Interim Management Statement,

RNS Number : 6873U

Invista Foundation Property Tst Ltd

20 October 2010

 



20 October 2010

Invista Foundation Property Trust Limited 

(the 'Company' / 'Group')

INTERIM MANAGEMENT STATEMENT, ANNOUNCEMENT OF NAV AND INTERIM DIVIDEND 

Net Asset Value

Invista Foundation Property Trust Limited today announces a net asset value ('NAV') of £172.9 million or 48.6 pence per share ('pps') as at 30 September 2010.  On a like for like basis, adjusted for the capital raising during the period, this reflects a decline of 1.4 pps or 2.8% compared with 30 June 2010.

The main contributor to the decline in the NAV was a -£2.35 million or -0.7 pps further adverse movement in the marked to market value of the Group's interest rate swap hedges.  The total negative marked to market value of these swaps is -£32.5 million, representing 9 pps or 18.8% of the total NAV. 

The directly held property portfolio increased in value by £1.5 million or 0.5% over the quarter and the NAV in two of the Company's joint ventures increased by £0.3 million or 10%. 

The Company is also today announcing an interim dividend of 0.88 pps in respect of the period from 1 July 2010 to 30 September 2010.  The dividend payment will be made on 19 November 2010 to shareholders on the register on 5 November 2010.  The ex-dividend date will be 3 November 2010.

	30/09/2010 (£m)	30/06/2010 (£m)	3 month change (£m)	3 month change (%)
Direct property independent valuation	320.5	318.9	1.6	0.5
Rent incentive adjustment	(5.1)	(4.9)	(0.2)	(2)
Valuation of purchase
Capital expenditure during the quarter		1.9
Like for like direct property	320.5	320.8	(0.3)	(0.1)
Joint venture investments	3.4	3.1	0.3	11
Market value of interest rate swap	(32.5)	(30.2)	(2.3)	(8)
Net current assets1	68.9	60.7	(8.2)	14
On-balance sheet loan1	(182.3)	(182.1)	(0.2)	0
Net Asset Value2	172.9	165.5	7.4	5
Net Asset Value adjusted for capital raise	172.9	177.8	(4.9)	(2.8)
Net Asset Value per share (pps)	48.6	51.2	(2.6)	(5)
Net Asset Value per share (pps) (like for like June 10 adjusted for capital raise)	48.6	50.0	(1.4)	(2.8)
Net Asset Value per share adjusted for capital raise and excluding swaps (pps)	57.7	58.4	(0.7)	(1.2)

¹          Both net current assets and on-balance sheet loan include £11.2 million following draw down of the Liquidity Facility (see Finance below).  The Liquidity Facility cash is held in a blocked account and the loan is excluded from related securitised financial covenants

²         NAV as at 30 September includes £12.3 million gross tap issue proceeds.

Placing of Ordinary Shares

As previously advised, at an Extraordinary General Meeting held on 10 August 2010, Shareholders approved a placing, or a 'tap issue', of 32,327,062 new ordinary shares raising gross proceeds of £12.3 million.  The new Ordinary Shares represent 9.99% of the shares in issue at a price of 38 pps, which represented a discount of 5% to the market price immediately prior to the announcement of the placing on 13 July 2010, of 40 pps.  Following the issue of the new shares, the Company has 355,921,281 Ordinary Shares in issue.

Investment Manager

On 12 October 2010, Invista Real Estate Investment Management Holdings plc ('Invista PLC'), parent company of Invista Real Estate Investment Management Limited (the 'Investment Manager'), announced that material fund management contracts run for Lloyds Banking Group PLC ('the HBOS Contracts') had been terminated on  12 months' notice.  These contracts represented £2.4 billion of Invista's total assets under management ('AuM') of £5.4 billion and approximately £5.3 million of total revenue of £13.7 million for the six months to 30 June 2010.

Invista PLC also announced that without the revenue generated from the HBOS Contracts, the interests of both clients and shareholders of Invista PLC would be best served through an orderly realisation of value from Invista's assets, including the Investment Manager's asset management business, with the proceeds of such realisations returned to shareholders in due course.

The Company also issued a statement on 12 October 2010, noting the announcement from Invista PLC and stating that the Company is in contact with the Investment Manager to discuss options for the future of the relationship in order to ensure that the Company's property portfolio continues to be managed actively and professionally and to support the continuity and stability of the current team. A further announcement will be made to shareholders in due course.

Property Portfolio and Performance

As at 30 September 2010, the Company's direct property portfolio comprised 56 properties independently valued at £320.55 million.  The direct property portfolio produces a rent of £21.6 million per annum which, based on the independent valuation, reflects a net initial yield of 6.37%. This is due to increase to 6.44% by December 2010 following expiry of contracted rent free periods totalling £0.2 million per annum. The reversionary yield of the portfolio based on the independent valuation is 7.77%. 

In addition to the rent free periods expiring over the 2010 calendar year , the Company has £2 million per annum of additional rent receivable by the end of 2012 which principally relates to ongoing rent free periods, that will materially add to income and dividend cover. 

The underlying property portfolio continues to outperform relative to its Investment Property Databank ('IPD') Benchmark.  The latest available data prepared by IPD shows that over the 12 months to 30 June 2010, the Company's directly held portfolio produced a total return of 23.1% compared with the Benchmark of 21.6%.

The following tables reflect the position based on the 30 June 2010 valuation:

Sector weightings

Sector	Weighting
Retail	25%
Offices	45%
Industrial	25%
Other	5%
Total	100%

Regional weightings

Region	Weighting
Central London	8%
South East excl. Central London	49%
Rest of South	14%
Midlands and Wales	16%
North and Scotland	13%
Total	100%

Top ten properties 

		Value (£)	%
1	Minerva House, Montague Close, London  SE1 (50% share)	27,000,000	8.4%
2	Victory House, Trafalgar Place, Brighton	23,500,000	7.3%
3	Retail Park, Churchill Way West, Salisbury, Wiltshire	15,100,000	4.7%
4	The Galaxy, Luton	14,250,000	4.4%
5	106 Oxford Road, Uxbridge	14,150,000	4.4%
6	Olympic Office Centre, Fulton Road, Wembley	12,250,000	3.8%
7	Reynard Business Park, Brentford	11,850,000	3.7%
8	Churchill Way, Basingstoke	10,900,000	3.4%
9	The Gate Centre, Syon Gate Way, Brentford	10,500,000	3.3%
10	The Portergate, Sheffield	10,200,000	3.2%
	Total as at 30 September 2010	149,700,000	46.7%

Top ten tenants

The table below sets out the top ten tenants.  Over the quarter the Company completed the letting to BUPA Insurance Services Limited.  However, the table does not include the acquisition of West Bromwich which will only be acquired by the Group on successful completion of the development, scheduled for August 2011.  On completion, the property will be let to BT plc who will become the Group's largest tenant paying £1.2 million per annum on a 15 year lease.  The lease has annual uplifts of 3% which will add to income and dividend cover.  The agreed price of £14.9 million reflects an attractive net initial yield of 7.6%.

		Rent per annum (£)	%
1	Wickes Building Supplies Limited	1,092,250	4.8%
2	Norwich Union Life and Pensions Ltd	1,039,191	4.5%
3	BUPA Insurance Services Limited1	965,000	4.2%
4	Synovate Limited2	950,000	4.1%
5	The Buckinghamshire New University3	900,000	3.9%
6	Mott MacDonald Ltd4	790,000	3.4%
7	Recticel SA	713,538	3.1%
8	The British Broadcasting Corporation	701,750	3.0%
9	Winkworth Sherwood LLP5	663,095	2.9%
10	Partners of Irwin Mitchell LLP	555,000	2.4%
	Total as at 30 September 2010	8,369,824	36.2%

¹ The lease to BUPA Insurance Services Limited has now completed with the tenant benefiting from a 19 month rent free period

² Aegis Group plc is guarantor. Figures based on 50% ownership of Minerva House

³ The Buckinghamshire New University is currently benefiting from a half rent period equating to £450,000 per annum from March 2009 which will increase to £900,000 per annum in June 2012

⁴ Mott MacDonald Group Limited are Guarantor

⁵ On assignment from Reed Smith Ramboud Charot LLP. Figures based on 50% ownership of Minerva House

Transactions and Asset Management

Negotiations continue to acquire new investments that meet the Company's objective of acquiring property with good fundamentals at an above average yield.

Progress continues to be made in connection with key asset management initiatives across the portfolio.  These include Hinckley, where the Company secured a 100,000 sq ft outline retail warehouse planning consent in 2007, and Brentford Gate Centre, where the Company is in advanced negotiations to let five warehouse units adjoining a BMW car showroom.

The Company hopes to make further announcements concerning transactions and key asset management initiatives in due course.

Market Background

The UK commercial property market recovery is slowing, with the Investment Property Databank ('IPD') Monthly Index showing a quarterly uplift to September 2010 of 0.5% compared with the quarter to June 2010 which showed an increase of 1.9%.  Although the IPD Monthly Index showed a capital value gain of 0.2% over the month of September, this was led by retail, with industrial capital values falling slightly by 0.1%.  The weakening sentiment from both institutional and retail fund investors continues to be led by ongoing  negative rental value growth and macro-economic concerns, principally relating to the potential impact of public sector spending cuts. This has been further impacted by the increasing rate of bank led disposals.    Despite these risks, the relatively high yield generated by property compared with the other asset classes means that demand for good quality, securely let assets is likely to continue.  In summary, the market is slowing and there is likely to be an increasing flow of higher yielding investment opportunities for the Company.

Joint Ventures

The Company has three joint ventures with separate non-recourse, off-balance sheet debt:

Merchant Property Unit Trust ('MPUT') - 19.5% share

The NAV of the Company's 19.5% share in MPUT as at 30 September 2010 was unchanged from June 2010 at £2.48 million.  The value of the underlying portfolio increased by £0.1 million over the quarter to £39.8 million, which reflects a net initial yield of 5.87% increasing through fixed rental uplifts to a guaranteed 6.81% by 2013.  The loan to value ratio is now 62.86% compared to a covenant of 100% which tapers down to 75% at loan maturity in 2013.  All surpluses are used for debt amortisation and the Company's NAV in MPUT is currently diluted by -£0.5 million due to a negative marked to market value of the interest rate swap. 

Crendon Industrial Partnership Limited ('CIPL') - 50% share

The NAV of the Company's 50% share in CIPL as at 30 September 2010 was £0.96 million, an increase of £0.29 million or 43% compared with June 2010.  Good progress has been made on asset management which resulted in a 1% like for like quarterly valuation increase. The NAV was also enhanced by a small part disposal of the multi-let industrial estate at a premium to the apportioned valuation.  There is no loan to value covenant prior to the loan maturity in 2013, and all surpluses are being used for debt amortisation.

Plantation Place, London EC3 - 28.2% share

The NAV of the Company's 28.2% share in Plantation Place continues to be held at nil due to net liabilities exceeding assets.  The valuation of the underlying property went up by £6 million or 1.3% to £456 million over the quarter.  The total securitised net debt secured on Plantation Place is £432.13 million which together with the negative marked to market value of the interest rate swap of -£46.4 million results in total net liabilities of £478.5 million.  The property is well let and continues to cover interest. 

Finance

Details of the Company's debt and two swaps are set out in the table below:

	Amount (£m)	Swap Rate (%)	Margin (%)	Total interest rate (%)	Swap Maturity	M2M 30/09/2010 (£m)	M2M* 30/06/2010 (£m)
Loan	62.5	5.099% Fixed	0.20	5.299	15/07/2014	(8.8)	(8.4)
Loan	111	5.713% Fixed	0.20	5.913	15/07/2016	(23.7)	(21.8)
Loan total	173.5	5.420% Fixed	0.20	5.692	N/A	(32.5)	(30.2)
Liquidity facility**	11.2	0.74 Libor***	0.662	1.39*	N/A	N/A	N/A

*    M2M or marked to market

**    Securitised debt facility has a Liquidity Facility of £11.2 million provided by Lloyds Banking Group ('Lloyds'). Liquidity Facility Agreement requires the provider to have a minimum Standard & Poor's ('S&P') credit rating of A-1+, which Lloyds breached in March 2009 when they were downgraded by S&P to A-1.  Breach requires the Liquidity Facility to be drawn down in full and placed in a blocked deposit account or alternatively a new provider put in place. Accordingly, on the 23 September 2009 the Liquidity Facility was drawn down.

***    Libor as at 15 October 2010 

Net of cash, the Company's on-balance sheet loan to value ratio is 36% against a loan to value ratio covenant of 60%.  The Company continues to have significant headroom on its Interest Cover Ratio of 217% compared with the covenant of 150%.

-ENDS-

For further information:

Invista Real Estate Investment Management Duncan Owen / Nick Montgomery	020 7153 9300
Northern Trust David Sauvarin	01481 745529
Financial Dynamics Dido Laurimore / Olivia Goodall	020 7831 3113

 

END

 

 

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