The high Norwegian inflation announced today secures Norwegian Property an estimated uplift in annual office rents for 2009 of NOK 45-50 million. Reduced short term market interest rates and interest hedges will reduce interest expenses for 2009 by an additional estimated NOK 90-100 million compared to the run rate at the end of the 3rd quarter 2008.

 

Statistics of Norway today announced the Norwegian Consumer Price Index (CPI) for October 2008. The last 12 months saw a year on year inflation of 5.5%. At the end of the 3rd quarter Norwegian Property had entered office rental contracts with an annual rent of NOK 1,065 million with an average remaining duration of 5.7 years. The rental contracts have clauses for full or partial CPI -adjustments as of 1 January every year, based on the CPI as of the preceeding October. Based on the CPI announced today Norwegian Property estimates that total office rents in 2009 will increase by NOK 45-50 million compared to the run rate at the end of the 3rd quarter. Positive effects from renegotiations of rents will be added to this number.

 

The final inflation adjustment, will also depend on CPI-numbers for November and December, as some of the contracts are subject to adjustment based on other periods. For the hotel portfolio the high CPI will have limited direct effects, but the minimum rent for the Norwegian portfolio (appr. 24% of gross rents) will se a signficiant positive adjustment.

 

Norwegian Property has entered hedge contracts for large parts of the group's floating interest exposure for 2009. A total volume of NOK 3.2 billion (NOK 2.7 billion for the 4th quarter 2009) has been entered for 2009 with an average basis interest rate of 4.3%, which is about 1.9% below the average floating interest rate in the third quarter 2008 (6.2%). At the end of the 3rd quarter the average floating debt was NOK 5.1 billion. The group has chosen not to fully hedge this position  as the group expects to reduce the debt in 2009, among other measures through sale of assets.

 

"Norwegian Property has since the establishment in 2006 had a solid and secure operational cash flow through long term leases with solid tenants and a high degree of interest hedging of the groups' interest bearing debt. In the current uncertain environment, a solid and predictable cash flow is even more important. Norwegian Property will through the interest hedges and the high inflation adjustment have an even better and more predictable cash flow in 2009," says CEO and president Petter Jansen in a comment.