM”) were called, TSAL, as the Responsible Entity of TSO, would request the external auditor to attend (and, where applicable be available to answer unitholder questions) in respect of any resolutions put to unitholders.
The Board Recognises and Manages Risk
The investments made by TSO involve a range of strategic, operational, financial and legal risks. Recognising this, the Board has established a sound system of risk oversight and management and internal control designed to identify, assess, monitor and manage risk.
The Board’s Committees assist with this oversight and internal control. The Audit Committee is responsible for monitoring financial risk management while the Compliance & Risk Management Committee is responsible for monitoring business (non- financial) risk management.
The Chief Executive Officer is responsible for implementing and reporting on the risk management and internal control system. The Chief Executive Officer reports to the Board and its Committees, as appropriate, on the management of risks.
Compliance & Risk Management Committee
The Compliance & Risk Management Committee:
• has three members (Graham Kelly, Richard Haddock and David Augarten), the majority of whom are “external members” as defined by 601JB of the Corporations Act; • has a Chairman who is an “external member” (Graham Kelly); • has a written Charter; • is responsible for: i. ensuring overall compliance of TSAL as a Responsible Entity; ii. monitoring compliance with (and reporting necessary breaches of) the Compliance Plan, the Corporations Act and the TSO Constitution; iii. assessing the adequacy of the Compliance Plan; iv. business risk management (including monitoring the internal control framework); and v. compliance with any other legal and regulatory obligations in addition to i. and ii. above. Corporate Governance STATEMENT
Duties of Committee members are set out in section 601JD of the Corporation Act. These responsibilities are in addition to other statutory and common law duties imposed upon directors.
To date, no breaches have been identified in Financial Year 2008/09 and the Compliance Plan auditor has issued an unqualified audit opinion.
Regarding risk management oversight, the Compliance and Risk Management Committee periodically reviews and monitors:
• the business risk management framework; • response to TSO’s business risks (including compliance and internal controls); • management’s approach to key operational risks, including the effectiveness of internal controls; and • the implementation of key recommendations and management action plans.
During the 2008/09 Financial Year, the Compliance and Risk Management Committee met four times.
TSO has a compliance and risk management system in place which sets out the policy and procedures of TSAL in effecting an integrated compliance and risk management system. TSO’s compliance plan and the TSAL compliance manual form part of the overall compliance and risk management system which is overseen by the Board and Committees. The policy and related procedures establish a system that endeavours to minimise the risk of non-compliance with laws or regulation impacting on the business activities of TSAL and to establish a system for identifying and managing material business risks with those business activities.
The Compliance and Risk Management Committee receives reports on the implementation, effectiveness and review of the compliance and risk management system, and from 2008/09 management has reported that TSO’s material business risks are being managed effectively.
To ensure effective communication between the two Committees which are responsible for risk management, at least one member of the Audit Committee must also be a member of the Compliance & Risk Management Committee. Currently, there are two common members. The responsibilities of the Audit Committee are detailed in the part of this Corporate Governance Statement regarding financial reporting.
In accordance with Recommendations 7.2 and 7.3 of the ASX Principles, the Chief Executive Officer and Financial Controller have stated to the Board (with regard to TSO) that:
• the management of TSO’s material business risks is effective; and • the declaration made in accordance with section 295A of the Corporations Act (in relation to the financial statements) is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks. This declaration forms part of the recommendations made to the Audit Committee, and subsequently to the Board, when considering the financial statements.
TSO | ANNUAL REPORT | 43 Corporate Governance STATEMENT
The Board Remunerates Fairly and Responsibly
The only directors who are remunerated by TSO are the independent non-executive directors, graham kelly and Richard Haddock.
Details of the remuneration paid to the independent non-executive directors are set out on page 89 of the TSO 2009 Annual Report.
No employees, including executive officers, are remunerated by TSO.
In relation to all directors and employees, there is no TSO equity-based remuneration paid.
Other than statutory superannuation in relation to the independent non-executive directors, there are no retirement benefits paid from TSO assets.
In light of the actual remuneration paid by TSO, it is not considered necessary to establish a formal remuneration committee.
Janine Rolfe Company Secretary TSO
TISHMAN SPEYER Office Fund FINANCIAL REPORT
for the year ended 30 June 2009
TSO | ANNUAL REPORT | 45 Contents – for the year ended 30 June 2009
Directors’ Report 47 Auditor’s Independence DeclaratioN 51 Income StatemenT 52 Balance Sheet 53 Statement of Changes in Equity 55 Cash Flow Statement 56 Notes to the Financial Statements 57 Directors’ Declaration 93 Independent Auditor’s Report 94 U.S. Dollar Income statement 96 U.S. Dollar balance sheet 97 U.S. Dollar cash flow statement 99 Notes to the U.S. Dollar Information 100 directors’ report – for the year ended 30 June 2009
The directors of Tishman Speyer Australia Limited (“TSAL”) (ABN 43 106 909 871), the Responsible Entity of Tishman Speyer Office Fund (“TSO”, the “Trust”) present their report together with the consolidated financial report of TSO and its controlled entities for the year ended 30 June 2009 and the Independent Audit Report thereon. All amounts in this report are in Australian dollars unless otherwise stated.
DIRECTORS
The directors of TSAL during the financial year and until the date of this report are:
David Neil Augarten – Appointed 26 February 2009 Richard Michael Haddock Graham John Kelly Jerry Irving Speyer Robert Jeffrey Speyer Thomas Mark Feldstein – Resigned 26 February 2009
Details of directors, their skills, experience and expertise, including any TSAL Committee memberships, are set out in the Annual Report.
TSAL is incorporated in Australia and has its principal place of business at Level 12, The Chifley Tower, 2 Chifley Square, Sydney NSW.
TSO is a registered managed investment scheme which has been listed on the Australian Securities Exchange (“ASX”) since 1 December 2004.
RELEVANT INTERESTS IN THE TRUST
As at the date of this report, the interests of the directors, held directly or indirectly, in TSO were:
Fully paid units David Neil Augarten – Richard Michael Haddock 746,100 Graham John Kelly 500,000 Jerry Irving Speyer – Robert Jeffrey Speyer –
The directors are not party to any contract to which the directors may be entitled to a benefit that confers a right to call for or deliver interests in TSO and the directors have no rights or options over interests in TSO.
Tishman Speyer company policy currently prohibits non independent directors and employees from owning units in TSO.
PRINCIPAL ACTIVITY
The principal activity of TSO during the year ended 30 June 2009 was investment in a portfolio of premium office properties in the United States of America (U.S.).
There were no significant changes in the nature of the Trust’s activities during the year.
TSO | ANNUAL REPORT | 47 directors’ report – for the year ended 30 June 2009
REVIEW AND RESULTS OF OPERATIONS AND STATE OF AFFAIRS
In the opinion of the directors, there were no significant changes in the state of affairs of TSO that occurred during the year under review.
Results
The consolidated net loss before tax for the year ended 30 June 2009 was $853.940 million (30 June 2008: profit of $57.821 million). The consolidated net loss after tax attributable to the members of TSO for the year ended 30 June 2009 was $628.633 million (30 June 2008: loss of $112.029 million) and earnings per unit were negative 183.77 cents (30 June 2008: negative 32.66 cents).
The net tangible assets of TSO at 30 June 2009 were $0.57 per unit (30 June 2008: $1.88 per unit). After adjusting for the deferred tax liability and fair value movements on derivatives, net tangible assets at 30 June 2009 were $1.17 per unit (30 June 2008: $2.81 per unit).
Certain subsidiaries have 31 December year ends in order to comply with U.S. tax and accounting requirements. The financial information of the subsidiaries that is incorporated in TSO’s audited consolidated accounts has been prepared for the same reporting period as the parent entity, using consistent accounting policies.
Distributions
No distribution will be paid for the year ended 30 June 2009 and no interim distribution was paid relating to the six months ended 31 December 2008. For the year ended 30 June 2008, distributions totalling 17.00 cents per unit were paid.
UNITS ON ISSUE
TSO bought back and cancelled 4,578,829 units on-market at an average cost of 10.77 cents per unit. The transaction costs associated with the buy-back have been allocated to equity.
TSO had 338,440,904 fully paid units on issue at 30 June 2009 (30 June 2008: 343,019,733 fully paid units).
TRUST ASSETS
At 30 June 2009, TSO held assets with a value of $1,249.449 million (30 June 2008: $1,653.642 million). The basis for valuation of the assets is disclosed in Note 1 of the financial statements.
FEES PAID TO THE RESPONSIBLE ENTITY AND ASSOCIATES
Base management fees of $14,139,352 (30 June 2008: $11,950,562) were paid or are payable for the management and operation of TSO in accordance with the terms set out in Note 2 of the financial statements.
SIGNIFICANT EVENTS AFTER THE BALANCE DATE
Since the end of the financial year,MIRELF III Australia, AIV, LP (“Madison”) announced an off-market takeover offer for all of the issued ordinary units in TSO that Madison does not own. The offer is open until 11 September 2009 (or subsequent date if the offer is extended). There is no certainty as to the outcome of Madison’s offer. The Madison offer is subject to a material adverse change condition and the offer will lapse unless Madison waives this condition or circumstances change. If Madison acquires a 50% or greater interest in TSO then there may be an adverse impact on TSO, for example, a change of control condition being breached in a material contract of TSO. For more details refer to the Target’s Statement to be issued by TSO on or about the date of this report. directors’ report – for the year ended 30 June 2009
Since the end of the financial year, TSO has reached agreement with Deutsche Bank Trust Company Americas (administrative agent and lender for the facility held by Tishman Speyer U.S. Office, Inc (“US REIT”)) to revised terms on the US REIT facility. These revised terms involve, amongst other things, a relaxation of covenants including certain cross-default provisions, solvency requirements and other related covenants. However, these agreed terms are still to be documented in a revised loan agreement and amendments to other documents at the asset level. The finalisation of the agreement and other documents is subject to, amongst other things, TSO raising additional liquidity of US$55 million through asset sales or other means and obtaining approval of 51% of the syndicate of banks providing the facility. As at the date of this report approval of 47% of the lending syndicate members (including Deutsche Bank Trust Company Americas as administrative agent and lender) has been obtained. TSAL believes that US REIT will close the restructuring of the US REIT facility prior to 11 September 2009. Refer Notes 1(a) and 10(a) of the financial statements.
LIKELY DEVELOPMENTS AND EXPECTED RESULTS
During the year to 30 June 2009, the investment strategy of TSO has been maintained in accordance with the Trust Constitution and investment objectives as disclosed in the initial public offer Product Disclosure Statement (“PDS”) dated 9 November 2004 and restated in the PDS dated 17 October 2005, which is to invest in high quality office assets.
Since 30 June 2009, as disclosed in the Target’s Statement to be issued by TSAL on or about the date of this report, TSAL has made progress in implementing a new strategy designed to strengthen TSO’s financial position in the near term, and realise assets and return capital to TSO unitholders in an orderly and efficient manner in the medium term.I n summary, the inter-dependent elements of that strategy would involve:
(a) repaying in full the facility held by TSO’s equity accounted associate, Empire Hawkeye Partners, L.P. (“Empire Hawkeye”), and restructuring the US REIT facility to obtain significant covenant relief and permit US REIT to access undrawn funds; (b) raising a minimum of US$55 million from one or more capital management initiatives, including the possible sale of investment properties outside the Prime Plus portfolio; (c) Tishman Speyer Properties, L.P. (“TSP”) and its affiliates agreeing to waive payment of any performance fees in December 2009; and (d) managing TSO’s investment portfolio to enable an orderly realisation of these investments by 2015 and the return of net proceeds to TSO unitholders.
As part of the progress in relation to the implementation of this strategy, a contract has been signed for the sale of 3 MacArthur Place at a price of US$31 million. Closing remains conditional on additional due diligence, lender approval and other customary closing conditions.
Except as set out above and otherwise described in the Target’s Statement, further information about the likely developments in the operations of TSO in future financial years and the expected results of those operations has been omitted from this report because disclosure of the information is likely to result in unreasonable prejudice to TSO. Further information about TSO’s business strategies and its prospects for future financial years has been omitted from this report because disclosure of the information is likely to result in unreasonable prejudice to TSO.
TSO | ANNUAL REPORT | 49 directors’ report – for the year ended 30 June 2009
INDEMNIFICATION AND INSURANCE OF OFFICERS AND AUDITORS
The Responsible Entity has a right of indemnity out of TSO’s assets unless the Responsible Entity has acted with gross negligence, fraudulently or in breach of trust.
The directors and officers of theR esponsible Entity are indemnified out of the assets of TSO, through the indemnity from TSO to the Responsible Entity, against losses incurred while acting on behalf of TSO unless they act with gross negligence, fraudulently or in breach of trust. No amount has been paid under this indemnity during the financial year or to the date of this report.T he auditor of TSO is not indemnified out of the assets of the Trust.
During the period TSO paid insurance premiums in relation to an investment manager’s insurance policy providing insurance cover both to the Trust and to the officers and directors of the Responsible Entity.
ROUNDING
The amounts contained in this report and in the financial report have been rounded off under the option available to the entity under ASIC Class Order 98/0100. The Trust is an entity to which the Class Order applies, and in accordance with that Class Order, amounts in the financial report have been rounded to the nearest thousand dollars, unless otherwise stated.
CORPORATE GOVERNANCE
In recognising the need for the highest standards of corporate behaviour and accountability, the directors of TSAL support the ASX’s Principles of Corporate Governance. The Responsible Entity’s Corporate Governance Statement is contained in the Corporate Governance section of the Annual Report.
BOARD COMMITTEES
As at the date of the report, the Responsible Entity had an Audit Committee and a Compliance and Risk Management Committee. The responsibilities of these committees are described in the Corporate Governance Statement which is included in the Annual Report.
AUDITOR INDEPENDENCE AND NON-AUDIT SERVICES
The directors received a declaration from the auditor of TSO which immediately follows this report.
Details of non-audit services provided by TSO’s auditor, Ernst & Young, are set out in Note 19 of the financial statements. The directors are satisfied that the provision of non-audit services provided by Ernst & Young as the external auditor is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The nature and scope of each type of non-audit service provided means that auditor independence was not compromised.
Signed in accordance with a resolution of the directors.
GJ Kelly Chairman
Sydney, 21 August 2009
AudiIndependenttor's Indepen auditdenc ereport Decla rtoat theion tunitholderso the Direc tofor Tishmans of Tish mSpeyeran Spe Officeyer AustFundralia Limited as Responsible Entity for Tishman Speyer Office Fund
In relaWetion have to ou auditedr audit othef th accompanyinge financial rep ofinancialrt of Tis hreportman S ofpe Tishmanyer Offic eSpeyer Fund fOfficeor the Fund,year e whichnded 30comprises June the 2008,balance to the sheetbest oasf maty 30 kn Juneowle dg2008,e an dand be thelief, incomethere hstatement,ave been statementno contra vofen changestions of inth equitye audi tandor cash indepeflownden statementce require m fore n thets o yearf th e ended Corp o onra ti thatons date,Act 20 a 0 summary1 or an y of a pp significantlicable c o accountingde of pro f policies,essional other conducexplanatoryt. notes and the directors’ declaration of the consolidated entity comprising the trust and the entities it controlled at the year’s end or from time to time during the financial year.
Directors’ Responsibility for the Financial Report The directors of Tishman Speyer Australia Limited (“The Responsible Entity”) are responsible for the
preparation and fair presentation of the financial report in accordance with the Australian Accounting Ernst &Standards Young (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal controls relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 1, the directors also state that the financial report, comprising the financial statements and notes, complies with International Financial Reporting Standards as issued by the International Accounting Standards Board.
David SAuditor’simmonds Responsibility Partner Our responsibility is to express an opinion on the financial report based on our audit. We conducted our Sydney audit in accordance with Australian Auditing Standards. These Auditing Standards require that we Ernst & Young comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. 21 August 2008 An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, we consider internal controls relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Independence In conducting our audit we have met the independence requirements of the Corporations Act 2001. We have given to the directors of the company a written Auditor’s Independence Declaration, a copy of which is included in the directors’ report. In addition to our audit of the financial report, we were engaged to undertake the services disclosed in the notes to the financial statements. The provision of these services has not impaired our independence.
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TSO | ANNUAL REPORT | 51 INCOME STATEMENT – for the year ended 30 June 2009
Consolidated Parent 2009 2008 2009 2008 Notes A$’000 A$’000 A$’000 A$’000
Income Share of net income of associates rental income 197,780 144,164 – – property expenses (75,962) (61,652) – – Amortisation of leasing costs and tenant incentives (10,964) (6,516) – – net rental income 110,854 75,996 – – net borrowing costs (40,968) (36,515) – – net fair value (decrement)/increment on financial derivatives (1,465) 313 – – manager’s fees 2 (9,469) (8,394) – – reversal of provision for performance fee 2 181,928 14,213 – – corporate expenses (1,062) (1,473) – – net income of associates before fair value adjustments 239,818 44,140 – – fair value decrement on investment properties (651,589) (54,124) – – Total share of net (loss)/income of associates 7 (411,771) (9,984) – – Rental income from controlled investment properties 84,616 69,268 – – Fair value increment on controlled investment properties – 50,723 – – Reversal of provision for performance fee 2 616 – – – Interest income 151 2,307 11,585 10,738 Net fair value increment on financial derivatives – 13,212 – 13,212 Foreign exchange gain 3,576 5,469 21,105 5,469 Total revenue and other income (322,812) 130,995 32,690 29,419
Expenses Property expenses of controlled investment properties 32,472 25,690 – – Fair value decrement on controlled investment properties 410,896 – – – Decrement on investment in controlled entities – – 355,227 – Borrowing costs 44,589 40,303 – – Manager’s fees 2 4,671 3,556 – – Provision for performance fee 2 – 521 – – Corporate expenses 3 4,200 3,104 1,530 1,654 Net fair value decrement on financial derivatives 34,300 – 34,300 – Foreign exchange loss – – 3,081 17,619 Total expenses 531,128 73,174 394,138 19,273
(Loss)/profit before tax expense and minority interests (853,940) 57,821 (361,448) 10,146 U.S. withholding tax 1(u) 1,155 965 1,155 965 Deferred tax (credit)/expense 1(u), 4 (226,070) 168,821 – – (Loss)/profit after tax expense and before minority interests (629,025) (111,965) (362,603) 9,181 Net (loss)/profit attributable to minority interests (392) 64 – – Net (loss)/profit attributable to unitholders of TSO (628,633) (112,029) (362,603) 9,181
Basic and diluted earnings per unit (cents) 20 (183.77) (32.66) Distribution per unit (cents) 13 – 17.00 – 17.00
The above income statement should be read in conjunction with the accompanying notes. Balance Sheet – as at 30 June 2009
Consolidated Parent 2009 2008 2009 2008 Notes A$’000 A$’000 A$’000 A$’000
Current assets Cash and cash equivalents 66,206 14,756 309 59 Receivables 5 4,345 4,077 3,477 4,647 Derivative assets 16(b) – 8,824 – 8,824 Other 963 953 194 221 Total current assets 71,514 28,610 3,980 13,751
Non-current assets Equity accounted investments in associates investment properties 6 1,282,839 1,539,500 – – cash 61,698 34,645 – – other assets 18,134 17,171 – – current interest bearing liabilities 10 (184,005) – – – non-current interest bearing liabilities 10 (510,735) (580,148) – – provision for performance fee 2 – (138,939) – – other liabilities (39,449) (31,494) – – Total equity accounted investment in associates 7 628,482 840,735 – – Investment properties 6 549,453 768,383 – – Investment in controlled entities 8 – – 85,878 466,869 Loan to controlled entity 8 – – 105,616 88,404 Derivative assets 16(b) – 15,914 – 15,914 Total non-current assets 1,177,935 1,625,032 191,494 571,187
Total assets 1,249,449 1,653,642 195,474 584,938
Current liabilities Trade and other payables 9 19,800 12,163 3,587 745 Interest bearing liabilities 10 356,008 – – – Provision for distribution 1(m) – 29,157 – 29,157 Total current liabilities 375,808 41,320 3,587 29,902
Non-current liabilities Interest bearing liabilities 10 476,323 623,852 – – Provision for performance fee 2 – 501 – – Deferred tax liability 1(u), 4 204,830 343,426 – – Preferred stockholders 11 601 503 – – Total non-current liabilities 681,754 968,282 – –
Total liabilities 1,057,562 1,009,602 3,587 29,902
Net assets 191,887 644,040 191,887 555,036
TSO | ANNUAL REPORT | 53 Balance Sheet – as at 30 June 2009 (continued)
Consolidated Parent 2009 2008 2009 2008 Notes A$’000 A$’000 A$’000 A$’000
Unitholders’ equity Units on issue 12 677,965 678,511 688,972 689,518 Reserves 13 (6,459) (183,777) (134,482) (134,482) Undistributed income 13 (479,719) 148,914 (362,603) – Total equity attributable to unitholders of TSO 191,787 643,648 191,887 555,036 Minority interests 100 392 – – Total equity 191,887 644,040 191,887 555,036
The above balance sheet should be read in conjunction with the accompanying notes. Statement of Changes in Equity – for the year ended 30 June 2009
Consolidated Parent 2009 2008 2009 2008 Notes A$’000 A$’000 A$’000 A$’000 Total equity at the beginning of the financial year 644,040 914,584 555,036 604,794 (Loss)/profit for the period (629,025) (111,965) (362,603) 9,181 Net income recognised directly in equity foreign currency profits/(losses) taken to equity 13 177,318 (99,693) – – minority interests’ share of foreign currency gains 100 53 – – Amortisation of interest rate derivatives 13 – (448) – (448) 177,418 (100,088) – (448) Total (loss)/income for the period (451,607) (212,053) (362,603) 8,733 Equity cancelled during the period 12 (493) – (493) – Transaction costs taken to equity 12 (53) (177) (53) (177) Distributions 13 – (58,314) – (58,314) Total equity at the end of the financial year 191,887 644,040 191,887 555,036
Total (loss)/income is attributable to: unitholders of TSO (451,315) (212,170) (362,603) 8,733 minority interests (292) 117 – – (451,607) (212,053) (362,603) 8,733
Total equity is attributable to: unitholders of TSO 191,787 643,648 191,887 555,036 minority interests 100 392 – – 191,887 644,040 191,887 555,036
The above statement of changes in equity should be read in conjunction with the accompanying notes.
TSO | ANNUAL REPORT | 55 Cash Flow statement – for the year ended 30 June 2009
Consolidated Parent 2009 2008 2009 2008 Notes A$’000 A$’000 A$’000 A$’000
Cash flows from operating activities Receipts in the course of operations 84,892 69,702 17,076 11,433 Payments in the course of operations (79,948) (68,466) (7,408) – Income received from equity accounted associates – 23,434 – – Fees and other expenses paid (inclusive of GST) (8,568) (7,064) (1,380) (1,577) Withholding tax paid (1,402) (1,004) (1,335) (1,004) Net cash flows (used in)/from operating activities 14 (5,026) 16,602 6,953 8,852
Cash flows from investing activities Payments for purchase of, and additions to, investment properties (3,157) (3,862) – – Proceeds from investment in subsidiaries and associates – – 23,000 49,207 Net cash flows (used in)/from investing activities (3,157) (3,862) 23,000 49,207
Cash flows from financing activities Costs of buy-back of units (493) – (493) – Equity transaction costs paid (53) (177) (53) (177) Net proceeds from interest bearing liabilities 87,324 45,323 – – Distribution paid (29,157) (58,314) (29,157) (58,314) Net cash flows (used in)/from financing activities 57,621 (13,168) (29,703) (58,491)
Net (decrease)/increase in cash and cash equivalents held 49,438 (428) 250 (432) Cash and cash equivalents at the beginning of the financial year 14,756 17,137 59 773 Effects of exchange rate changes 2,012 (1,953) – (282) Cash and cash equivalents at the end of the financial year 66,206 14,756 309 59
The above cash flow statement should be read in conjunction with the accompanying notes. Notes to the financial statements – for the year ended 30 June 2009
1. Summary of significant accounting policies
(a) Basis of preparation
The financial report is a general purpose financial report, which has been prepared in accordance with the requirements of theT rust Constitution, the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board.
The financial report has been prepared in accordance with the historical cost convention except for investment properties and derivative financial instruments which are carried at fair value and interests in associates which are carried at equity accounted value.
The financial report has been prepared on a going concern basis because the Trust expects, subject to the matters described below, to be able to pay its debts as and when they fall due in the ordinary course of business for the next 12 months. However, continued compliance with covenants in respect of the US REIT revolving credit facility disclosed in Note 10 of the financial report is dependent on market conditions, including fair values of investment properties.
The independent valuations adopted in Note 6 are not valuations for the purposes of the US REIT facility agreement and are therefore not required to be used to determine compliance with the financial covenants under that facility.I f those valuations were used to test compliance with covenants there would be a breach of financial covenants of theUS REIT facility (as disclosed in Note 10). A breach would be required to be remedied within the cure period. If a breach was not timely rectified, this may cast doubt overTSO ’s ability to continue as a going concern, as the lender would have the right to require immediate repayment of the debt under this facility and to exercise any and all of the remedies available to it under the agreement, including powers of sale. If the lender exercised the right of power of sale, it is uncertain whether assets would be realised, and liabilities discharged, in the ordinary course of business.
TSO has reached agreement with Deutsche Bank Trust Company Americas (administrative agent and lender for the US REIT facility) to revised terms on the US REIT facility. These revised terms involve, amongst other things, a relaxation of covenants including certain cross-default provisions, solvency requirements and other related covenants. However, these agreed terms are still to be documented in a revised loan agreement and amendments to other documents at the asset level. The finalisation of the agreement and other documents is subject to, amongst other things, TSO raising additional liquidity of US$55 million through asset sales or other means and obtaining approval of 51% of the syndicate of banks providing the facility. As at the date of this report approval of 47% of the lending syndicate members (including Deutsche Bank Trust Company Americas as administrative agent and lender) has been obtained. While TSO believes that US REIT will close the restructuring of the US REIT facility prior to 11 September 2009, there can be no assurance that this will occur.
In addition, any failure (as a result of the significant declines in property values attributable to two of theL akeside, Virginia properties, which have a nil attributed equity value) to comply with “solvency” and related covenants under the property-level debt facility could in due course constitute a default under the current terms of the US REIT facility due to cross-default provisions. Under the proposed restructured terms of the US REIT facility, any breach of a property-level financial covenant with respect to theL akeside properties will not affect the US REIT facility. While TSO believes that US REIT will close the restructuring of the US REIT facility prior to September 2009, there can be no assurance that this will occur. Cross-default will only occur after a breach in the Lakeside facility has been unremedied in the cure period of 60 days.
TSO | ANNUAL REPORT | 57 Notes to the financial statements – for the year ended 30 June 2009
1. Summary of significant accounting policies (continued)
(a) Basis of preparation (continued)
TSO’s equity accounted associate, Empire Hawkeye, has a loan facility which matures on 1 December 2009. Empire Hawkeye’s ability to repay this facility on or before its scheduled maturity is dependent on the outcome of the proposed US REIT facility restructuring. A default by Empire Hawkeye would represent an event of default under the US REIT revolving credit facility agreement.
The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($’000) unless otherwise stated under the option available to the Trust in accordance with ASIC Class Order 98/0100. The Trust is an entity to which the Class Order applies.
(b) New accounting standards and interpretations
The financial report complies with Australian Accounting Standards as issued by the Australian Accounting Standards Board and International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board.
Other new accounting standards, amendments to accounting standards and interpretations have been published that are not mandatory for the current reporting period. We have not assessed the impact on TSO’s financial report for subsequent periods.
(c) Basis of consolidation and equity accounting
The consolidated financial statements comprise the financial statements of TSO and its subsidiaries.
Subsidiaries are all those entities over which TSO has the power to govern the financial and operational policies so as to obtain benefits from their activities.
Financial information for the controlled entities and equity accounted investments has been prepared for the same reporting period as the parent entity, using consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies which may exist.
Information from the financial statements of the consolidated entities is included from the date the parent entity obtained control.
All inter-entity balances and transactions, income and expenses and profits and losses resulting from intra-group transactions have been eliminated in full.
Minority interests not held by TSO are allocated their share of net profit after tax in the income statement and are presented within equity in the consolidated balance sheet, separately from TSO’s equity.
In the parent entity, the investment held by TSO in US REIT is carried at the lower of cost and net realisable value.
TSO has an indirect interest in Empire Hawkeye and Prime Plus Investments, Inc. (“Prime Plus”). The Trust has significant influence but does not control these entities. Accordingly, on consolidation the Trust has adopted the equity method of accounting for these investments. Under this method, the consolidated entity’s share of the profits or losses ofP rime Plus and Empire Hawkeye is recognised in the consolidated income statement and its share of movements in reserves is recognised in the consolidated balance sheet. Notes to the financial statements – for the year ended 30 June 2009
1. Summary of significant accounting policies (continued)
(d) Significant accounting judgements, estimates and assumptions
(i) Significant accounting judgements Management has made the following judgements, apart from those involving estimations, which have the most significant effect on the amounts recognised in the financial statements:
Operating lease commitments Space in each of the investment properties owned by TSO’s subsidiaries and associates is leased to third parties. The consolidated entity has determined that it retains all the significant risks and rewards of ownership of these properties and has accordingly classified the leases as operating leases.
(ii) Significant accounting estimates and assumptions The carrying amounts of certain assets and liabilities are often determined based on estimates and assumptions of future events. There are no key estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of certain assets and liabilities within the next annual reporting period apart from the following assumptions:
Investment properties Refer to Note 1(f).
Derivatives Refer to Note 1(k).
Performance fee accrual Refer to Note 2.
Deferred tax liability Refer to Notes 1(u), 4.
(e) Foreign currencies
Translation of foreign currency transactions The functional and presentation currency of the parent entity is Australian dollars. Each entity in the TSO Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency.
Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies that are outstanding at the reporting date (other than monetary items arising under foreign currency contracts where the exchange rate for that item is fixed in the contract) are re-translated at the rate of exchange ruling at the balance sheet date. At 30 June 2009, an exchange rate of A$1.00 = US$0.8048 (30 June 2008: A$1.00 = US$0.9615) was used.
Exchange differences on monetary items are recognised in the income statement in the period in which they arise. Differences arising on a monetary item forming part of the net investment in a foreign operation are taken to the foreign currency translation reserve on consolidation.
TSO | ANNUAL REPORT | 59 Notes to the financial statements – for the year ended 30 June 2009
1. Summary of significant accounting policies (continued)
(e) Foreign currencies (continued)
Translation of financial reports of foreign operations The functional currency of TSO’s controlled entities and equity accounted investments is United States dollars.
As at the reporting date, the assets and liabilities of these entities are translated into the presentation currency of TSO at the rate of exchange ruling at the balance sheet date and the income statements are translated at the average exchange rates for the year. The exchange differences arising on the translation are taken directly to the foreign currency translation reserve.
(f) Investment properties
TSO’s interests in investment properties held by its subsidiaries and its equity accounted share of investment properties held by associates are carried at fair value. Independent valuations of investment properties are obtained at intervals of not more than three years from suitably qualified property valuers. Such valuations are reflected in the financial statements of TSO. Notwithstanding, the directors of US REIT and the Responsible Entity assess the carrying value of each investment property at each reporting date to ensure that the carrying value of each class of asset does not materially differ from its fair value. Where the carrying value differs from fair value, the relevant assets are adjusted to their fair value.
The prime valuation methodology used in determining fair value is to discount the expected net cash flows to their present value using a market determined risk adjusted discount rate applicable to the respective asset. Additional support is provided by other income capitalisation techniques, the sales comparison and cost approaches to value.
Changes in the fair value of an investment property are recorded in the income statement.
Expenditures capitalised to properties include the costs of acquisition and capital and refurbishment additions.
Land and buildings are considered to have the function of an investment and are therefore regarded as a composite asset. The buildings and components thereof (including plant and equipment) are not depreciated.
(g) Investment in controlled entities
Investments in controlled entities are carried at the lower of cost and net realisable value. Balances and transactions between TSO and its controlled entities have been eliminated in preparing the consolidated financial statements.
(h) Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
(i) Receivables
Receivables, which generally have 30 day terms, are recognised and carried at original invoice amount, less a provision for any uncollectible debts. An estimate for doubtful debts is made when collection of an amount is no longer probable. Bad debts are written off as incurred.
Receivables from related parties are recognised and carried at the nominal amount due. Interest and rent are taken up as income on an accruals basis. Notes to the financial statements – for the year ended 30 June 2009
1. Summary of significant accounting policies (continued)
(j) Financial assets
Loans classified as financial assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. These assets are initially measured at fair value and are subsequently carried at amortised cost using the effective interest method.
(k) Derivatives
TSO is exposed to changes in interest rates and foreign exchange rates and may use interest rate swaps, foreign exchange contracts and other derivatives to manage these risks.
There are policies and limits in respect of the use of derivatives to hedge cash flows subject to interest rate and currency risks. Derivatives are not entered into for speculative purposes and the hedging policies are approved and monitored by the Board. Accounting standards, however, include onerous documentation, designation and effectiveness requirements before a derivative financial instrument can qualify for hedge accounting.T he documentation, designation and effectiveness requirements set out in the accounting standards cannot be met in all circumstances by TSO. Those derivatives that are cash flow hedges and that do qualify for hedge accounting are recorded at fair value through equity until the hedged transaction occurs and then released to the income statement; those that do not qualify for hedge accounting are recorded at fair value through the income statement.
The fair value of forward exchange contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. The fair value of interest rate swap contracts is determined by reference to market values for similar instruments.
(l) Payables
Liabilities for creditors are carried at cost, which is the fair value of the consideration to be paid in the future for goods and services received, whether or not billed to the consolidated entity. Payables are normally settled within 30 days.
(m) Provision for distribution
A provision for distribution is recognised in the balance sheet if the distribution has been declared or publicly recommended on or before balance date.
(n) Interest bearing loans and borrowings
Loans and borrowings are initially recognised at fair value of the consideration received less directly attributable transaction costs and are subsequently measured at amortised cost using the effective interest method.
(o) Contributed equity
Issued capital is recognised at the fair value of the consideration received by the Trust. Any transaction costs arising on the issue of ordinary units are recognised directly in equity as a reduction of the unit proceeds received.
Units acquired under the buy-back are deducted from equity. Any transaction costs related to the buy-back and cancellation of units are recognised directly in equity.
No gain or loss is recognised in the income statement on the purchase, sale, issue or cancellation of TSO’s own equity instruments.
TSO | ANNUAL REPORT | 61 Notes to the financial statements – for the year ended 30 June 2009
1. Summary of significant accounting policies (continued)
(p) Investment revenue
Revenue from rents, interest and dividends is recognised to the extent that it is probable that the economic benefits will flow to the entity and the revenue can be reliably measured. Revenue brought to account but not received at balance date is recognised as a receivable.
Rental income earned under leases with fixed increases is recognised in income on a straight-line basis over the lease term.
Interest income is recognised as the interest accrues.
(q) Leasing fees
Costs that are directly associated with negotiating and executing the ongoing renewal of tenant lease agreements (including commissions, legal fees and costs of preparing and processing documentation for new leases) are capitalised to the carrying value of the property and amortised on a straight-line basis over the lease term.
(r) Leasing incentives
Lease incentives in the form of up-front payments, contributions to certain lessees’ costs, relocation costs and fit-outs that are offered in relation to the ongoing operation of the property are recognised as part of the carrying value of the investment properties. The aggregate cost of incentives is recognised on a straight-line basis over the lease term.
(s) Impairment of assets
The directors of US REIT and the Responsible Entity assess at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, an estimate is made of the asset’s recoverable amount. When the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.
(t) Borrowing costs
Borrowing costs are recognised as an expense when incurred. No borrowing costs have been capitalised as part of the cost of a qualifying asset during the year.
(u) Taxes
Income tax Under current Australian tax legislation, the Trust is not liable to pay Australian income tax provided its taxable income and taxable realised gains are fully distributed to unitholders.
Under the U.S. Internal Revenue Code, US REIT has elected to be taxed as a Real Estate Investment Trust (REIT), and on this basis, US REIT should not be subject to U.S. federal income taxes to the extent that it distributes annually all of its taxable income and capital gains to its shareholders. In order to maintain its qualification as a REIT, US REIT must distribute at least 90% of its taxable income (net of capital gains) to its shareholders annually. Notes to the financial statements – for the year ended 30 June 2009
1. Summary of significant accounting policies (continued)
(u) Taxes (continued)
Under current Australian tax legislation, unitholders of TSO may be entitled to receive a foreign tax credit for U.S. withholding tax deducted from dividends and interest paid to TSO by US REIT. The withholding tax expense incurred to date by TSO relates to interest paid to TSO by US REIT.
The Trust may realise a capital gain or loss on disposal of its U.S. investments, which may attract a U.S. tax liability. If a capital gain is distributed, a U.S. withholding tax liability may arise and give rise to a foreign tax credit which would be available to Australian unitholders. Under Australian Accounting Standards, a deferred tax liability or asset must be recognised based on movements in the carrying value and tax cost base of investment property assets, with any movements reflected in the income statement as a tax expense.
Goods and services tax Revenues, expenses and assets (with the exception of receivables) are recognised net of the amount of goods and services tax (GST) to the extent that that the GST is recoverable from the taxation authority. Where GST is not recoverable, it is recognised as part of the cost of acquisition, or as an expense.
Receivables and payables are stated inclusive of GST. The net amount of GST recoverable from, or payable to, the taxation authority is included in the balance sheet as a receivable or payable.
Cash flows are included in the cash flow statement on a gross basis. The GST component of cash flows arising from investing and financing activities which is recoverable from, or payable to, the taxation authority is classified as operating cash flows.
(v) Earnings per unit (EPU)
Basic EPU is calculated as net profit attributable to members divided by the weighted average number of ordinary units. Diluted EPU is calculated as the net profit attributable to members divided by the weighted average number of ordinary units adjusted for the effects of all dilutive potential ordinary units.
TSO has no dilutive potential ordinary units, therefore its basic and diluted EPU are the same.
TSO | ANNUAL REPORT | 63 Notes to the financial statements – for the year ended 30 June 2009
2. Responsible Entity’s and Manager’s fees
The Responsible Entity of TSO is Tishman Speyer Australia Limited (“TSAL”). The manager of TSO’s indirect investments in Empire Hawkeye and the subsidiaries holding the investments in the Lakeside Complex, 550 Terry Francois Boulevard, the Beverly Hills properties and 3 MacArthur Place is Tishman Speyer Australia Asset Manager L.L.C. (“TS Manager”). The ultimate parent of TSAL and TS Manager is Tishman Speyer Properties, L.P.
TSAL and TS Manager are entitled to receive the following remuneration from TSO, US REIT and their subsidiaries and associates.
Base management fee
TSAL and TS Manager are collectively entitled to receive a management fee calculated at the rate of 0.50% per annum of TSO’s proportionate share of the gross value of investment assets held directly or indirectly by TSO. Gross value is based on the carrying value of each investment asset. The base fee paid or payable for the year ended 30 June 2009 is $14,139,352 (30 June 2008: $11,950,562).
Performance fee
Fund V (a Tishman Speyer sponsored investment fund) is entitled to a performance fee (for management of US REIT’s equity investments) if certain outperformance is achieved.
Subject to the successful restructuring of the US REIT facility as described in Notes 1(a) and 10(a), any performance fees payable by Empire Hawkeye or US REIT at December 2009 will be waived. All future performance fees will be calculated and paid on the realisation of TSO’s assets and subordinated to the full repayment of the US REIT facility.
The performance fee is payable if the investment return to US REIT exceeds a hurdle rate of 10.5% per annum. This hurdle rate is calculated as a notional investment return based on US REIT’s equity investments, net cash flow distributed toUS REIT during the holding period, and any change in appraised valuation of the underlying property investments (net of any outstanding third party debt). Net cash flow is calculated after all fees and expenses paid by the subsidiaries or associates (excluding base management fee) and after all debt service related to the investments and allowance for a market disposal fee. The investment returns relating to the Empire Hawkeye investment and other investments are calculated discretely and the returns on the Empire Hawkeye investment are not used to offset the returns on other investments or vice versa.
If the restructuring of the US REIT facility is not completed in accordance with the agreed terms, the calculation of this notional investment return will occur on 1 December 2009 and at the end of each five year period following that date. To the extent the calculated investment returns exceed 10.5% per annum, a fee equal to 30% of the total excess return will be payable in December 2009 and at the end of each five year period following that date.
Using current valuations as a starting point to forecast property values at 1 December 2009, at 30 June 2009 a provision of $Nil (30 June 2008: $138.939 million) has been made for the fee payable on TSO’s investment in Empire Hawkeye and a provision of $Nil (30 June 2008: $0.501 million) has been made for the fee payable on TSO’s investment in US REIT excluding Empire Hawkeye. If there were a provision, the performance fee is payable by Empire Hawkeye and US REIT separately. Market factors, outside of the control of TSO, may impact future assessments of property values, rental income and capital expenditure, each of which is a key input into the calculation of the performance fee provisions. As a result of these uncertainties, the provisions for the performance fee may require material adjustment in a future period. Notes to the financial statements – for the year ended 30 June 2009
2. Responsible Entity’s and Manager’s fees (continued)
Performance fee (continued)
The following sensitivity analysis illustrates the impact on the provisions of reasonable possible changes in the key inputs into the calculation of the performance fee at 30 June 2009 assuming the revised terms of the US REIT facility are not agreed and the performance fees are not waived.
Empire Hawkeye US REIT A$’000 A$’000 Fair value of properties + 5% (USD) 14,524 – Fair value of properties – 5% (USD) – –
Disposal fee
TS Manager and Fund V are entitled to a disposal fee at market rates prevailing at the time of the disposal of a property in which one of US REIT’s subsidiaries or associates has a direct or indirect interest but in any event not to exceed 1% of the Trust’s proportionate share of the sale price of the property. Refer to Note 17 for details of disposal fees paid.
Acquisition fee
TS Manager and Fund V are entitled to an acquisition fee of 1% of the purchase price, or the Trust’s proportional share, of any property asset in which a direct or indirect interest is acquired. Refer to Note 17 for details of acquisition fees paid.
3. Corporate expenses
Consolidated Parent 2009 2008 2009 2008 A$’000 A$’000 A$’000 A$’000 Audit fees 1,971 1,067 248 191 Tax consulting/compliance fees 402 249 31 19 Legal fees 343 448 60 267 Listing and filing fees 45 53 44 53 Registry fees 30 39 30 39 Directors’ fees 272 272 272 272 Insurance 527 521 527 521 Annual report printing and mailing 12 104 12 104 Other 598 351 306 188 4,200 3,104 1,530 1,654
TSO | ANNUAL REPORT | 65 Notes to the financial statements – for the year ended 30 June 2009
4. Deferred tax expense
TSO may realise a capital gain or loss on disposal of its U.S. investments. If a capital gain is distributed, a U.S. withholding tax liability may arise and give rise to a foreign tax credit which would be available to Australian unitholders. A deferred tax liability in relation to the withholding tax has been recognised based on movements in the carrying value and tax cost base of investment property assets offset by a deferred tax asset based on the performance fees that may be payable. The balance of the deferred tax liability at 30 June 2009 was $204.830 million (30 June 2008: $343.426 million).
Certain unresolved issues arose following the publication of a Notice by the Internal Revenue Service (“IRS”) in June 2007, in which the IRS described its interpretation of certain provisions of the Internal Revenue Code addressing the treatment of certain distributions by REITs to foreign owners with respect to proceeds from the sale of U.S. real estate interests. The publication of the Notice led to discussions between tax practitioners and U.S. government officials over several months regarding the legal basis of the IRS’s position, the scope of the Notice, and collateral implications not directly addressed in the Notice.
In particular, the Notice did not address its application to tiered REIT structures or to cases in which a foreign owner’s tax basis in its REIT stock differed from the REIT’s tax basis in its assets. Several of these issues and uncertainties in interpretation were described in a report prepared by the American Bar Association’s Section of Taxation, which was submitted to the U.S. government in June 2008. (Several issues arising from the Notice have yet to be publicly addressed in any forum).
Following the issuance of the American Bar Association Report and public discussion of the Notice, tax practitioners since June 2008 (including TSO’s tax advisors) and TSO’s management have become aware of the wide scope of transactions potentially impacted by the Notice. These transactions potentially include the disposition of the investments of Prime Plus Investments, Inc. within a 24 month period pursuant to a plan of liquidation. The accounting implication of the Notice and the subsequent discussions and commentaries regarding its impact is that provision has been made in the accounts for tax that may be paid in the future, depending on the ultimate resolution of issues relating to positions taken in the Notice.
Certain of these tax consequences might arise if some of the assets in which TSO indirectly owns an interest are sold, as opposed to a sale of interests in the entities that indirectly own such assets. These consequences arise due to the fact that the tax basis in the interests in the entities that indirectly own such assets is higher than the tax basis in such assets, and the concern that the Notice reflects the IRS’s view that the taxable gain would be measured by reference to the tax basis in the assets without reduction for the tax basis in the interests in the entities owning such assets. Notes to the financial statements – for the year ended 30 June 2009
5. Receivables (current)
Consolidated Parent 2009 2008 2009 2008 A$’000 A$’000 A$’000 A$’000 Trade receivables 3,580 4,030 – – Less: provision for doubtful debts (91) (35) – – 3,489 3,995 – – Other receivables 856 18 807 178 Amounts receivable from related parties: – interest receivable from controlled entity – – 2,670 4,469 – receivable from other related parties – 64 – – 4,345 4,077 3,477 4,647
Other than the trade receivables provided for there are no receivables that are past due. The amount past due is over 120 days overdue.
TSO | ANNUAL REPORT | 67 Notes to the financial statements – for the year ended 30 June 2009
6. Investment properties
Consolidated Parent 2009 2008 2009 2008 A$’000 A$’000 A$’000 A$’000 Investment properties held by controlled entities at fair value 549,453 768,383 – – Investment properties held in equity accounted investments at fair value(i) 1,282,839 1,539,500 – – 1,832,292 2,307,883 – –
Included in the carrying value of investment properties held by controlled entities and associates are the following: Lease incentives 64,745 40,665 – - Straight-line asset(ii) 57,285 28,805 – – Lease commissions 40,907 32,739 – – 162,937 102,209 – –
(i) tso’s interest in investment properties held by equity accounted investments is held through its indirect 45.9% interest in Prime Plus. The amounts set out in this note represent TSO’s 45.9% interest in the properties held by Prime Plus. (ii) Asset arising from recognising lease income on a straight-line basis in accordance with Note 1(p).
(a) Reconciliation of carrying amounts
A reconciliation of the carrying amount of investment properties at the beginning and end of the financial year is set out below: Carrying amount at the start of the year 2,307,883 2,521,018 – – Additions by controlled entities 4,732 103,449 – – Additions by equity accounted associates 41,300 34,868 – – Disposals by equity accounted associates – (44,302) – – Revaluation decrements (1,062,485) (3,401) – – Foreign exchange gains/(losses) 540,862 (303,749) – – Carrying amount at the end of the year 1,832,292 2,307,883 – – Notes to the financial statements – for the year ended 30 June 2009
6. Investment properties (continued)
(b) Details of investment properties held through subsidiaries and equity accounted investments
Original Total cost ACqUISITION INCLUDING Date of latest Latest Book value Book value Acquisition COST ADDITIONS INDEpENDENT VALUATION AT 30 Jun 2009 AT 30 Jun 2009 Property Interest date US$’000 US$’000 valuation(I) US$’000 US$’000 A$’000 300 Park Avenue 45.9% 1 Dec 04 184,457 202,778 30 Jun 09 298,350 298,350 370,714 CitySpire 45.9% 1 Dec 04 48,049 55,092 30 Jun 09 71,145 71,145 88,401 Greenwich American Centre 45.9% 1 Dec 04 51,694 62,756 30 Jun 09 78,030 78,030 96,956 Bala Plaza 45.9% 1 Dec 04 62,917 75,148 30 Jun 09 70,043 70,043 87,032 227 West Monroe Street 45.9% 1 Dec 04 221,949 245,624 30 Jun 09 194,616 194,616 241,819 222 West Adams Street 45.9% 1 Dec 04 118,779 144,123 30 Jun 09 89,964 89,964 111,784 Plaza East I and II 45.9% 1 Dec 04 20,877 23,863 30 Jun 09 22,445 22,445 27,889 520 Pike Tower 45.9% 1 Dec 04 45,524 49,323 30 Jun 09 43,605 43,605 54,181 One Bush Street 45.9% 1 Dec 04 40,684 46,496 30 Jun 09 48,195 48,195 59,884 595 Market Street 45.9% 1 Dec 04 32,327 38,216 30 Jun 09 55,080 55,080 68,439 Bayside Towers 45.9% 27 Jul 05 31,156 33,334 30 Jun 09 21,803 21,803 27,091 400 Castro Street 45.9% 1 Dec 04 27,845 30,102 30 Jun 09 39,153 39,153 48,649
Equity accounted investments 886,258 1,006,855 1,032,429 1,282,839 Lakeside Complex 99.9% 26 Sep 05 90,660 93,926 30 Jun 09 55,644 55,644 69,141 550 Terry Francois Boulevard 99.9% 10 Nov 05 173,140 178,180 30 Jun 09 124,875 124,875 155,163 Maple Plaza 99.9% 4 May 07 166,299 169,153 30 Jun 09 108,591 108,591 134,930 407 North Maple Drive 99.9% 4 May 07 99,739 101,956 30 Jun 09 71,429 71,429 88,753 Beverly Mercedes Place 99.9% 4 May 07 68,463 69,489 30 Jun 09 49,551 49,551 61,568 3 MacArthur Place 99.9% 28 Jun 07 83,783 86,237 30 Jun 09 31,668 31,668 39,349 Minority interest 682 700 442 442 549 Controlled subsidiaries 682,766 699,641 442,200 549,453
Total investment properties 1,569,024 1,706,496 1,474,629 1,832,292
(i) the valuations have been performed by independent valuers who hold recognised and relevant professional qualifications and have recent experience in the location and category of the investment property being valued.
TSO | ANNUAL REPORT | 69 Notes to the financial statements – for the year ended 30 June 2009
6. Investment properties (continued)
(c) Valuation summary
Valuation as Terminal cap Discount Valuation as Terminal Discount AT 30 Jun 2008 rate RATE AT 30 Jun 2009 CAp rate rate Property Interest US$’000 % % US$’000 % % 300 Park Avenue 45.9% 493,425 5.80 8.50 298,350 7.50 8.50 CitySpire 45.9% 90,698 6.00 9.00 71,145 7.00 8.50 Greenwich American Centre 45.9% 89,459 6.50 9.50 78,030 8.00 9.00 Bala Plaza 45.9% 75,322 7.50 9.50 70,043 8.50 9.71 227 West Monroe Street 45.9% 240,332 6.25 9.00 194,616 7.75 8.50 222 West Adams Street 45.9% 112,501 6.25 9.00 89,964 7.75 8.75 Plaza East I and II 45.9% 25,383 8.00 9.00 22,445 9.50 10.50 520 Pike Tower 45.9% 81,794 6.50 9.00 43,605 8.50 9.50 One Bush Street 45.9% 84,915 5.75 8.00 48,195 6.50 8.00 595 Market Street 45.9% 77,984 5.90 8.25 55,080 6.75 8.25 Bayside Towers 45.9% 58,385 7.00 9.50 21,803 8.00 8.88 400 Castro Street 45.9% 50,031 7.50 8.50 39,153 8.00 9.25 Lakeside Complex 99.9% 88,811 7.00 7.50 55,644 8.75 9.50 550 Terry Francois Boulevard 99.9% 189,810 6.75 7.75 124,875 7.50 8.50 Maple Plaza 99.9% 199,900 6.25 9.00 108,591 8.00 9.50 407 North Maple Drive 99.9% 113,087 6.25 9.00 71,429 8.00 8.75 Beverly Mercedes Place 99.9% 88,511 6.25 9.00 49,551 8.00 8.75 3 MacArthur Place 99.9% 57,942 6.50 9.00 31,668 8.00 9.25 Notes to the financial statements – for the year ended 30 June 2009
7. Investments in associates
TSO has an indirect 91.82% limited partner interest in Empire Hawkeye which in turn has a 49.99% interest in Prime Plus which holds interests in office properties located in theU nited States. As a result, TSO has effective ownership of an indirect 45.9% interest in Prime Plus. TSO also has an indirect 49.99% interest in TS OfficeT enant Services, Inc. TSO does not control Empire Hawkeye, Prime Plus or TS Office Tenant Services, Inc; however, it exercises significant influence over the entities. Accordingly, TSO’s investments in these entities are accounted for using the equity method of accounting.
Empire Hawkeye, Prime Plus and TS Office Tenant Services, Inc are all resident in the United States. They have 31 December reporting dates in order to comply with U.S. tax and accounting requirements; however, the financial information that is recorded in TSO’s consolidated accounts has been prepared for the same reporting period as the parent entity, using consistent accounting policies.
Consolidated 2009 2008 A$’000 A$’000
(a) Movements in carrying amount of investments in associates Carrying amount at the beginning of the financial year 840,735 979,297 Share of associates’ net income (411,771) (9,984) Distributions received from associates – (14,794) Foreign exchange translation differences 199,518 (113,784) Carrying amount at the end of the financial year 628,482 840,735
Represented by: Empire Hawkeye 628,470 840,728 TS Office Tenant Services, Inc 12 7 628,482 840,735
(b) Share of associates’ assets and liabilities Current assets 79,832 51,816 Non-current assets 1,282,839 1,539,500 Total assets 1,362,671 1,591,316
Current liabilities 223,454 31,494 Non-current liabilities 510,735 719,087 Net assets 628,482 840,735
TSO | ANNUAL REPORT | 71 Notes to the financial statements – for the year ended 30 June 2009
7. Investments in associates (continued)
Consolidated 2009 2008 A$’000 A$’000
(c) Share of associates’ profit or loss Net rental income 110,854 75,996 Other income and expenses 128,964 (31,856) Loss from investment property revaluations (651,589) (54,124) Loss before income tax (411,771) (9,984) Income tax expense – – Loss after income tax (411,771) (9,984)
There were no impairment losses relating to the investments in associates and no capital expenditure commitments or contingent liabilities relating to the associates. Notes to the financial statements – for the year ended 30 June 2009
8. Interest in controlled entities
Parent 2009 2008 A$’000 A$’000 The interest in controlled entities comprises: Investment in US REIT at the lower of cost and net realisable value(i) 85,878 466,869 Loan to US REIT(ii) 105,616 88,404
Total interest in controlled entities 191,494 555,273
(i) At 30 June 2009, the carrying value of the investment in US REIT has been assessed in accordance with Note 1(s) and has been written down to its recoverable amount. The write down has been driven by falls in the value of property investments held by TSO’s subsidiaries and associates. (ii) At 30 June 2009, a loan to US REIT of US$85 million (30 June 2008: US$85 million) was outstanding. The loan is unsecured, denominated in US dollars, bears interest at 10% per annum, matures on 1 December 2014 and is subject to an agreement between TSO and US REIT.
The consolidated financial statements include the financial statements of TSO and the subsidiaries listed in the following table:
% Equity Holding Name of Entity Country of Incorporation 2009 2008 Tishman Speyer US Office, Inc. (US REIT) united States 100.0 100.0 lakeside I Mezz L.L.C. united States 99.9 99.9 lakeside I at Loudoun Tech, L.L.C. united States 99.9 99.9 lakeside II Mezz L.L.C. united States 99.9 99.9 lakeside II at Loudoun Tech, L.L.C. united States 99.9 99.9 lakeside III Mezz L.L.C. united States 99.9 99.9 lakeside III at Loudoun Tech, L.L.C. united States 99.9 99.9 550 Terry Francois Mezz, L.L.C. united States 99.9 99.9 550 Terry Francois Blvd, L.L.C. united States 99.9 99.9 ts Office 407 North Maple JV, L.L.C. united States 99.9 99.9 tishman Speyer 407 North Maple VI, L.L.C. united States 99.9 99.9 407 North Maple JV, L.P. united States 99.9 99.9 407 North Maple GP, L.L.C united States 99.9 99.9 407 North Maple, L.P. united States 99.9 99.9 ts Office Beverly Place JV, L.L.C. united States 99.9 99.9 tishman Speyer Beverly Place VI, L.L.C. united States 99.9 99.9 Beverly Place JV, L.P. united States 99.9 99.9 Beverly Place GP, L.L.C united States 99.9 99.9 Beverly Place, L.P. united States 99.9 99.9 ts Office Maple Plaza JV, L.L.C. united States 99.9 99.9 tishman Speyer Maple Plaza VI, L.L.C. united States 99.9 99.9 maple Plaza JV, L.P. united States 99.9 99.9 maple Plaza GP, L.L.C united States 99.9 99.9 maple Plaza, L.P. united States 99.9 99.9 3 Imperial Promenade, L.L.C. united States 99.9 99.9
TSO | ANNUAL REPORT | 73 Notes to the financial statements – for the year ended 30 June 2009
9. Payables (current)
Consolidated Parent 2009 2008 2009 2008 A$’000 A$’000 A$’000 A$’000 Trade creditors 16,988 9,417 2,972 256 Tenant fit-out works – 195 – – Amounts payable to related parties: – payable to controlled entity – – – – – payable to other related parties 348 42 348 42 Other payables: – interest payable 2,197 2,062 – – – withholding tax 267 447 267 447 19,800 12,163 3,587 745
Due to the short-term nature of these payables, their carrying value is assumed to approximate their fair value. Notes to the financial statements – for the year ended 30 June 2009
10. Interest bearing liabilities
Consolidated Parent Maturity 2009 2008 2009 2008 Date A$’000 A$’000 A$’000 A$’000 Interest bearing liabilities held by controlled entities Current US REIT – revolving loan agreement (a) 4 May 2010 357,853 – – – Deferred financing costs (1,845) – – – 356,008 – – –
Non-current Lakeside Complex – first mortgage loan Lakeside I and II (b) 1 Oct 2015 52,187 43,682 – – – first mortgage loan Lakeside III (c) 1 Mar 2014 17,931 15,340 – – 550 Terry Francois Boulevard – first mortgage loan (d) 10 Dec 2012 133,574 111,805 – – Beverly Hills Portfolio – first mortgage loan (e) 1 Jun 2017 273,360 228,809 – – US REIT – revolving loan agreement (a) – 228,289 – – Deferred financing costs (729) (4,073) – – 476,323 623,852
Interest bearing liabilities held by associates TSO’s interest in its associates’ interest bearing liabilities is detailed below: Current Empire Hawkeye: – senior term loan facility (f) 1 Dec 2009 184,005 – – – 184,005 – – –
Non-current Prime Plus: – first mortgage loan (g) 8 Jan 2014 468,174 393,838 – – – subordinate mezzanine loan (g) 8 Jan 2014 42,561 35,803 – – Total debt at Prime Plus 510,735 429,641 – –
Empire Hawkeye: – senior term loan facility (f) – 150,507 – – 510,735 580,148 – –
TSO | ANNUAL REPORT | 75 Notes to the financial statements – for the year ended 30 June 2009
10. Interest bearing liabilities (continued)
Terms and conditions relating to the above financial instruments
(a) A facility of US$400 million is available to US REIT. The undrawn amount of this facility at 30 June 2009 is US$112 million. The facility has a maturity date of 4 May 2010; however, this may be extended to 4 May 2012 upon the satisfaction of certain conditions, provided that no default under the facility then exists. A floating interest rate is payable on the amount drawn and the margin payable varies between 1.75% and 2.25% per annum depending on the level of leverage. Outstanding amounts may be repaid without penalty or premium; however, any undrawn amount is subject to an unused line fee of 0.25% per annum. The facility is secured by pledges over the equity interests that US REIT holds in certain subsidiaries and joint ventures. All interest and fees are calculated on an actual/360 day basis. The effective interest rate on this debt for the year to 30 June 2009 was 4.32%. the facility is subject to the following financial covenants: (i) us REIT debt to gross asset value ratio (“GAV”), as defined, must remain under 65%. At 30 June 2009, US REIT’s debt to GAV was 56.47% based on the property valuations as at 31 December 2008. If the property valuations adopted at 30 June 2009 were used the debt to GAV would be 76.2%; however, as explained in Note 1(a), these are not valuations for the purpose of the US REIT facility agreement. (ii) us REIT is required to have a minimum tangible net worth of US$747 million. Tangible net worth is calculated by subtracting outstanding debt and accrued interest and amortisation from the most recent independently appraised value of the properties which were prepared at December 2008. At 30 June 2009, US REIT’s net worth was US$760 million based on the property valuations as at 31 December 2008. If the property valuations adopted at 30 June 2009 were used the net worth would be US$238.2 million; however, as explained in Note 1(a), these are not valuations for the purpose of the US REIT facility agreement. (iii) us REIT’s debt service coverage ratio (“DSCR”), as defined, must not be less than 1.2:1.0. For the year ended 30 June 2009, TSO’s DSCR was 1.76:1.0. (iv) us REIT must have minimum liquidity, as defined, of not less than US$25 million. the first two covenant calculations are based on the property valuations as of 31 December 2008 which are in the form required under the US REIT facility agreement. If the valuations adopted in Note 6 were used in the covenant calculations there would be a breach of those two covenants; however, as stated in Note 1(a), these valuations are not applicable for calculating compliance with the covenants. tso has reached agreement with Deutsche Bank Trust Company Americas (administrative agent and lender for the US REIT facility) to revised terms on the US REIT facility. These revised terms involve, amongst other things, a relaxation of covenants including certain cross-default provisions, solvency requirements and other related covenants. However, these agreed terms are still to be documented in a revised loan agreement and amendments to other documents at the asset level. The finalisation of the agreement and other documents is, subject to amongst other things, TSO raising additional liquidity of US$55 million through asset sales or other means and obtaining approval of 51% of the syndicate of banks providing the facility. As at the date of the report, approval of 47% of the lending syndicate members (including Deutsche Bank Trust Company Americas as administrative agent and lender) has been obtained. While TSO believes that US REIT will close the restructuring of the US REIT facility prior to 11 September 2009, there can be no assurance that this will occur. Notes to the financial statements – for the year ended 30 June 2009
10. Interest bearing liabilities (continued)
Terms and conditions relating to the above financial instruments (continued)
(b) A facility for US$42 million maturing on 1 October 2015 has been put in place to fund the acquisition of two of the three properties comprising the Lakeside Complex. Interest only is payable at a fixed rate. The loan is secured by a Deed of Trust against the companies holding the Lakeside I and II assets and an assignment of all leases and rents in relation to the property. An interest rate of 5.365% calculated on an actual/360 day basis is charged on the amount drawn. Other borrowing costs, primarily the amortisation of debt establishment costs, totalled 0.08% in the year to 30 June 2009. (c) A secured loan with a maturity date of 1 March 2014 was assumed as part of the acquisition of Lakeside III. This loan was marked to market upon acquisition so that a market interest rate is recorded in the accounts. Principal and interest are payable. The effective interest rate on this debt was 5.13% calculated on an actual/360 day basis. (d) A facility of US$107.5 million has been put in place to partially fund the acquisition of 550 Terry Francois Boulevard. The facility has a maturity date of 10 December 2012. The facility is secured by a first mortgage over the property and an assignment of leases and rents in relation to the property. Interest only is payable at a fixed rate of 5.494% calculated on an actual/360 day basis. Other borrowing costs totalled 0.04%. (e) A facility of US$220 million has been put in place to partially fund the acquisition of the Beverly Hills portfolio of properties. The facility has a maturity date of 1 June 2017. The facility is secured by first mortgages over the properties. Interest only is payable at a fixed rate of 5.542% calculated on an actual/360 day basis. Other borrowing costs totalled 0.01%. (f) A facility of US$175 million is available to Empire Hawkeye and TST Empire PH, L.L.C. (“TST PH”) (the TSP sponsored investment fund that has an interest in Prime Plus both directly and through Empire Hawkeye). TSO’s share of this facility is US$157.50 million. At 30 June 2009 TSO’s share of the total amount drawn under the facility was US$148.087 million. The facility has a maturity date of 1 December 2009 and interest only was payable until 8 January 2009. A floating interest rate is payable on the amount drawn. An unused holding fee is charged on the unused portion of the loan. That fee varies between 0.25% and 0.5% per annum depending on the amount undrawn. The facility is secured by all property and interests in property owned or acquired by any loan party throughout the life of the loan. An interest rate swap to fix the interest payable onUS $80 million of the debt drawn on the Empire Hawkeye facility (TSO’s share: US$73.45 million) was entered into on 8 March 2008. The swap expires on 8 December 2009. Under Australian Accounting Standards the swap does not qualify for hedge accounting; therefore, fair value movements are recorded in the income statement. The amounts payable and receivable under the swap have been taken into account in determining the effective interest rate of the Empire Hawkeye loan. the effective interest rate on this facility for the year to 30 June 2009 inclusive of interest on the facility, income from the interest rate swap, margin and unused facility fee was 4.00%. the facility is subject to the following financial covenant: (i) empire Hawkeye’s DSCR, as defined, must not be less than 1.4:1.0. For the year ended 30 June 2009, TSO’s DSCR was 1.76:1.0.
TSO | ANNUAL REPORT | 77 Notes to the financial statements – for the year ended 30 June 2009
10. Interest bearing liabilities (continued)
Terms and conditions relating to the above financial instruments (continued)
(g) The first mortgage loan is secured by (i) mortgages and deeds of trust encumbering 10 office properties owned by subsidiaries of Prime Plus; (ii) security interests in fixtures and personal property located on land or the improvements; (iii) assignments of rents and leases; and (iv) other customary mortgage loan collateral. The release of individual properties (excluding the Chicago properties) from the security arrangements can be obtained by complying with customary defeasance procedures and satisfying certain other customary conditions precedent set out in the mortgage loan documents. The loan has a maturity date of 8 January 2014. Interest only is payable until January 2009. Principal and interest is payable thereafter with the principal repayment calculated at the amount required to fully amortise the principal over a 30 year period. the mezzanine loan is secured by a pledge of Prime Plus’s direct equity interests in the subsidiaries that own the properties provided as security on the first mortgage loan. The loan has a maturity date of 8 January 2014. Interest only is payable until January 2009. Principal and interest is payable thereafter with the principal repayment calculated at the amount required to fully amortise the principal over a 30 year period. the effective interest rate on the PPI debt for the year ended 30 June 2009 was 5.90% on an actual/360 day basis.
Financing facilities available and unused at reporting date
Consolidated Parent 2009 2008 2009 2008 A$’000 A$’000 A$’000 A$’000
Controlled entities US REIT – revolving loan agreement 139,165 187,728 – –
Associates Empire Hawkeye – senior term loan facility 11,696 13,300 – –
Refer to the terms and conditions set out above for information on the facilities available, including the nature of each arrangement and, where applicable, the terms of extension. Notes to the financial statements – for the year ended 30 June 2009
11. Preferred stockholders
Consolidated Parent 2009 2008 2009 2008 A$’000 A$’000 A$’000 A$’000 Preferred stockholders 601 503 – –
In order to comply with US tax rules applying to real estate investment trusts, 484 preference shares at US$1,000 per share have been issued by each of the REITs that TSO has a controlling interest in. The preferred stock is not convertible into shares of any other class or series. An annual coupon rate of 15% applies to these shares. The preferred stock has been classified as long term debt and the amounts paid or payable to the preference shareholders are included in interest expense.
12. Units on issue
Consolidated Parent 2009 2008 2009 2008 Units Units Units Units
(a) Movement in ordinary units on issue (number) Units on issue at the beginning of the year 343,019,733 343,019,733 343,019,733 343,019,733 Units bought back and cancelled during the year(i) (4,578,829) – (4,578,829) – Units on issue at the end of the year 338,440,904 343,019,733 338,440,904 343,019,733
A$’000 A$’000 A$’000 A$’000
(b) Movement in ordinary units on issue (amount) Issued equity at the beginning of the year 678,511 678,688 689,518 689,695 Equity bought back during the year(i) (493) – (493) – Transaction costs (53) (177) (53) (177) Issued equity at the end of the year 677,965 678,511 688,972 689,518
(i) on 12 March 2009, TSO announced that it would undertake an on-market buy-back of up to 10% of TSO’s units. During the period 4,578,829 units, representing 1.33% of TSO’s units, were bought back and cancelled at a cost of $493,171. The units were acquired at an average price of 10.77 cents per unit, with prices ranging from 7.80 cents per unit to 14.00 cents per unit.
Each unit ranks equally with all other ordinary units for the purpose of distributions and on termination of the Trust.
Each ordinary unit entitles the holder to one vote, either in person or by proxy, at a meeting of the Trust.
TSO | ANNUAL REPORT | 79 Notes to the financial statements – for the year ended 30 June 2009
13. Reserves and undistributed income
Consolidated Parent 2009 2008 2009 2008 A$’000 A$’000 A$’000 A$’000 Net unrealised gains reserve (a) – – – – Foreign currency translation reserve (b) (6,459) (183,777) – – Capital reserve (c) – – (134,482) (134,482) Reserves (6,459) (183,777) (134,482) (134,482) Undistributed income (d) (479,719) 148,914 (362,603) – (486,178) (34,863) (497,085) (134,482)
(a) Net unrealised gains reserve(i) Balance at the beginning of the year – 448 – 448 Amortisation of fair value on interest rate derivatives – (448) – (448) Balance at the end of the year – – – –
(b) Foreign currency translation reserve(ii) Balance at the beginning of the year (183,777) (84,084) – – Gain/(loss) on translation of controlled foreign entities 177,318 (99,693) – – Balance at the end of the year (6,459) (183,777) – –
(c) Capital reserve(iii) Balance at the beginning of the year – – (134,482) (85,349) Transfer to undistributed income – – – (49,133) Balance at the end of the year – – (134,482) (134,482)
(d) Undistributed income Balance at the beginning of the year 148,914 319,257 – – Net (loss)/profit attributable to unitholders of TSO (628,633) (112,029) (362,603) 9,181 Transfer from capital reserve to fund distributions – – – 49,133 Amount available for distribution to unitholders (479,719) 207,228 (362,603) 58,314 Distribution paid or payable: Distribution payable for the period 1 Jan 2009 to 30 June 2009: Nil (1 Jan 2008 to 30 June 2008: 8.50 cpu) – 29,157 – 29,157 Distribution paid for the period 1 July 2008 to 31 December 2008: Nil (1 July 2007 to 31 December 2007: 8.50 cpu) – 29,157 – 29,157 Balance at the end of the year (479,719) 148,914 (362,603) –
(i) the net unrealised gains reserve records movements in cash flow hedges to fair value. (ii) the foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign operations. (iii) The capital reserve is used to record amounts transferred from capital to fund distributions in accordance with TSO’s Constitution. Notes to the financial statements – for the year ended 30 June 2009
14. Cash flow statement
Consolidated Parent 2009 2008 2009 2008 A$’000 A$’000 A$’000 A$’000
Reconciliation of net profit after tax to the net cash flows from operating activities Net operating (loss)/profit attributable to unitholders of tso (628,633) (112,029) (362,603) 9,181 Decrease in interest receivable – – 1,800 408 (Increase)/decrease in other receivables and prepayments (8,029) (2,354) (558) 349 Increase/(decrease) in interest payable (316) (816) – – Increase/(decrease) in trade creditors and other payables 2,383 (4,520) 259 (132) (Decrease)/increase in deferred tax liability (226,070) 168,821 – – Decrease in withholding tax payable (180) (57) (180) (57) Fair value movement in derivatives 34,300 (13,212) 34,300 (13,212) Payments on close out of derivatives (6,835) – (6,835) – Net unrealised loss on revaluations 1,062,485 3,401 355,227 – Decrease in performance fee provision (182,544) (13,692) – – Cash retained by associates (51,587) (8,940) – – Unrealised foreign exchange (gain)/loss – – (14,457) 12,315 Net cash flows from operating activities (5,026) 16,602 6,953 8,852
All cash is held in bank accounts and earns interest at floating rates based on daily bank deposit rates.
15. Capital management
When managing capital, management’s objective is to ensure that TSO both continues as a going concern and maintains optimal returns to unitholders.
Management’s policy is that the effective long-term gearing of TSO will normally be in the range of 50% to 55% of total gross assets with a maximum gearing of 60% of total gross assets. Adverse market conditions affecting property valuations have caused TSO to fall outside its target gearing range. The gearing ratios – based on continuing operations and taking into account debt held by both the consolidated subsidiaries and the equity accounted associates – were 75% at 30 June 2009 and 50% at 30 June 2008. Management is assessing the alternatives for reducing gearing and funding ongoing operations.
The parent does not carry any third party debt.
There were no changes to the Board and management’s approach to capital management during the year.
TSO is not subject to any externally imposed capital requirements.
TSO | ANNUAL REPORT | 81 Notes to the financial statements – for the year ended 30 June 2009
16. Financial risk management
The principal financial instruments, held byTSO and its subsidiaries and associates, comprise bank and CMBS loans, cash and short- term deposits, derivatives and various other financial assets and liabilities such as trade receivables and payables, which arise directly from the operations of TSO and its subsidiaries and associates (“TSO Group”).
In accordance with its financial risk management policy,TSO and its subsidiaries enter into derivative transactions, including interest rate swaps and forward currency contracts, in order to manage the interest rate and currency risks arising from their operations and sources of finance. TSO also monitors the risk management practices of its associates.
The main risks arising from the TSO Group’s financial instruments are interest rate risk, foreign currency risk, credit risk and liquidity risk.
The Board has overall responsibility for the establishment and oversight of the risk management framework. It fulfils this role with the help of the Audit Committee.
Risk management policies are established to identify and analyse the risks faced by TSO, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed from time to time to reflect changes in market conditions and TSO’s activities. Through its training and management standards and procedures TSAL aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations towards TSO.
(a) Interest rate risk
The consolidated entity’s exposures to interest rate risks are as follows: (i) through its subsidiaries TSO has an interest in interest bearing liabilities of $832,331,013 (30 June 2008: $623,852,109). Details of the average interest rates applying to this debt are set out in Note 10. (ii) Through its equity accounted associates TSO has an interest in interest bearing liabilities of $694,740,098 (30 June 2008: $580,148,163). Details of the average interest rates applying to this debt are set out in Note 10. (iii) Cash and cash equivalents of $66,026,021 (30 June 2008: $14,755,596) with an effective interest rate at 30 June 2009 of 0%.
TSO’s policy is to manage its finance costs using a mix of fixed and variable rate debt while maintaining effective medium- to long- term fixed interest rates for a substantial portion of its borrowings.TSO ’s assets are generally funded with first mortgages with initial terms in excess of five years. TSO seeks to manage its exposure to interest rates on its loan portfolio by ensuring that a minimum of 70% of debt has a fixed interest rate.
At 30 June 2009, after taking into account the effect of interest rate swaps, 71.2% of the interest bearing liabilities held by TSO’s subsidiaries and associates are at fixed rates (30 June 2008: 75.0%). Borrowings issued at floating rates expose TSO to cash flow interest rate risk. Borrowings issued at fixed rates are carried at amortised cost and expose TSO to fair value interest rate risk.
TSO manages its cash flow interest rate risk by holding predominantly fixed rate borrowings and by using floating-to-fixed interest rate swaps.
TSO generally intends to hold its fixed rate borrowings to maturity. Therefore fair value interest rate risk should have a minimal impact on the long-term value of TSO. Notes to the financial statements – for the year ended 30 June 2009
16. Financial risk management (continued)
(a) Interest rate risk (continued)
The following sensitivity table is based on the interest rate risk exposures in existence at the balance sheet date.
If interest rates had moved, as illustrated in the table below, with all other variables held constant, profit after tax and equity would have been effected as follows:
Post Tax Profit Equity Higher/(Lower) Higher/(Lower) 2009 2008 2009 2008 A$’000 A$’000 A$’000 A$’000
Consolidated + 1% (100 basis points) (3,067) (1,741) – – – 1% (100 basis points) 3,067 1,724 – – Parent + 1% (100 basis points) 1,058 926 – – – 1% (100 basis points) (1,058) (926) – –
The movements in profit are due to higher/lower interest costs from variable rate debt and cash balances and increases/decreases in the fair value of derivative instruments which are not deemed to be effective hedges under Australian Accounting Standards.
(b) Foreign currency risk
As TSO invests in the United States, its income statement and balance sheet can be affected significantly by movements in the US$/A$ exchange rates.
Foreign exchange derivatives have been used to create a degree of certainty over the impact of changes in exchange rates on income and capital. Hedging of future income gives rise to liquidity risk to the extent that in-place hedges exceed the amount of future income actually received. Capital hedges give rise to liquidity risk at the time that the hedge matures or expires. TSO’s foreign exchange hedging policy has been to maintain, on a rolling basis, foreign exchange hedges over the forecast income of TSO for a period of five years.T his year management suspended distributions for an indefinite period.T herefore, a number of foreign exchange contracts have been closed out and no new contracts have been entered into during the financial year ending 30 June 2009. TSO does not hold capital hedges.
As at the balance sheet date, TSO has closed out all of its forward foreign currency exchange contracts. A fixed amount of $2,718,147 remains payable on certain contracts which were closed out prior to 30 June 2009.
The following sensitivity table is based on the foreign currency risk exposures in existence at the balance sheet date.
TSO | ANNUAL REPORT | 83 Notes to the financial statements – for the year ended 30 June 2009
16. Financial risk management (continued)
(b) Foreign currency risk (continued)
If the Australian dollar had moved, as illustrated in the table below, with all other variables held constant, profit after tax and equity would have been effected as follows:
Post Tax Profit Equity Higher/(Lower) Higher/(Lower) 2009 2008 2009 2008 A$’000 A$’000 A$’000 A$’000
Consolidated AUD/USD + 10% 255 12,880 – – AUD/USD – 10% (311) (15,743) – – Parent AUD/USD + 10% (9,590) 4,478 – – AUD/USD – 10% 11,721 (5,473) – –
(c) Credit risk
Credit risk is the risk that counterparties to a financial asset will fail to discharge their obligations, causing TSO to incur a financial loss.
Tishman Speyer Properties, L.P. seeks to minimise TSO’s credit risk arising from direct and indirect property investments by sourcing prospective tenants who are considered creditworthy third parties. Where appropriate, third party lease guarantees, cash security deposits and/or letters of credit are sought and credit checks are performed for prospective tenants. In addition, rent receivable balances are monitored on an ongoing basis with the result that the consolidated entity’s exposure to bad debts is not significant.
Derivative counterparties and cash transactions are limited to high credit quality financial institutions.
The maximum exposure to credit risk is the fair value of the receivables shown in Note 5.
(d) Liquidity risk
Liquidity risk is the risk that TSO will not be able to meet its obligations in relation to investment activities or other operations.
TSO’s objective is to maintain continuity of funding through committed credit facilities and the implementation of equity raising initiatives at the appropriate time so that it is able to meet its obligations. The details of financing facilities available and unused at the reporting date are set out in Note 10.
TSO also reduces its liquidity risk by using long dated debt facilities where possible, staggering debt refinancing requirements over time and not holding financial instruments that significantly increase liquidity risk. Notes to the financial statements – for the year ended 30 June 2009
16. Financial risk management (continued)
(d) Liquidity risk (continued)
The consolidated entity’s main exposures to liquidity risk are as follows:
(i) through its subsidiaries TSO has an interest in interest bearing liabilities of $832,331,013 (30 June 2008: $623,852,109) and the provision for the performance fee of $Nil (30 June 2008: $501,152). (ii) Through its equity accounted associates TSO has an indirect interest in interest bearing liabilities of $694,740,098 (30 June 2008: $580,148,163) and the provision for performance fee of $Nil (30 June 2008: $138,938,707). (iii) TSO has an interest in the financial liabilities such as trade payables which arise directly from the operations of TSO and its subsidiaries and associates. The contractual maturities of financial liabilities held by TSO and its subsidiary, US REIT, are as follows:
Consolidated Parent 2009 2008 2009 2008 A$’000 A$’000 A$’000 A$’000 1 year or less 411,806 45,664 3,587 745 1 to 5 years 263,960 436,697 – – Over 5 years 356,413 343,280 – – 1,032,179 825,641 – –
The following table sets out the maturity analysis of TSO and its subsidiary’s assets and liabilities based on management’s expectations.
Consolidated 6 months or less 6–12 months 1–5 yEARS OVER 5 years Total As at 30 June 2009 A$’000 A$’000 A$’000 A$’000 A$’000
Financial assets – cash 66,206 – – – 66,206 – trade and other receivables 5,308 – – – 5,308 Total financial assets 71,514 – – – 71,514
Financial liabilities – trade and other payables 19,800 – – – 19,800 – interest bearing liabilities 17,873 374,133 263,960 355,812 1,011,778 – preference shares – – – 601 601 Total financial liabilities 37,673 374,133 263,960 356,413 1,032,179 Net maturity 33,841 (374,133) (263,960) (356,413) (960,665)
TSO | ANNUAL REPORT | 85 Notes to the financial statements – for the year ended 30 June 2009
16. Financial risk management (continued)
(d) Liquidity risk (continued) parent 6 months or less 6–12 months 1–5 yEARS OVER 5 years Total As at 30 June 2009 A$’000 A$’000 A$’000 A$’000 A$’000
Financial assets – cash 309 – – – 309 – trade and other receivables 3,671 – – – 3,671 – loan to controlled entity – – – 105,616 105,616 Total financial assets 3,980 – – 105,616 109,596
Financial liabilities – trade and other payables 3,587 – – – 3,587 Total financial liabilities 3,587 – – – 3,587 Net maturity 393 – – 105,616 106,009
Current year interest rates were used in the computation of contractual maturities above.
(e) Net fair values
Unless otherwise stated, the carrying values of the entity’s financial assets and liabilities included in the balance sheet approximate their fair values, with the exception of interest bearing loans and borrowings.
Refer to Note 1 for the methods and assumptions adopted in determining net fair values for investments.
The fair values of interest bearing loans and borrowings have been calculated using market interest rates. Set out below is a comparison of carrying amounts and fair values of interest bearing loans and borrowings.
Carrying amount Fair value 2009 2008 2009 2008 A$’000 A$’000 A$’000 A$’000
Consolidated Interest bearing liabilities: Floating rate facilities 357,853 228,289 357,853 228,289 Fixed rate facilities 477,051 399,636 258,082 377,629 Parent Interest bearing asset: Fixed rate facility 105,616 88,404 105,616 105,089 Notes to the financial statements – for the year ended 30 June 2009
17. Related party disclosures
The Responsible Entity of TSO is TSAL, whose immediate parent entity is Tishman Speyer Australia LTD, L.L.C. (“TSALL”) and whose ultimate parent entity is Tishman Speyer Properties, L.P. (“TSP”). TSALL and TSP are incorporated in the United States.
The manager of TSO’s indirect investments in Empire Hawkeye and the subsidiaries holding the investments in the Lakeside Complex, 550 Terry Francois Boulevard, the Beverly Hills portfolio and 3 MacArthur Place is Tishman Speyer Australia Asset Manager, L.L.C. (“TS Manager”). The ultimate parent of this entity is TSP.
Details of the fees paid or payable to the Responsible Entity and TS Manager are disclosed in Note 2.
The consolidated financial statements are those of the consolidated entity, comprising TSO (the parent entity), Tishman Speyer US Office, Inc. (“US REIT”) which TSO controlled from 1 December 2004, the entities holding investments in the properties comprising the Lakeside Complex, the entities holding the investment in 550 Terry Francois Boulevard, the entities holding the investments in the Beverly Hills properties and the entities holding the investment in 3 MacArthur Place. Refer to Note 8.
Details of the intercompany loan of $105.616 million (US$85.000 million) (30 June 2008: $88.404 million (US$85.000 million)) made by TSO to US REIT are disclosed in Note 8.
Details relating to key management personnel, including remuneration paid, are included in Note 18.
The following transactions have taken place with tsP or its controlled entities and related parties during the financial year:
Certain operating costs have been paid by TSAL on behalf of TSO. Over the year ended 30 June 2009 TSAL paid costs of $0.337 million (30 June 2008: $0.278 million) on behalf of TSO. At 30 June 2009 a net amount of $0.186 million (30 June 2008: $0.005 million) is payable by TSO to TSAL.
Certain operating costs have been paid by TSP on behalf of TSO. At 30 June 2009, $0.162 million (30 June 2008: $0.036 million) is payable by TSO to TSP.
TSP received no acquisition fees during the year ended 30 June 2009 (30 June 2008: $0.926 million). The fees if payable are calculated at 1% of the value of TSO’s interest in property acquired.
TSP received property management fees of $12.878 million from investment properties held by TSO’s equity accounted investments and $2.237 million from investment properties held by controlled entities for managing the day-to-day operations of the properties. TSO’s share of these fees was $8.148 million (30 June 2008: $6.358 million). At 30 June 2009 an amount of $1.190 million was payable in relation to property management fees to TSP. TSO’s share of this payable was $0.646 million (30 June 2008: $0.592 million).
TSP received leasing commissions of $3.834 million from investment properties held by TSO’s equity accounted investments and $0.187 million from investment properties held by controlled entities. TSO’s share of these fees was $1.947 million (30 June 2008: $7.781 million). At 30 June 2009 an amount of $2.092 million in relation to leasing commissions was payable to TSP. TSO’s share of this payable was $0.962 million (30 June 2008: $0.934 million).
TSO | ANNUAL REPORT | 87 Notes to the financial statements – for the year ended 30 June 2009
17. Related party disclosures (continued)
TSP received development fees of $1.721 million from supervising refurbishments at the investment properties held by TSO’s equity accounted investments and $0.050 million from investment properties held by controlled entities. TSO’s share of these fees was $0.840 million (30 June 2008: $0.972 million). At 30 June 2009 an amount of $0.070 million was payable in relation to development fees to TSP. TSO’s share of this payable was $0.032 million (30 June 2008: $0.174 million).
All dealings between TSO and TSP and its controlled entities and related parties are conducted on normal commercial terms and conditions.
No units in TSO are held by the Responsible Entity or related parties of the Responsible Entity as at 30 June 2009.
18. Key management personnel disclosures
(a) Details of key management personnel
The following key management personnel were in place throughout the year ended 30 June 2009 and up to the date the financial report was authorised for issue.
(i) Directors of TSAL Graham John Kelly chairman (non-executive) Richard Michael Haddock Director (non-executive) Jerry Irving Speyer Director (non-executive) Robert Jeffrey Speyer Director (non-executive) Thomas Mark Feldstein Director (executive), Chief Executive Officer resigned 26 February 2009 David Neil Augarten Director (executive), Chief Executive Officer Appointed 26 February 2009
(ii) Other key management personnel Daniel Rubinstein fund Manager resigned 31 October 2008 Kerr Bray fund Manager Appointed 31 October 2008 TSAl responsible Entity of TSO Notes to the financial statements – for the year ended 30 June 2009
18. Key management personnel disclosures (continued)
(b) Remuneration of key management personnel
TSO bears the cost of a portion of the fees payable to the two external directors, Graham Kelly and Richard Haddock. All other key management personnel and employees are paid by TSAL or its related parties.
Details of remuneration paid directly by TSO to the key management personnel are set out below:
Fees Superannuation Total $ $ $
Year ended 30 June 2009 Graham John Kelly 175,000 13,745 188,745 Richard Michael Haddock 75,000 6,750 81,750 250,000 20,495 270,495
Year ended 30 June 2008 Graham John Kelly 175,000 13,129 188,129 Richard Michael Haddock 75,000 6,750 81,750 250,000 19,879 269,879
As the Responsible Entity, TSAL is entitled to receive a base management fee which is calculated as a percentage of gross assets (refer to Note 2) and is not determined by reference to specific costs incurred by TSAL.
As no other remuneration is paid to key management personnel either directly or indirectly by TSO for services provided to the entity, no further compensation as defined in AASB124 “Related Parties” is paid by TSO to key management personnel.
(c) Units held in TSO by key management personnel
The interests of the directors of TSAL in units of TSO at year end are set out below:
Units Units Other Units held AT RECEIVED AS NET changes held at 1 July remuneration t TO Units 30 June
Year ended 30 June 2009 Graham John Kelly 50,000 – 450,000 500,000 Richard Michael Haddock 69,100 – 677,000 746,100 Year ended 30 June 2008 Graham John Kelly 25,000 – 25,000 50,000 Richard Michael Haddock 35,000 – 34,100 69,100
The directors do not hold any options to buy units in TSO.
All equity transactions with key management personnel have been entered into under terms and conditions no more favourable than those that TSO would have adopted if dealing at arm’s length.
TSO | ANNUAL REPORT | 89 Notes to the financial statements – for the year ended 30 June 2009
19. Auditors remuneration
Consolidated Parent 2009 2008 2009 2008 A$ A$ A$ A$ Amounts received or due and receivable by Ernst & Young Australia in relation to TSO and its controlled entities for: – audit or review of the financial report ofTSO and its controlled entities 229,309 176,188 229,309 176,188 – taxation advice 34,615 18,506 34,615 18,506 – assurance and compliance services 19,204 15,300 19,204 15,300 283,128 209,994 283,128 209,994
Amounts received or due and receivable by related practices of Ernst & Young Australia in relation to TSO and its controlled entities for: – audit or review of the financial report ofTSO and its controlled entities 2,235,824 1,482,561 – – – taxation advice 737,774 323,428 – – – assurance and compliance services – – – – 2,973,598 1,805,989 – –
Audit and tax fees paid by Empire Hawkeye and Prime Plus are included in the share of net income from associates.
20. Earnings per unit
2009 2008 Basic and diluted earnings per unit (cents) (183.77) (32.66)
Earnings per unit is calculated by dividing the net profit attributable to unitholders for the year by the weighted average number of ordinary units on issue during the year.
The following reflects the data used in the calculation of basic and diluted earnings per unit:
A$’000 A$’000 Net loss attributable to TSO unitholders (628,633) (112,029)
Units Units Weighted average number of units used in calculating basic and diluted earnings per unit (number) 342,076,129 343,019,733
TSO has no dilutive units therefore its basic and diluted earnings per unit are the same. Notes to the financial statements – for the year ended 30 June 2009
21. Net asset backing per unit
Consolidated Parent 2009 2008 2009 2008 A$ A$ A$ A$ Net asset backing per unit 0.57 1.88 0.57 1.62 Net asset backing per unit after adjusting for fair value movements on derivatives and the deferred tax liability 1.17 2.81 0.57 1.55
Net asset backing per unit is calculated by dividing the equity attributable to unitholders of TSO by the number of ordinary units on issue.
The following reflects the data used in the calculation of net asset backing per unit:
A$’000 A$’000 A$’000 A$’000 Equity attributable to TSO unitholders 191,787 643,648 191,887 555,036 Equity attributable to TSO unitholders after adjusting for unrealised fair value movements on derivatives and the deferred tax liability 396,617 962,336 191,887 530,298
Units Units Units Units Units on issue used in calculating net asset backing (number) 338,440,904 343,019,733 338,440,904 343,019,733
22. Segment information
TSO’s income is currently derived from indirect investments in office properties located in the United States and from short-term deposits, money market securities and derivatives which are held for and are incidental to those property investments. Except for cash deposits held in Australia and forward foreign currency exchange contracts, all such investments are located in the United States.
TSO | ANNUAL REPORT | 91 Notes to the financial statements – for the year ended 30 June 2009
23. Capital expenditure committments and contingent liabilities
At 30 June 2009, TSO had contractual obligations to pay $11.604 million towards a car park at 550 Terry Francois Boulevard. The commitment is expected to be settled within 12 months from balance date.
Unless otherwise disclosed in the financial statements, there are no further material capital expenditure commitments or contingent liabilities.
24. Events occuring after reporting date
Since the end of the financial year,M adison announced an off-market takeover offer for all of the issued ordinary units in TSO that Madison does not own. The offer is open until 11 September 2009 (or subsequent date if the offer is extended). There is no certainty as to the outcome of Madison’s offer. The Madison offer is subject to a material adverse change condition and the offer will lapse unless Madison waives this condition or circumstances change. If Madison acquires a 50% or greater interest in TSO then there may be an adverse impact on TSO, for example, a change of control condition being breached in a material contract of TSO. For more details refer to the Target’s Statement to be issued by TSAL on or about the date of these financial statements.
Since the end of the financial year, TSO has reached agreement with Deutsche Bank Trust Company Americas (administrative agent and lender for the facility held by US REIT) to revised terms on the US REIT facility. These revised terms involve, amongst other things, a relaxation of covenants including certain cross-default provisions, solvency requirements and other related covenants. However, these agreed terms are still to be documented in a revised loan agreement and amendments to other documents at the asset level. The finalisation of the agreement and other documents is subject to, amongst other things, TSO raising additional liquidity of US$55 million through asset sales or other means and obtaining approval of 51% of the syndicate of banks providing the facility. As at the date of this report approval of 47% of the lending syndicate members (including Deutsche Bank Trust Company Americas as administrative agent and lender) has been obtained. TSAL believes that US REIT will close the restructuring of the US REIT facility prior to 11 September 2009. Refer to Notes 1(a) and 10(a).
Since the end of the financial year a contract has been signed for the sale of 3 MacArthur Place at a price of US$31 million. Closing remains conditional on additional due diligence, lender approval and other customary closing conditions. directors’ declaration – for the year ended 30 June 2009
In accordance with a resolution of the directors of Tishman Speyer Australia Limited, the Responsible Entity of Tishman Speyer Office Fund (the “Trust”), I state that:
1. in the opinion of the directors: (a) the financial statements and notes of the Trust and of the consolidated entity are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Trust’s and consolidated entity’s financial position as at 30 June 2009 and of their performance for the year ended on that date; and (ii) complying with Accounting Standards and Corporations Regulations 2001; and (b) there are reasonable grounds to believe that the Trust will be able to pay its debts as and when they become due and payable. 2. this declaration has been made after receiving the declarations required to be made to the directors of Tishman Speyer Australia Limited in accordance with section 295A of the Corporations Act 2001 for the financial year ended 30 June 2009.
On behalf of the Board Tishman Speyer Australia Limited ABN 43 106 909 871
GJ Kelly Chairman
Sydney, 21 August 2009
TSO | ANNUAL REPORT | 93
AudiIndependenttor's Indepen auditdenc ereport Decla rtoat theion tunitholderso the Direc tofor Tishmans of Tish mSpeyeran Spe Officeyer AustFundralia Limited as Responsible Entity for Tishman Speyer Office Fund
In relaWetion have to ou auditedr audit othef th accompanyinge financial rep ofinancialrt of Tis hreportman S ofpe Tishmanyer Offic eSpeyer Fund fOfficeor the Fund,year e whichnded 30comprises June the 2008,balance to the sheetbest oasf maty 30 kn Juneowle dg2008,e an dand be thelief, incomethere hstatement,ave been statementno contra vofen changestions of inth equitye audi tandor cash indepeflownden statementce require m fore n thets o yearf th e ended Corp o onra ti thatons date,Act 20 a 0 summary1 or an y of a pp significantlicable c o accountingde of pro f policies,essional other conducexplanatoryt. notes and the directors’ declaration of the consolidated entity comprising the trust and the entities it controlled at the year’s end or from time to time during the financial year.
Directors’ Responsibility for the Financial Report The directors of Tishman Speyer Australia Limited (“The Responsible Entity”) are responsible for the
preparation and fair presentation of the financial report in accordance with the Australian Accounting Ernst &Standards Young (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal controls relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 1, the directors also state that the financial report, comprising the financial statements and notes, complies with International Financial Reporting Standards as issued by the International Accounting Standards Board.
David SAuditor’simmonds Responsibility Partner Our responsibility is to express an opinion on the financial report based on our audit. We conducted our Sydney audit in accordance with Australian Auditing Standards. These Auditing Standards require that we Ernst & Young comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. 21 August 2008 An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, we consider internal controls relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Independence In conducting our audit we have met the independence requirements of the Corporations Act 2001. We have given to the directors of the company a written Auditor’s Independence Declaration, a copy of which is included in the directors’ report. In addition to our audit of the financial report, we were engaged to undertake the services disclosed in the notes to the financial statements. The provision of these services has not impaired our independence.
LiabilityLiability limited blimitedy a sch byem ae schemeapprove approvedd under Prunderofess iProfessionalonal Standar Standardsds Legislat Legislationion
Auditor's Independence Declaration to the Directors of Tishman Speyer Australia Limited as Responsible Entity for Tishman Speyer Office Fund
In relation to our audit of the financial report of Tishman Speyer Office Fund for the year ended 30 June 2008, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct.
Ernst & Young
David Simmonds Partner Sydney Ernst & Young
21 August 2008
Liability limited by a scheme approved under Professional Standards Legislation
TSO | ANNUAL REPORT | 95 U.S. dollar income statement – for the year ended 30 June 2009
Consolidated 2009 2008 US$’000 US$’000
Income Share of net income of associates rental income 147,547 129,237 property expenses (56,621) (55,225) Amortisation of leasing costs and tenant incentives (8,190) (5,867) net rental income 82,736 68,145 net borrowing costs (30,618) (32,672) net fair value (decrement)/increment on financial derivatives (1,190) 289 manager’s fees (7,084) (7,517) reversal of provision for performance fee 133,590 13,171 corporate expenses (789) (1,321) net income of associates before fair value adjustments 176,645 40,095 fair value decrement on investment properties (479,210) (49,915) Total share of net (loss)/income of associates (302,565) (9,820) Rental income from controlled investment properties 63,177 62,153 Fair value increment on controlled investment properties – 46,672 Reversal of provision for performance fee 482 – Interest income 116 2,015 Net fair value increment on financial derivatives – 12,136 Net foreign exchange gain 2,803 4,940 Total revenue and other income (235,987) 118,096
Expenses Property expenses of controlled investment properties 24,297 23,032 Fair value decrement on controlled investment properties 300,291 – Borrowing costs 33,390 36,067 Manager’s fees 3,494 3,179 Provision for performance fee – 482 Corporate expenses 3,163 2,786 Net fair value decrement on financial derivatives 27,896 – Total expenses 392,531 65,546
(Loss)/profit before tax expense and minority interests (628,518) 52,550 U.S. withholding tax 862 864 Deferred tax (credit)/expense (165,357) 155,815 Loss after tax expense and before minority interests (464,023) (104,129) Net (loss)/profit attributable to minority interests (286) 59 Net loss attributable to unitholders of TSO (463,737) (104,188)
Basic and diluted earnings per unit (cents) (135.57) (30.37)
This U.S. dollar information is presented for information purposes only and has not been audited. U.S. dollar balance sheet – as at 30 June 2009
Consolidated 2009 2008 US$’000 US$’000
Current assets Cash and cash equivalents 53,283 14,188 Receivables 3,497 3,920 Derivative assets – 8,485 Other 775 916 Total current assets 57,555 27,509
Non-current assets Equity accounted investments in associates investment properties 1,032,429 1,480,229 cash 49,655 33,311 other assets 14,595 16,509 current interest bearing liabilities (148,087) – non-current interest bearing liabilities (411,040) (557,812) provision for performance fee – (133,590) other liabilities (31,749) (30,281) Total equity accounted investment in associates 505,803 808,366 Investment properties 442,200 738,800 Derivative assets – 15,301 Total non-current assets 948,003 1,562,467 Total assets 1,005,558 1,589,976
Current liabilities Trade and other payables 15,936 11,694 Interest bearing liabilities 286,515 – Provision for distribution – 28,034 Total current liabilities 302,451 39,728
Non-current liabilities Interest bearing liabilities 383,345 599,834 Provision for performance fee – 482 Deferred tax liability 164,847 330,205 Preferred stockholders 484 484 Total non-current liabilities 548,676 931,005 Total liabilities 851,127 970,733 Net assets 154,431 619,243
This U.S. dollar information is presented for information purposes only and has not been audited.
TSO | ANNUAL REPORT | 97 U.S. dollar balance sheet – as at 30 June 2009 (continued)
Consolidated 2009 2008 US$’000 US$’000
Unitholders’ equity Units on issue 524,771 525,156 Reserves (1,070) (672) Undistributed income (369,341) 94,396 Total equity attributable to unitholders of TSO 154,360 618,880 Minority interests 71 363 Total equity 154,431 619,243
This U.S. dollar information is presented for information purposes only and has not been audited. U.S. dollar cash flow statement – for the year ended 30 June 2009
Consolidated 2009 2008 US$’000 US$’000
Cash flows from operating activities Receipts in the course of operations 65,337 65,196 Payments in the course of operations (58,962) (58,299) Income received from equity accounted associates – 12,853 Fees and other expenses paid (inclusive of GST) (6,424) (6,189) Withholding tax paid (1,077) (862) Net cash flows (used in)/from operating activities (1,126) 12,699
Cash flows from investing activities Payments for purchase of, and additions to, investment properties (2,500) (2,815) Net cash flows used in investing activities (2,500) (2,815)
Cash flows from financing activities Costs of buy-back of units (320) – Equity transaction costs paid (65) (155) Net proceeds from interest bearing liabilities 68,181 40,066 Distribution paid (25,075) (50,150)
Net cash flows (used in)/from financing activities 42,721 (10,239) Net (decrease)/increase in cash and cash equivalents held 39,095 (355) Cash and cash equivalents at the beginning of the financial year 14,188 14,543 Cash and cash equivalents at the end of the financial year 53,283 14,188
This U.S. dollar information is presented for information purposes only and has not been audited.
TSO | ANNUAL REPORT | 99 Notes to the U.S. dollar INFORMATION – for the year ended 30 June
1. Basis of preparation
The additional U.S. dollar information has been extracted from the consolidated financial report of TSO for the year ended 30 June 2009 before conversion to Australian dollars. Australian dollar denominated assets and liabilities have been translated from Australian dollars at the rate of exchange current at the balance date. Australian dollar denominated income and expenditure has been translated at the exchange rate ruling at the date of the transaction or the average exchange rate for the period. TSO
TISHMAN SPEYER Office Fund 2009 Annual REPORT
supplementary Unitholder information
TSO | ANNUAL REPORT | 101 Supplementary information – unitholder analysis
Range of Unitholders as at 31 August 2009
RANGE Securities No. of holders 1 to 1,000 49,020 90 1,001 to 5,000 1,201,538 351 5,001 to 10,000 3,157,691 375 10,001 to 50,000 17,213,516 712 50,001 to 100,000 9,669,805 127 100,001 and over 307,149,334 150 Total 338,440,904 1,805
Unmarketable parcels 56,483 96
Substantial Unitholders at 31 August 2009*
% of units Company No. of units on issue MIRELF III Australia AIV, LP 68,127,783 20.13 GoldenTree Asset Management L.P. 36,209,130 10.70 Renaissance Property Securities Pty Ltd 21,217,659 6.27 Deutsche Bank AG 18,270,852 5.40 The Vanguard Group Inc. 17,494,197 5.17 Commonwealth Bank of Australia 17,254,465 5.10
On-market buy back * As announced on 12 March 2009, there is a current on-market buy-back of TSO units. Supplementary information – unitholder analysis
Twenty Largest Unitholders as at 31 August 2009
% of units unitholder No. of units on issue HSBC Custody Nominees (Australia) Limited - A/C 3 68,192,783 20.15% HSBC Custody Nominees (Australia) Limited - GSCO ECA 32,705,685 9.66% Citicorp Nominees Pty Limited 32,135,164 9.50% National Nominees Limited 31,906,077 9.43% JP Morgan Nominees Australia Limited 18,025,320 5.33% Pan Australian Nominees Pty Limited 15,059,033 4.45% HSBC Custody Nominees (Australia) Limited 12,556,518 3.71% HSBC Custody Nominees (Australia) Limited - A/C 2 12,274,063 3.63% Citicorp Nominees Pty Limited
Balance of register 72,399,644 21.39%
Grand total 338,440,904 100.00%
TSO | ANNUAL REPORT | 103 This page has been left blank intentionally. Inside Front Cover 7mm Inside Back Cover
contents
Corporate Directory
letter from the ceo 1 portfolio summary 4 manager’s report 5 property summaries 13 Responsible Entity of the Trust Auditor of the Trust board of directors 32 Tishman Speyer Australia Limited (“TSAL”) Ernst & Young corporate governance Statement 35 ABN 43 106 909 871 Ernst & Young Centre financial report 45 AFSL 246917 680 George Street Sydney NSW 2000 supplementary unitholder information 101 Registered Office Telephone: (02) 9248 5555 corporate directory IBC Level 12 Fax: (02) 9248 5959 The Chifley Tower Registry 2 Chifley Square Sydney NSW 2000 Link Market Services Limited Telephone: (02) 9921 3900 Level 12 Fax: (02) 9921 3999 680 George Street Website: www.tsof.com.au Sydney NSW 2000 Telephone: (02) 8280 7111 Directors of TSAL Fax: (02) 9287 0303 Mr Graham J Kelly Investor Enquiries Chairman and Non-executive Independent Director Mr Richard M Haddock TSO Investor Information Line Non-executive Independent Director 1300 304 109 (Australia) or Mr Jerry I Speyer +61 2 8280 7216 (overseas callers) Non-executive Director Tishman Speyer Australia Limited (“TSAL”) (ABN 43 106 909 871) is an indirect subsidiary of Tishman Speyer Properties, L.P. and is the Responsible Entity of Mr Robert J Speyer the Tishman Speyer Office Fund (“TSO”, the “Trust”). None of Tishman Speyer Properties, L.P., TSAL or any other affiliate of Tishman Speyer Properties, L.P. guarantees the performance of TSO, the repayment of capital from TSO or any particular rate of return. Non-executive Director Mr David N Augarten Past performance is not a reliable indicator of future performance. An investment in TSO may result in a loss to an investor. The statements contained in this report that are not historical facts are forward-looking statements. These forward-looking statements are based on current expectations, estimates and projections about the industry Chief Executive Officer and Executive Director and markets in which the Trust operates, and management’s beliefs and assumptions. Words such as “expects”, “targeted”, “should”, “intends”, “plans”, “believes”, “estimates”, “forecasts”, “projects” and variations of such words and similar expressions are intended to identify such forward-looking statements. Company Secretary This report is not an offer to invest in units of TSO. This report has been prepared without taking into account the personal objectives, financial situation or needs of particular individuals. Before making any financial or investment decisions based on this report, we recommend that potential investors consider obtaining Ms Janine L Rolfe independent advice from a financial or other professional adviser and consider whether such an investment is appropriate, having regard to their objectives, financial situation and needs.
TSAL does not receive fees in respect of the general financial product advice it may provide; however, it will receive fees for operating the Trust in accordance with the Trust’s Constitution. Entities associated with TSAL may also receive fees for managing the assets of, and providing resources to, the Trust.
IMPORTANT NOTICE TO UNITHOLDERS THAT ARE IN THE UNITED STATES OR U.S. PERSONS
Unitholders should note that TSO has not been, and will not be, registered under the U.S. Investment Company Act of 1940, as amended (the “Investment Company Act”), in reliance on the exception from the definition of “investment company” provided by Section 3(c)(7) thereof. Accordingly, if you are a unitholder and are resident in the United States or a “U.S. Person” (as defined in Regulation S under the U.S. Securities Act of 1933, as amended) (a “U.S. Person”), subject to certain exceptions, you must be a “qualified purchaser” as defined in Section 2(a)(51) of the Investment Company Act (a “Qualified Purchaser”), and if you are acting for the account or benefit of a U.S. Person, that U.S. Person must be a Qualified Purchaser. Unitholders should also note that, to the maximum extent permitted under its constituent documents and by law, TSO reserves the right to refuse to record any sale or transfer of units to a person in the United States or a U.S. Person that is not a Qualified Purchaser, or that are otherwise sold or transferred in a manner that would not allow TSO to maintain the exception from registration under Section 3(c)(7) of the Investment Company Act.
In addition, you should be aware that TSO believes that it should be treated as a passive foreign investment company (or “PFIC”) for United States federal income tax
purposes. As this may have adverse tax consequences for you, we recommend that you seek your own independent tax advice. precinct.com.au Outside Back Cover 7mm Outside Front Cover
Tishman Speyer
OFFICE FUND ANNUAL Report 2009 TISHMAN SPEYER Off SPEYER TISHMAN
see it first.sm i c e F u n d 2009 A 2009 nn u a l REPORT l TSO
Tishman Speyer Australia Limited as Responsible Entity of Tishman Speyer Office Fund ARSN 108 809 534 Level 12 The Chifley Tower 2 Chifley Square Sydney NSW 2000 P 02.9921.3900 F 02.9921.3999 AFSL 246917 All Registry communications to: C/- Link Market Services Limited Locked Bag A14, Sydney South, NSW, 1235 Telephone Enquiry Line (within Australia): 1300 304 109 ARSN 108 809 537 Telephone Enquiry Line (outside Australia): +61 2 8280 7216 Responsible entity: Facsimile: (02) 9287 0303 Tishman Speyer Australia Limited ACN: 106 909 871 ASX Code: TSO Email: [email protected] Website: www.linkmarketservices.com.au
Tuesday, 29 September 2009
Dear Unitholder,
ANNUAL REPORT FOR YEAR ENDED 30 JUNE 2009
In accordance with changes made under the Corporations Act, unless the Tishman Speyer Office Fund (TSO) Unit Registry has been notified otherwise, you will not be sent a hard copy of the Annual Report. All unitholders can view the Annual Report, which contains the Financial Report for the year ended 30 June 2009 on TSO's website at the following URL:
http://www.tishmanspeyer.com.au/irm/content/investor_annualreports.html
Should you have any questions about your unitholding, or would like to receive future notices electronically, please contact the TSO Unit Registry on (02) 8280 7111 or [email protected]
Janine Rolfe Company Secretary Tishman Speyer Australia Limited